On the same day this week that Alberta’s Finance Minister provided a fiscal update that portended a worrisome economic future, the Canada Energy Regulator released a report that underscored just how serious a fiscal challenge the province faces.
If nothing else, the regulator made one thing abundantly clear: the pipeline era is over.
Alberta Premier Jason Kenney and the federal Conservative party can now stop whining about how Bill C-69 is an existential threat to pipeline development in Canada. They can also ease up on the incendiary rhetoric about how the federal government’s ban on tanker traffic off the northern coast of British Columbia is another pipeline killer. That ship has sailed.
In fact, it may well turn out that the federal Liberals’ decision to build the $12-billion Trans Mountain expansion was blindingly short-sighted, one that could end up costing taxpayers a bundle if other pipeline projects such as Enbridge’s Line 3 and the Keystone XL end up being completed. In that scenario, according to the regulator, Trans Mountain would be adding unnecessary pipeline capacity given the direction in which the world’s oil consumption is going – which is to say, definitely not up.
The regulator modelled its projections on two scenarios: one in which Canada and the world halt their pursuit of climate-change initiatives, and another in which they continue to march toward a net-zero universe by 2050. There are few betting on the first projection, especially with a Democrat about to take over in the White House.
Mind you, none of this is surprising news. There isn’t a day that goes by now that doesn’t include more bad news for the future of an industry upon which the Alberta economy is built, and from which the province – and country – has benefitted greatly. But the skies have been darkening around the fossil-fuel sector for some time now. It’s just that Mr. Kenney and others have continued to insist there is light beyond the darkness.
This week, Exxon became the latest major oil company to lower its expectations for prices over the next decade by as much as 17 per cent. Meantime, GM CEO Mary Barra announced the automaker will launch 30 new electric vehicles over the next five years as they rapidly transition to an all-electric fleet. And assuming the world continues to try and meet provisions set out in the 2015 Paris Agreement, Canada’s regulator projects oil will average about $57 (U.S.) a barrel between 2025 and 2050 – far below what the Alberta economy is used to. Others project it could average even less than that.
An increase in the federal carbon tax – almost a certainty if Canada is going to meet its zero-emissions pledge – will place additional demands on oil and gas companies already buckling under the pressure that the renewable energy sector is placing on them. The regulator imagines a reality in which the price on carbon reaches $125 a tonne by 2050, applying even greater force on oil companies to reduce their emissions, which, in turn, affects their bottom line.
It needs to be said that even under modelling in which Canada moves to meet its Paris commitments, the regulator believes fossil fuels will still make up a majority of the country’s energy mix by 2050. Yet, the report also concedes that the speed with which new technologies are disrupting conventional energy markets makes forecasting dangerous. The progress of renewables have far out-paced most projections to this point.
Today, the reality is that pipeline projects are being cancelled or delayed – likely permanently in some cases – all over the place. As energy shares continue to plunge, investors are becoming increasingly wary about plopping their money down on endeavours that take decades to pay off, at the same time as climate change policies are aggressively pushing the energy sector away from fossil fuels.
There is more exposure for investors than ever before. And in the case of Trans Mountain, those investors are Canadian taxpayers.
Tougher climate policies are increasing the borrowing costs of oil and gas companies. The environmental movement has had a profound effect on the industry. The energy market is, at this very moment, undergoing a profound transition. What is difficult to predict is the speed at which it will continue to occur. You would not get much sense of all this listening to Mr. Kenney talk about the oil industry in Alberta. He is still selling his people on a future that no longer exists.
At some point, he’s going to have to give them the straight goods. And the sooner the better.
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