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Upgrading plant at the Suncor Energy Oil Sands project near Fort McMurray, Alberta on June 13, 2017. In the foreground is the Athabasca River.Larry MacDougal/The Associated Press

The world is in the midst of a massive energy reckoning. The threat of climate change now weighs on investment decisions big and small, and the winds are shifting rapidly. Case-in-point, the International Energy Agency established in response to 1970s oil-import shortages now says there’s no need for any new oil and gas developments. It predicts low-cost OPEC oil from Africa and the Middle East will make up a much larger share of reduced global production in the decades ahead.

Last month’s report from the IEA on getting to net zero by 2050 is detailed, weighty and surprising – not so long ago the agency was calling for trillions of dollars in new oil and natural gas investments. But it’s in-step with the spirit of the age: Once ultrapowerful Big Oil companies have been reined in by courts and activist shareholders, and will be subject to many more challenges. The Biden administration’s focus on climate has given the international movement even more steam.

Despite all of this, the groundbreaking report is getting pushback – critics say it’s a mistake to posit that a world featuring a diminished cohort of Western oil producers is the clear path to reduced greenhouse gas emissions. As long as oil demand exists, there will always be someone willing to supply it, including Saudi Arabia’s and Russia’s oil-producing giants.

To step back, the Paris-based agency last month called for “nothing less than a complete transformation of how we produce, transport and consume energy” to limit the long‐term increase in average global temperatures. It’s ultra-ambitious. It entails a massive clean-energy expansion (equivalent to installing the world’s current largest solar park roughly every day) and a much-expanded global economy that uses significantly less energy than today.

Its report said as of 2021, no new oil and natural gas fields are needed – and future oil and natural gas production is likely to become the realm of an increasingly small number of low‐cost producers. Under this IEA path, the Organization of Petroleum Exporting Countries (OPEC) share of a much-reduced global oil supply increases from around 37 per cent to 50 per cent in 2050, “a level higher than at any point in the history of oil markets.”

Is it realistic the world’s biggest state-owned oil producers will heed the agency’s call that no upstream investment is needed as of the end of this year? No. As RBC analyst Michael Tran points out, Persian Gulf producers “continue to emphasize their ‘all of the above’ energy investment plans” and will actually raise their oil producing capacity in the coming years.

Why is that a problem if Gulf producers can produce low-cost oil, with much lower emissions than, say, high-intensity oil sands production from Canada? Because production is only one part of the equation. Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University, said this week that forcing oil majors to curb investment only leads to actual emissions reductions if global oil demand drops, too.

“Underinvestment creates economic, political, and geopolitical risks that could actually undermine the rapid decarbonization needed to combat the climate crisis,” he wrote in Foreign Policy magazine.

“Indeed, Saudi Aramco, Abu Dhabi National Oil Company, and Russia’s Rosneft are all investing large sums today to increase oil production, motivated not just by a desire to monetize the oil before the world no longer needs it, but even more by a belief that demand for their oil will rise as Western firms are pressured to curb investment.”

This doesn’t necessarily bode well for either real reductions in global GHG emissions, or the future of Canada’s oil sector, as it exists today. Alberta’s oil sands, which account for about two-thirds of Canada’s oil production, have higher emissions and have been the target of a series of environmental and divestment campaigns.

There are societal costs to energy transitions that can’t be ignored, either. The IEA notes that oil and gas jobs “are well paid, meaning structural changes can cause shocks for communities with impacts that persist over time.” This week, in reaction to the report, Natural Resources Minister Seamus O’Regan’s office said “the women and men of Canada’s natural resource sectors helped build this country, and they will build our low-emissions energy future.”

Canada, the world’s fourth biggest oil producer, is likely to face big challenges in a world as envisioned by the IEA. But there are signs of optimism. The report notes that “the expertise of the oil and natural gas industry fits well with technologies such as hydrogen, carbon capture utilization and storage (CCUS), and offshore wind that are needed to tackle emissions in sectors where reductions are likely to be most challenging.”

Both the federal and Alberta governments are keen to make the country a centre for increased hydrogen production and technology – and Ottawa is likely to come out with a consultation on the details of its planned tax incentive for CCUS projects this month.

Oil sands giant Suncor Energy Inc., for one, announced last month that rather than focus only on reducing its GHG emissions on a per-barrel basis, it will reduce its absolute emissions from 2019 levels by 35 per cent. It is the first major oil sands company to make such a pledge. Chief executive Mark Little said this will be done through a suite of strategies including energy efficiency, CCUS, offsets and investments in low-emission companies.

Crucially, Mr. Little said his company will not adopt a strategy of simply selling assets that produce a lot of emissions to hit net-zero targets. “Emissions are global, and the world will only get to net zero by focusing on emission reductions – not by changing who’s reporting them,” Mr. Little said.

In the next few years, oil demand could actually increase. If vaccines deliver the way we all hope they will, postpandemic exuberance and the lifting of public-health restrictions and pent-up demand for road trips, visiting family overseas and missed vacations could spur a lot of fuel consumption.

This could provide some room for oil focused economies like Alberta’s to manoeuvre, and adapt to a new world, while not being totally left out of it.

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