Canada’s oil and gas industry is particularly vulnerable to drops in global oil demand and price, making it increasingly risky to further expand fossil fuel extraction, according to a new analysis from the Stockholm Environment Institute.
The analysis looks at long-term market trends and finds that many of Canada’s oil and gas producers will likely have trouble competing with other, lower-cost producers. New oil fields – particularly new oil sands projects, plus yet-to-be-discovered shale and tight oil resources in Alberta, British Columbia, and Saskatchewan – would require oil prices that are well over US$80 a barrel to be financially viable. Existing oil fields are resilient enough to survive prices as low as US$40/barrel.
The analysis comes as the COVID-19 pandemic upends global oil markets and drives prices to all-time lows. The authors look further ahead, analyzing how oil consumption and prices will settle when economies emerge from the effects of the COVID crisis – and what that will mean for Canadian oil and gas.
“It would be a mistake to hitch Canada’s recovery and future economic prospects to fossil fuel production,” said Peter Erickson, SEI Senior Scientist and co-author of the analysis. “Further subsidizing new oil and gas extraction or infrastructure, as has been proposed, would be a misguided use of public funds and could leave communities no better than they are in the current economic crisis.”
The analysis finds that existing oil sands projects are more resilient than not-yet-producing ones: such projects could withstand oil prices as low as $40 per barrel. But an evolving oil market – and indications of a long-term decline in demand – could even render some of these existing projects too costly to produce.
The situation is even more risky for liquefied natural gas. Canada expects to increase natural gas production over the next decade, in large part for export; the LNG Canada project, currently under construction, could export close to 1 trillion cubic feet of gas annually by 2030.
But today’s analysis finds that LNG Canada has only a “very narrow” path to succeed and turn a profit. If gas demand in the Pacific market if just 5% lower than recent forecasts – a strong possibility, given the significant uncertainty of such forecasts – LNG Canada could be out of the money.
Such oil and gas investment appears even more risky when factoring in climate change and Canada’s long-term, “net zero” greenhouse gas emissions targets.
“Further expansion of oil and gas pushes Canada in the wrong direction, away from meeting climate limits,” said analysis co-author and SEI US Center Director Michael Lazarus. “To meet climate goals, policymakers should untangle the country from fossil fuel dependence, break carbon lock-in, and pursue more resilient pathways for economic recovery.”
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Peter Erickson, Senior Scientist, SEI’s US Center, email@example.com
Michael Lazarus, Senior Scientist and Center Director, SEI’s US Center, firstname.lastname@example.org
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