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Thomas Gunton is the director of the Resource and Environmental Planning Program, Simon Fraser University and former deputy minister of environment for B.C.

The response to Teck’s decision to shelve its oil sands mine is predictable. According to Premier Jason Kenney, Teck’s decision is just another example of the federal government’s anti-investment policy. If only Ottawa would change its ways, the rationale goes, then all would be well in the oil sector again.

This response misses the fact that the oil sector is in the midst of a structural change driven by international market forces and climate policies that are constraining future growth in Alberta’s oil sector.

The trend began with the decline in oil prices from around $100 a barrel in 2014 to an average of $60 in 2019. Alberta is among the highest cost oil producers in the world and, not surprisingly, this price reduction dampened investment significantly.

The International Energy Agency’s (IEA) recent 2019 forecasts suggest that oil markets will remain weak. One IEA forecast based on existing and proposed policies predicts relatively slow growth in oil demand from 2018 to 2030 followed by virtually no growth from 2030 onward. Under this scenario, the IEA forecasts very little growth in Canadian production from 2018 to 2040 beyond completion of existing projects under construction.

A second and more relevant IEA forecast based on meeting the Paris climate change objectives predicts a significant decline in oil demand from 2018 to 2030 of 10 per cent and a further decline of 23 per cent to 2040.

This decline in demand is good news for reducing climate change but will have significant implications for the fossil fuel industry. In a recent report just released in January of this year, the IEA warns that these structural changes could result in the energy sector losing more than $900-billion in wasted investment in new projects based on erroneous assumptions of perpetual growth in oil demand.

The IEA cautions that if energy companies want to prosper, they need to diversify away from fossil fuels and embrace the transition to a cleaner energy world. Companies will need to continue to supply fossil fuels during this transition, but the companies that make the transition to clean energy will be the ones that survive.

Teck no doubt is aware of these trends and that is the principal reason why it shelved its high-risk project. Teck realized that its price forecast of $95 a barrel used in its application was no longer valid when other agencies such as the National Energy Board are forecasting prices of $71 a barrel. In fact, Teck just wrote off $900-million in one of its operating projects due to weak oil markets. Kinder Morgan also concluded that its proposed Trans Mountain pipeline was a high-risk investment because of the more than doubling of capital costs, weakening oil production forecasts and the emergence of lower cost pipeline options such as Enbridge’s Line 3.

Hopefully Canadian governments will also recognize these structural changes in energy markets and avoid promoting high risk investments in fossil fuel infrastructure that will leave a legacy of uneconomic investments, public debt and higher emissions.

Despite these structural changes, the oil sector will remain an important part of the Canadian economy and some initiatives to address concerns in the oil sector are warranted. For example, some new pipeline capacity currently being built by Enbridge is required to meet the needs of the industry and avoid price discounts. But the federal government’s decision to double down by investing some $17-billion in projects such as the Kinder Morgan pipeline and Alberta’s announcement in its recent throne speech that it will invest public funds into oil projects in the face of weakening demand is a recipe for economic decline.

The private sector is beginning to realize the need for alternative strategies not based on unrealistic fossil fuel growth assumptions and Canadian governments need to do the same. The oil boom is over, and it is time to manage a transition to a cleaner energy strategy that does not depend on fossil fuels and the erroneous assumption that the boom will return if only we build another few pipelines or weaken our climate change policies.

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