In The Carbon Bubble, Jeff Rubin explores how the very climate change that will leave much of the country’s carbon unburnable could at the same time make some of Canada’s other resource assets more valuable: our water and our land. Rubin was chief economist and chief strategist at CIBC World Markets where he worked for over 20 years. Below, Jeff writes for The Globe and Mail on the need for a new Canadian energy strategy:
The national energy strategy just mapped out by Canada’s premiers contemplates, among other things, how to speed up the approval process for interprovincial pipelines. Even as the agreement was being hashed out, however, attention was already turning to a burst pipeline at Nexen’s Long Lake oil sands site that spilled 31,000 barrels of bitumen, sand and salty water into the surrounding muskeg.
Talk about a symbolically bad omen.
A major new pipeline project, as last week’s spill on a much smaller line illustrates, carries any number of risks to the environment. As for an already glutted world oil market, the price of crude would seem to be talking loudly enough for even the most tone deaf of oil companies to hear. Investing in new oil sands projects to feed the slate of proposed pipeline projects makes little sense when market prices, particularly those for Western Canadian Select, are well below the amount needed to cover the costs of new projects let alone that of existing production.
The premiers of Canada’s oil-producing provinces might not get it yet, but investors sure do. They continue to bail out of oil sands stocks, which are down by 70 per cent in the last seven years. Indeed, the latest down draft for the sector has now taken its value back below the lows reached during the Great Recession.
For its part, the Bank of Canada has now cut interest rates twice in the last six months. Governor Stephen Poloz may be diplomatically terming the first half of the year – which has seen back-to-back quarters of an oil-inspired decline in GDP – a contraction, but that’s just semantics. By its actions, the central bank shows it clearly understands the pressing role a devalued loonie will have to play in boosting non-energy exports, as contributions from the oil economy continue to fade in the coming years.
Canada’s premiers, however, are one group that appears to have missed the memo. It’s time for them to let go of their provinces’ carbon-etched pasts in favour of preparing for a greener economic future. They need to understand that lower oil prices aren’t a temporary market glitch, but rather a harbinger of what’s to come.
Oversupplied global crude markets certainly aren’t clearing up any time soon. Iran alone has a million barrels currently embargoed by sanctions just waiting to come on to the market. After that, the country’s daily production is set to double and perhaps even triple in relatively short order. As for demand, global economic growth is running at roughly half of where it was a decade ago. And even that meagre rate is beginning to look suspect given the cracks that are starting to appear in China’s faltering economy.
If such bearish supply and demand conditions aren’t daunting enough, consider what else is in store. A global awareness of climate change and the recognition that the endless combustion of fossil fuels is unsustainable is changing the game for the oil industry. If the planet is to avert the worst scenarios for climate change, the optimistic long-run forecasts for oil demand growth put forward by energy giants such as Exxon can be thrown out the window.
What will be left? Quite simply, the world will be burning less oil, less coal, and maybe even less natural gas.
In that coming reality, new Alberta Premier Rachel Notley, as well as the province’s taxpayers, should be more concerned about who will pick up the tab for cleaning up abandoned wells and decommissioned oil sands mines, as opposed to trying to get new pipelines built.
Canada does need a national energy strategy, but not one that’s focused on fast-tracking pipelines. The next time the premiers huddle together they should start talking about how to wean our economy off its over-reliance on high-cost carbon fuels that the rest of the world has little need for today and will need even less of tomorrow.