What has changed since 2020 is urgency for Alberta oil and gas pivot to low-carbon business models
We’ve all seen the “I heart oil sands” hoodies. Alberta politicians are especially fond of them. Every one of those hoody owners will be shocked to learn that they are actually working against the best interests of the oil and gas industry.
Well, what are the best interests of Alberta oil companies?
In the short-term, protecting the status quo in order to maximize the high prices that international consultancy Wood Mackenzie says are likely to persist until 2030. This is consistent with the International Energy Agency’s most recent World Energy Outlook that forecasts all fossil fuel demand will peak by the end of this decade.
What happens next is the beginning of the end for oil and gas.
Demand will likely plateau for a few years, maybe more, buoyed by rising consumption in the aviation and petrochemical sectors. Then decline will set it. How steep will the decline curve be? OPEC says slow. The IEA says moderately fast. Analysts like BloombergNEF says pretty quickly.
The point is that we don’t know for certain. What we do know is that Alberta hydrocarbons face an existential threat. Timing is the only issue to be determined.
Not surprisingly, oil companies are making hay while the sun shines. Last year, Canadian producers generated record profits of $38 billion. Oil sands companies, in particular, have driven down operating costs and breakevens. They’re not the lowest cost producers on the planet, that would be the Saudis, but they’re competitive and plan to be even more so in the near future.
The status quo works really, really well for Canadian oil companies right now. But those same companies face a wee problem.
Energy transitions advance very slowly for decades. Then, when the new energy technologies become competitive, there is a decade or so of intense disruption, followed by exponential growth as the new pushes the oil out of the market over two three decades. My model is simplistic, but basically fits the evidence of this transition.
The wee problem is that we’re now in the disruptive decade. The world is electrifying everything. Transportation with electric vehicles, buildings with heat pumps and energy efficiency measures, even the hard to abate industries like steel making are getting on board. And the adoption rates for clean electricity tech like wind, solar, batteries is off the charts.
China is driving the energy transition by scaling up both the adoption of clean energy technologies and their manufacture. The United States and Europe have been forced to commit hundreds of billions, soon to be trillions, to catch China. The result is a global clean energy arms race.
Consequently, the global energy system is being re-engineered in real time.
Wood Mackenzie recommends to its oil company clients that they take this time, and their big fat profits, to invest in low-carbon business models. This is brilliant advice that almost no Big Oil CEO on the planet is following. In fact, those CEOs are chasing fat profits and huge returns to shareholders instead while cancelling or severely curtailing energy transition investments.
Which, a bit belatedly, I admit, gets us back to “I heart oil sands” hoodies.
Climate policy will help determine the pace of the energy transition. Policy in large part depends upon political support. The oil and gas narrative machine helps erode support for Canadian political support for climate policy. That, in turn, shields the oil and gas sector from policy and market signals to begin the pivot to low-carbon sooner rather than later.
The hoody wearers are ironically working against that pivot, which is in the best interest of the industry they purport to support.
This isn’t the first time I’ve made this argument. Four years ago I suggested that boosters burn their “I heart oil sands” hoodies and buy new ones with slogans like “I heart oil and gas’ pivot to the low-carbon future.” I was right then and I’m right now.
What has changed since 2019 is the urgency for Alberta oil and gas to make the pivot. And I have no doubt that I’ll be writing a column in 2027 making the same argument and the urgency will be even more acute.
Will Alberta ever change?