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Energy and Resources Canadian oil reserves at risk from policies to combat global warming, report warns

Suncor's base plant with upgraders in the oil sands in Fort McMurray Alta, on June 13, 2017.

JASON FRANSON

Canada’s oil companies face long-term risks to the value of their reserves from the global effort to combat climate change, and should be required to disclose those risks to investors, an international think tank said on Wednesday.

Mandatory reporting of climate-related financial risk would help prospective investors account for the long-term impact that climate-change policies will have on companies’ profitability, Céline Bak, a senior fellow with the Winnipeg-based International Institute for Sustainable Development, said in releasing a report on climate disclosure on Wednesday.

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In an interview, Ms. Bak said those risks should be considered by First Nations communities who are deciding whether to seek an ownership stake in the Trans Mountain pipeline, which the Alberta-based oil industry hopes to see expanded to carry nearly 900,000 barrels a day of crude to the West Coast for the next 40 years. To date, the government of Canada – which owns the Trans Mountain system – has not conducted an analysis of how an international effort to avert the worst effects of global warming would affect the pipeline’s long-term profitability.

“We absolutely should be doing that because otherwise we would be committing a gross disservice to First Nations communities who otherwise may not have the capacity to undertake such analysis themselves,” said Ms. Bak, a consultant who does international research on climate-related finance.

The institute’s report builds on work done by Bank of England Governor Mark Carney and Bloomberg LLP founder Michael Bloomberg, who collaborated to produce recommendations on a voluntary system of climate-related financial-risk disclosure. Major energy companies, including Canada’s top oil sands producers, already produce such analysis but there is no set format and many smaller companies do not include climate risk in their financial reporting.

This week, Britain’s Barclays Bank released an energy and climate policy that sets tough guidelines for any lending or investment in oil sands companies or pipelines. Barclays said it will limit its business to companies that can demonstrate a continuous reduction of emission intensity of their operations and provide clear disclosure of the risks to their business model posed by climate change.

Ms. Bak’s report urged the federal and provincial governments to require mandatory disclosure to accelerate the shift of investments from high-carbon energy sources to clean-tech companies that have trouble attracting capital. It warned that a successful effort to limit the increase in global temperatures to less than 2 C above preindustrial levels could have a significant impact on global oil demand and prices. As a result, Canadian companies face a long-term threat to the value of their reserves, it concluded.

About 49 oil and gas companies operating in Canada disclosed 43 billion barrels of proven and probable reserves on their 2016 financial statements, according to Ms. Bak. But a quarter of those reserves would have to remain in the ground if the world is going to limit global warming to two degrees, and only half the reserves would be exploitable if a 1.5-degree goal is to be met, she concluded. The potential loss could exceed $120-billion, she said.

A number of Canadian oil companies are leaders in the field of climate-related financial disclosure, Ms. Bak said, singling out Suncor Energy Corp., which has issued a report saying it could continue to produce crude under a two-degree scenario, but it would not be able to grow.

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Suncor spokeswoman Sneh Seetal on Wednesday provided a opinion piece written last year by chief executive Steve Williams, setting out the company’s support for voluntary disclosure. “Ultimately, for the oil and gas sector, disclosure is about taking the reins when it comes to our own destiny, confronting uncertainty and doubt with clarity and vision. For that reason alone, we should be ready and willing to embrace it,” Mr. Williams said in that op-ed.

Calgary-based economist Jackie Forrest said investors are increasingly demanding rigorous risk disclosure and most major oil companies are already providing it, while the trend is only intensifying. With regard to the potential for stranded assets, high-cost, high-carbon supply “probably going to be more susceptible to not being produced in the future” than those that are lower cost and lower carbon, said Ms. Forrest, a senior director with ARC Energy Research Institute.

The Canadian Association of Petroleum Producers (CAPP) would not comment on the report. Nor did it provide any comment on suggestions that some Canadian oil reserves will be stranded if the world succeeds in meeting the global warming target that was endorsed by Paris climate agreement in 2015. In its 2018 forecast, CAPP said oil sands production will grow to 4.2 million barrels a day by 2035 from 2.65 million in 2017; the association expects global crude demand to continue to rise in the coming decades based on growth in emerging markets..

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