Peter Foster: Why threats to Canada's oil industry may be even worse next year

Regarding the Canadian oil industry, next year may be even worse.

The main problem through 2015 was the impact of the slump in global oil prices on high-cost oil sands production, exacerbated by discounts on exports to the U.S. due to pipeline constraints. That price slump was due to a combination of the technological revolution in production of tight oil in the U.S., and Saudi Arabia's refusal – for whatever reason — to withdraw production. The claim that the Saudis sought to “maintain market share” has never made much sense. If cutting 2 million barrels a day from their 10 mbd production world lead to an increase of more than 20 per cent, which it almost certainly would, then such action would appear to be the proverbial no-brainer. The Saudis are not without brains, so their action remains puzzling.

The contention that they are trying to force out higher cost producers doesn't make much sense either, at least when it comes to the shale revolution, because not only have the shale producers done a typically remarkable job of cutting costs, but when prices rise, they will quickly be back. Meanwhile the tight oil revolution has still to spread through the rest of the world.

Oilsands producers are in a much more difficult position because plants involve massive long-term investment. Many such investments have been shelved. The resultant alleged death of Canada as an “Energy Superpower” was a major talking point in this year's federal election, since the phrase was associated with former Conservative Prime Minister Stephen Harper, who was unfairly claimed to have put all Canada's economic eggs in one basket.

Harper's priority was in fact to expedite the process of pipeline approval, which opponents of the oilsands had turned into a form of trench warfare. He failed miserably, and was comprehensively trounced by the vast group of interrelated environmental non-governmental organizations (ENGOs) who have emerged as the true (anti-development) superpower.

Their greatest victory was President Obama's dumping of Keystone XL on the flimsiest of pretexts, but they are also standing over the prone proposals of Northern Gateway, the twinning of Transmountain, and Energy East. Northern Gateway may in fact have been killed by the new Liberal government's tanker ban off the northern B.C. coast.

The ENGO rationalization for halting the oilsands is that they produce “dirty” oil, that is, oil with higher-than-average emissions of CO2, the trace gas that is claimed to drive climate change.

In fact, the CO2 emissions of the oil sands are minuscule when set against global levels. Closing down the oil sands would have no impact on global climate (although it might allow locals to live in more environmentally-pristine poverty).

Ironically, given how much “lower for longer” oil prices are likely to be, ENGOs might have prevented pipelines that may ultimately not be needed (except in the case of Keystone XL). Showing typical ingenuity, the industry has switched a lot of export capacity to rail, but rail is more expensive, and thus less economic.

Not only did the industry lose what slim support it had with the defeat of the federal Conservatives. Even worse was the election in Alberta of Rachel Notley's NDP, which proceeded to raise corporate taxes and carbon levies, and still threatens to hoist royalties.

A major split in the industry became apparent when the heads of four companies — Canadian Natural Resources, Suncor, Cenovus and Shell Canada — appeared on the platform with Premier Rachel Notley to praise her climate policy.

One surprising element of that policy – championed by the Gang of Four — was a hard cap on oilsands emissions, a move that amounted to the industry ostensibly agreeing to strand its own assets.

The cap had apparently come about as a result of the government “brokering” a deal between the oil companies and ENGOs, who reportedly promised to ease up on flogging the now moribund horse of oil sands expansion.

While this entente was maintained as being a step towards the industry gaining “social licence” for export pipelines, nobody explained who had given the ENGOs their own social licence.

The extraordinary rise of the ENGOs over the past quarter century can be traced back to the strategy of a Canadian who died towards the end of the year, Maurice Strong. Strong, widely recognized as the godfather of the radical environmental movement, had been instrumental  in letting ENGOs into international fora, particularly the UN, as a means of doing an end run around democratic governments.

The additional threat for the Canadian oil industry in 2016 is that the Liberal government of Justin Trudeau may, in the wake of the Great Climate Hypocrisy in Paris, actually follow through with rash commitments further to hobble the industry – and the economy – with some form of additional carbon tax on top of the ecofiscal witches' brew of provincial policies already in place, or threatened.

The Liberals have suggested that they plan to treat the Conservatives' commitment of a 30 per cent reduction in emissions by 2030 relative to 2005 as a base, but the fact is that Conservatives did not have the slightest idea how the 30 per cent might be reached, except via economic collapse.

Another of the fingers-crossed commitments to emerge from Paris – which had essentially been left over from Copenhagen in 2009 – was that developed countries would pour $100 billion annually into green foreign aid.

Significantly, the 2015 Nobel Prize in economics went to Angus Deaton, a man who said that development aid was counterproductive, and should stop. The new top down green version threatens even more harm by insisting that development be wind and solar powered. Smart developing countries will stick with cheap coal, oil and gas. That is good news for a global economy still threatened by climate derangement and a Green Depression.

You may also like