Canada's Economic Future Being Jeopardized by Bet on Oilsands, Former U.S. Sierra Club Head Says
Canadians will jeopardize their economic future by betting on Alberta’s oilsands to drive the country’s economy, says the former executive director of the Sierra Club in the United States.
Growing demand by China, India and African countries for inexpensive transportation fuels, coupled with increased development of shale gas, will squeeze “high-priced tarsands oil” out of the global energy market, Carl Pope told a Calgary audience in February 2012 during his first visit to the city.
“Canada is betting its entire economic future on the price of oil,” based on public comments by Canada’s consul general in San Francisco as well as a representative of TransCanada Corporation, Pope said in a talk presented by the Institute for Sustainable Energy, Environment and Economy (ISEEE) at the University of Calgary.
“If I were a Canadian, that would terrify me,” he said, adding that betting the country’s entire economic future on a single commodity price “is reckless.”
Pope participated in a public discussion that included Cassie Doyle, consul general in San Francisco and Canada’s former deputy minister of Natural Resources, and Alex Pourbaix, TransCanada’s president of energy and oil pipelines, in August 2011.
The complete discussion, presented by Climate One at The Commonwealth Club in San Francisco, is available at http://www.climate-one.org/video/cassie-doyle-oil-sands-and-canadas-carbon-targets
Pope told his Calgary audience that oil derived from Alberta’s oilsands is “the world’s most expensive oil” to produce, and is profitable only at oil prices of $80 per barrel.
Canada would have to win “eight major bets in a row” to achieve the kind of petroleum-fueled, strong economy and high standard of living that Norway currently enjoys, he said. And even if Canada wins those bets, “for every Norway there are five Venezuelas.”
“Petro dollars produce petro politics,” Pope said, pointing out that Canada has withdrawn from the international Kyoto accord to reduce greenhouse gas emissions, while Norway has not.
By betting its future economic health only on the oilsands, Canada also is betting against the “shale gas revolution” happening in the U.S. and around the world, he said.
Natural gas currently costs about one-fifth the cost of oil for the equivalent amount of energy, Pope said, adding that U.S. companies are selling their shale gas development technologies to China and India.
If only 20 per cent of the oil now being used worldwide is replaced by another fuel source, there is no future for oilsands oil at $80 per barrel, he said.
Moreover, liquid fuels aren’t necessarily needed for transportation, especially as more electric-powered vehicles come on stream and battery technology continues to improve, Pope added.
Canada’s betting only on the oilsands also assumes that the world will never put a price on carbon, he said. However, he predicted that a price on carbon will inevitably be established and, once it is, it will price oil from the oilsands out of the global energy market.
Canada’s chance of winning all eight major bets in a row are less than 20 per cent, Pope said. “There’s a very high probability the (oil) money won’t come.”
Nevertheless, the Alberta government in its budget in February 2012 forecast an expected provincial surplus of $5.2 billion by 2014-15, bolstered by $10 billion in additional resource revenues – mainly from the oilsands.
In order to achieve that surplus, the price of oil would have to rise to $108.25 per barrel by 2014-15 from current prices hovering around $100 per barrel, wrote National Post columnist Jessie Kline. (See http://fullcomment.nationalpost.com/2012/02/15/jesse-kline-albertas-huge-taxpayer-funded-gamble/).
The National Energy Board recently pegged the minimum price needed for new oilsands projects to be commercially valuable at US$85 to US$95 per barrel, according to a story in the Globe and Mail published in January 2012.
Prices wouldn’t need to retreat much from current levels of around $100 per barrel to sting investors in new projects, said Andrew Logan, head of the oil and gas program at Ceres, a Boston-based organization that promotes sustainable investment and corporate governance.
“Starting from a point of the economics being sort of relatively marginal . . . it doesn’t take a lot to slip them into the red,” Logan said. (See http://www.theglobeandmail.com/globe-investor/economics-biggest-threat-to-embattled-oil-sands/article2307229/).
But Pope told his Calgary audience that the uncertain economics for the oilsands doesn’t mean the industry should be shut down. “It just means you shouldn’t bet your (economic) future on it.”
Several audience members challenged Pope’s assertions.
One person noted that the $80-per-barrel price required to make oilsands-derived oil profitable refers only to oilsands mining operations – a point that Pope acknowledged.
Oil produced from bitumen through in situ oilsands operations rather than mining is profitable at oil prices of $40 to $50 per barrel, the audience member insisted.
