Global Oil Demand and Oilsands Caps

Alberta OIlsands Emissions

This week saw a report from a group that is advising the Alberta government on implementation of a policy to cap greenhouse gas emissions from the Alberta oilsands at 100 megatonnes a year.

The advisory committee’s report proposes some early actions to use improved technology, preparation of GHG emission plans, and reduce the requirement extract oilsands for difficult formations. The committee also proposes an early warning system that would trigger potential regulatory changes should the emission levels reach 85% of the target.

This and other measures are in aid of the NDP goal to transform Alberta into a leader on climate change. And these measures have a negative impact on Alberta competitive position as an energy producer.

Albertans don’t lack hubris, we have been known to fail to pay attention to the global realities. While Alberta seeks to do it part to fight global warming, how does that square with the direction of the global energy market place? 

BP Global Energy Long Term Outlook

Within the energy sector BP is an acknowledged leader in thinking about the future. They recently produced a long term outlook for the market

The highlights include:

  • In the base case, world GDP almost doubles by 2035 driven by fast growing emerging economies, as more than 2 billion people are lifted from low incomes.
  • This rising prosperity drives an increase in global energy demand. This demand will be offset in part by energy efficiency, but overall energy demand will increase by around 30%.
  • The fuel mix continues to adjust, although oil and gas, together with coal, remain the dominant sources of energy. Renewables, with nuclear and hydroelectric power, provide half of the additional energy required out to 2035.
  • Oil demand is expected to grow at a slower pace than in the past. Oil, gas and coal remain the dominant sources of energy powering the world economy, accounting for more than three-quarters of total energy supplies in 2035.
  • Global proved oil reserves have more than doubled over the past 35 years: for every barrel of oil consumed more than two new barrels have been discovered.
  • Low cost producers will respond to global resource abundance by increasing their share of production.

Alberta Competitive Position

Alberta’s resources are vast but not low cost. The Canadian Association of Petroleum Producers forecasts oilsands output will reach 3.67 million barrels per day by 2030, down substantially from estimates before the advent of abundant low cost US shale competition.

The layer cake of regulations and drive to reduce GHG emissions make Alberta even less competitive.

As for the impact on competitiveness of the oilsands emissions targets, there will be costs to improve technology that may not translate into improved bottom line for industry. Some oilsands will not be developed. The Fraser Institute estimated the cumulative value of production that will not go forward to be in the order of $150 to $250 billion dollars.

The Bottom Line:

We might be suffering from some wishful thinking about our impact on climate and our competitive position within a global context. Major international oilsands players are leaving the oilsands. Multi-nationals have sold $22.5 billion in oilsands assets, as they shift away from Alberta.

Severely Normal Albertans ought to be thinking about when is the right time for a major independent analysis of the balancing act we must perform is we are to remain competitive in the long term.