In his first foreign speech as prime minister, Stephen Harper told the Canada-U.K. Chamber of Commerce that Canada was emerging as “a global energy powerhouse — the emerging energy superpower our government intends to build.”
Development of the vast Alberta oilsands, Harper said in his July 2006 speech, was “an enterprise of epic proportions, akin to the building of the pyramids or China’s Great Wall.”
This was Harper’s vision for Canada.
The Liberals enthusiastically followed in early 2009, when Michael Ignatieff declared the oilsands were our great trump card when dealing with the Americans. “We provide more oil to the United States than Saudi Arabia. That changes everything,” Ignatieff trumpeted. “It means that when the prime minister of Canada goes into the White House, he gets listened to in ways that Canadian prime ministers have not been listened to before” because “they can’t run their economy without us.”
How times have changed — and in less than a decade.
Now we face a world where we could have more oil than we need, favouring the lowest-cost producers. It’s a world where shale oil has great potential to meet the growth in future oil needs while changing technology will continue shrinking our need for oil. This changing world, in turn, implies future declines in oil prices and big challenges for high-cost projects.
In the meantime, the current high oil price is fostering fuel substitution, such as the use of natural gas in vehicles, while making hybrid and electric vehicles more attractive, as well as driving rapid development of more efficient and cheaper solar and other renewable energies. So is the oilsands game over, or at least facing more cautious growth?
Will Canada’s oilsands plants become white elephants? Will financial markets bring a harsh new dose of reality? And will governments have to rethink future tax and royalty revenues? Michele della Vigna of investment bank Goldman Sachs estimates that about US$700 billion of planned spending by oil companies on high-cost projects around the world may have to be cancelled because the oil will not be needed. Asked where projects were most vulnerable, he named Angola, Nigeria and Canada. Cheaper and plentiful shale oil production will likely displace oil projects if they are unable to break even at a price above Brent oil price in the US$85 to US$95 a barrel range, compared to an expected US$108 a barrel this year.
A report from Carbon Tracker, a financial think tank that tracks energy markets, also warns that many planned but high-cost oil industry projects are likely to be cancelled. It focused only on projects planned by major multinational oil companies that it said would need a market price of US$95 a barrel to go ahead. Of the 20 largest worldwide projects that were “prime targets for cancellation,” nine were in Canada, with eight in the oilsands and one in the Arctic. And just a few days ago, Citigroup Global Markets warned that “the energy industry is going through a period of extreme flux and this shows no signs of abating.” Like Goldman Sachs experts, the Citigroup analysts were optimistic on expanded shale oil production. Technology is also accelerating a reduction in our need for oil, Citigroup said. The transportation sector, which accounts for 57 per cent of oil demand, is continuing to benefit from improving efficiency and emissions standards, encouraging the development of improved natural gas, hybrids, electric vehicles and fuel cell vehicles. Renewables, particularly solar, are falling dramatically in price while becoming more efficient.
In another just-released report, the International Energy Agency says that renewable power generation in 2013 accounted for about 22 per cent of the global energy mix, compared to 18 per cent in 2007. Investment in renewables last year totalled about US$250 billion and renewable power generation is projected to continue to grow strongly. Renewables are becoming increasingly cost competitive, reducing the need for subsidies. There has been much discussion over the past decade about developing a national energy strategy in Canada but heavily focused on how to sell more oil. However, a true national energy strategy has to be set within a carbon budget and support development and use of a wide range of clean and cost-competitive energy choices. If we really want to be an energy superpower, then we have to lead in the transition to a low carbon economy.
Clearly we are not an energy superpower today, nor even an emerging one.
Economist David Crane is a syndicated Toronto Star columnist. He can be reached at email@example.com.