Oil production in Alberta has never been higher – output almost reached 4 million barrels a day last November, led by the oil sands. It is why Canada’s exports to the United States have doubled since 2005, winning market share from the likes of Mexico and Saudi Arabia.
The roots of this rapid growth extend back more than half a century and are marked by technological innovation, industry-government collaboration, and long-range foresight. Government support was key and in the 1970s it helped get one of the first two oil sands mines built. In the mid-1990s Alberta and Ottawa offered major tax and royalty breaks that helped spur a boom that led to the present.
Turning all that bitumen into one of the world’s largest oil fields was yesterday’s technical and public policy riddle. Today, a new round of innovation, collaboration and foresight is necessary. The challenge is twofold: reducing voluminous greenhouse gas emissions as fast as possible, and preparing for a decrease in demand for the oil that has so enriched Alberta and Canada.
BP last week, in its annual energy outlook, forecast peak global demand for oil at current levels, about 100 million b/d, with declines starting as early as 2025. In richer countries – with surging demand for zero-emission vehicles – BP predicted demand would decline more quickly. Consider the U.S.: Americans’ demand for oil actually peaked long ago, in 2005. It has since remained near that mark but hasn’t climbed higher. Some forecasts suggest the new U.S. climate law, the Inflation Reduction Act, with incentives for EVs and renewable power, could shave 10 per cent off American oil demand by 2030. California last year instituted rules that require two-thirds of new car sales in 2030 to be zero emission, rising to all new sales by 2035. When other states that will use the same rules are included, that covers 40 per cent of the U.S. population.
Two-thirds of oil in America is burned for transportation. The U.S., a voracious consumer, is also a leading producer, supplying about 60 per cent of its own demand. Canada faces a reality where its biggest customer becomes its biggest competitor.
In forecasts of falling demand, it is often said Canada will be in trouble, because high-cost oil sands will struggle to compete. That simplistic take is wrong. Oil sands projects are expensive to build but once operating can compete at lower prices. A C.D. Howe Institute analysis shows most of the oil sands is viable at $50 a barrel – and should be resilient under pressure compared with drilling for new barrels in Texas.
That’s the positive outlook. There’s also the nearing-completion Trans Mountain pipeline expansion, which will triple potential exports to Asia. But there are longer-term demand challenges. An analysis by the International Institute for Sustainable Development said Canada will at first be insulated from lower demand, with buyers in the U.S. Midwest that rely on the oil sands, but argued that because of cheap oil from the Middle East, compared with Alberta or Texas, the “post-peak market for oil will be savage.”
Preparing for the oil sands future – like the 1970s, like the 1990s – is essential, and slashing emissions is the mission. The potential emergence of carbon border tariffs – import taxes on dirty oil and other emissions-heavy products – means Canada could find advantage against cheaper oil by lowering oil sands emissions. The oil sands companies have pledged a cut of one-third by 2030 and net zero by 2050. This page has argued before: Why not 2040? Government backing will play a role. Ottawa last year put $7-billion of subsidies for carbon capture in the federal budget through 2030 and some more is likely.
There are some fears about a cap on domestic oil emissions. That forgets the fact they should not rise any further and also that oil industry emissions appear to have already peaked in the mid-2010s, with big declines promised by 2030. The Liberals last year also promised there would be no forced production cuts that are “not driven by declines in global demand.” Beyond the usual provincial-federal debates, the agreed-on urgency is lower emissions: the oil sands companies have said their future depends on it.
From the beginning, the oil sands required collaborative innovation. That reality is unchanged. The task today is driving down emissions. The even bigger challenge in the decades ahead is how Canada adapts as demand for its No. 1 export falls lower each year.