About 80 per cent of Alberta’s 175 billion barrels of established oilsands reserves consist of in situ bitumen deposits.
But Pope argued that if Alberta shifts as planned to developing more new in situ oilsands plants, every barrel of oil produced will require the equivalent of one-quarter barrel of natural gas, used to make steam for the in situ process. That will drive up gas prices and increase the total cost of in situ oilsands production, he said.
Another audience member questioned whether Pope’s assertions were valid given that some observers believe the price of oil is approaching so-called peak oil prices.
Pope responded that even in with peak oil prices, there will be increased development of natural gas, especially shale gas, and other types of oil such as deep offshore sources and tight oil supplies.
“Asia and Africa cannot afford oil at peak oil prices,” he said. “They will find something else, and it won’t be imported tarsands oil.”
Pope predicted that global prices of oil and natural gas eventually will converge. But when they do, the world will have another transportation fuel and it will be gas or another source, not oil, he said.
There’s also no future in coal, Pope contended, adding that most of the efforts in the U.S. to build new “modern” coal-fired power plants that would emit fewer carbon emissions have stalled.
A new power plant in North Dakota, designed with best-available pollution controls to burn lignite coal, was mothballed immediately after it was built because coal “cannot compete” in terms of cost, Pope said.
According to a story in the Minneapolis-St. Paul StarTribune, owner Great River Energy (GRE) mothballed its new Spiritwood plant until at least 2013 for several reasons. “These included slower-than-expected growth in electricity demand, lower prices on power sales to the grid and the loss of a key industrial customer for some of the plant’s steam.” (See http://www.startribune.com/business/134647533.html).
Another audience member protested that many Albertans are tired of being painted as the “bad guy and the poster child for global warming,” simply for wanting to develop the province’s natural resources.
“I don’t think you’re the bad guys,” Pope responded. “We’re all in this mess together,” he said, adding that the U.S. is the world’s worst offender in responding to climate change.
However, people in the U.S. are paying a lot more attention to the oilsands because of TransCanada’s decision to build the Keystone XL pipeline and make the U.S. a part of the oilsands supply chain in an unprecedented way, Pope said.
Another factor driving the debate in the U.S. and internationally is the stated aspirations of Canada’s oilsands producers about how big they want to grow the industry and how much oilsands they want to produce, he added.
The Canadian Association of Petroleum Producers forecasts that Canada’s oilsands production will grow to 3.5 million barrels per day by 2025, compared with 1.5 million b/d in 2010.
By 2025, oilsands will represent more than 80 per cent of Canada’s total Canadian crude oil production of 4.3 million b/d, according to CAPP’s forecast. (See http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/2010-Oil-Forecast.aspx).
Pope took issue with Prime Minister Stephen Harper and Natural Resources Minister Joe Oliver’s complaints that foreign money is being used by “radical” opponents in the U.S. to “hijack” public hearings into proposed energy developments such as TransCanada’s Keystone XL pipeline and Enbridge Inc.’s Northern Gateway pipeline through B.C.
The reality, Pope said – illustrating his point with a slide – is that most of the lobbying money is flowing south from Canada to the U.S., including $410,000 that TransCanada spent in during the last three months of 2011 on federal lobbying for its Keystone XL pipeline.
Altogether, TransCanada paid $1.33 million on lobbying in Washington, D.C. in 2011, according to a story in the Huffington Post. (See http://www.huffingtonpost.com/corbin-hiar/keystone-xl-lobbying-transcanada_b_1232340.html). TransCanada says that not all that money was spent on lobbying for the Keystone XL pipeline.
Pope told his Calgary audience that he doesn’t agree with some critics who have called the oilsands the worst industrial evil in the world.
Yet while he was still the Sierra Club’s executive director, Pope was quoted as describing the oilsands as “one of the most destructive projects on earth.” (See http://dirtyoilsands.org/news/article/environmentalists_see_oilsands_in_avatar).
In an opinion piece published in The Register Citizen in Connecticut two days before his talk in Calgary, Pope wrote that Alberta “is home to a form of oil that’s considered the dirtiest on earth . . . If we allow this massive project to creep across our border, it will lock America into dependence on yet another foreign source of oil, just as our local, homegrown clean energy industry is beginning to thrive.” (See http://www.registercitizen.com/articles/2010/02/14/opinion/doc4b777a1b4d109813606986.txt).
Pope said that his message to his Calgary audience was to urge Canadians to consider how much oilsands they want produced and whether they want to bet their economic future on the industry, because “even if you win the bet, you may regret it.” EnviroLine
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