Ever since Alberta Premier Jason Kenney returned to the province to forge a union between competing conservative factions and sweep to power in the 2019 election, there has been one topic near and dear to his heart: convincing the world to transition from “dictator oil” to what he dubs the more responsibly produced Alberta alternative.
When announcing the team that would help him establish the Canadian Energy Centre, commonly known as the “war room,” Kenney called the fight for the industry’s image a “moral cause.”
So it’s no surprise Kenney and the province’s oil and gas boosters wasted no time in using the invasion of Ukraine as an opportunity to call for more Canadian oil and gas production to replace Russian supply — a move proponents claim would starve Vladimir Putin’s war machine.
That war machine is fed handsomely by the country’s energy dominance. According to the International Energy Agency, Russia is the world’s largest exporter of oil to global markets — and nearly two thirds of the country’s oil exports go to Europe, a region which also relied on Russia for a third of its gas supplies in 2021.
Kenney isn’t alone in his calls to reduce dependence on Russia’s oil and gas. Since the first day of the conflict, a chorus of voices in the U.S. and across the world have called for increased investment in oil and gas in light of the invasion — a chorus cheered as timely by some and jeered as opportunistic by others.
Beyond the bluster, there’s a complex debate about the future of energy supplies and energy security. Everyone is now grappling with charting a path forward in a world suddenly walking away from the second-biggest global supplier of fossil fuels, while also facing growing calls to radically accelerate the shift away from oil and gas and not lose sight of the climate crisis.
But before all that, there is the eternal question of supply and demand.
As Russian forces continue to advance into Ukraine, Russia finds itself increasingly cut off from the rest of the world, including from a primary source of its wealth and power — oil and gas.
In 2021, revenues from the sector accounted for 36 per cent of Russia’s national budget.
Countries are busy imposing sanctions and customers are fleeing Russia’s energy products while seeking out new suppliers. Energy companies are walking away from their Russian investments.
It is this dynamic that Kenney and backers of Canada’s energy sector seek to exploit.
To make a significant dent in the global market, Canada, and Alberta in particular, would have to quickly ramp up production and seek increased North American transport capacity — in the form of pipelines or rail.
Richard Masson, a fellow at the University of Calgary’s School of Public Policy and current chief commercial office for Fractal Systems — a company that works on bitumen transportation solutions — thinks Canada could increase production to help fill at least some of that void.
The option of funneling that supply straight to Europe is not realistic, he said, but increasing supply on the international market and getting it to Gulf Coast refineries could be.
“If I look at what forecasters think … they would expect production to grow by 100,000 barrels a day per year, till 2030, on average,” he said. “So 3.3 million this year, 3.4 million next year.”
Masson says Alberta could potentially squeeze more out of existing projects by finding efficiencies, but to ramp up capacity significantly would require investments that would take two to four years to make a difference. That’s a long-term option that comes with its own set of pitfalls in a world transitioning away from fossil fuels.
That supply could travel through existing pipelines down to the Gulf Coast and could replace some of the heavy crude imported to those refineries from Russia, he said.
Filling some of that void could also help to soften the blow of increasing oil and gas prices, which were already soaring before Russia invaded, and are likely to remain high as supply is constrained. Those high prices will have an undue impact on developing countries and those with the least money in the developed world.
Increasing the supply of gas from Canada would face bigger challenges, with some, including Canada’s Conservative party, calling for the construction of more pipelines to carry gas east to help feed Europe — but ignoring how long it would take to approve a project, let alone build one. There is just one liquefied natural gas export facility under construction in Canada, on the West Coast, and it likely won’t be operating at full capacity until 2026.
But increasing production and supply of oil, whether from Canada or beyond, isn’t the only option on the table.
Instead, many environmental organizations argue relying on fossil fuels represents a status quo that generates exactly the sort of instability on display in Ukraine and does nothing to combat the climate crisis.
Where some see the need for increased oil and gas to choke Putin and his forces, others see an opportunity to swiftly decrease reliance on fossil fuels across the globe — and certainly in Europe, which is heavily dependent on Russian oil and gas.
“One thing that really is frustrating here is instrumentalizing the crisis, the war, for private interests,” Eddy Pérez, the international climate diplomacy manager for the Climate Action Network, told The Narwhal.
He said it’s not the first time the oil and gas industry has used a crisis to further its objectives, including a push to ease regulations at the height of the pandemic in 2020.
The Climate Action Network is just one of many organizations calling for increased investments in renewable energy sources in Europe to wean the continent from its dependence on Russia and avoid locking in long-term demand for fossil fuels.
“The climate crisis is not going anywhere,” Pérez said. “So trying to ignore it, it’s not going to do us any good.”
Pérez points to an International Energy Agency report published on Thursday that laid out a 10-point plan for Europe to reduce its reliance on gas from Russia over the next year and into the future.
The report estimated the plan could reduce Russian gas imports by one-third in a year through measures including increases in wind and solar capacity, utilizing biofuels and existing nuclear capacity, building efficiency retrofits and installation of heat pumps across the continent.
All of those recommendations are consistent with a path to net-zero outlined by the agency last year, according to the report. They would push an energy transition forward while reducing Russian influence and wealth.
“I think what the [International Energy Agency] report said is, not only is it possible to accelerate this transition at scale, but it’s also good for the planet,” Pérez said.
That report, however, also calls for increased imports of gas from other sources as well as increased storage to deal with fluctuations. It also says the need for Russian energy could fall by as much as 50 per cent if certain climate targets are abandoned in the near-term and European countries return to coal and other fuels.
The risks and the complexity of the issue, according to the agency, are significant.
The invasion of Ukraine came just as the Intergovernmental Panel on Climate Change released its latest report stressing the need for quick action to stave off the worst effects of the climate crisis. The secretary general of the United Nations called the report “an atlas of human suffering and a damning indictment of failed climate leadership.”
The invasion and the panel report highlight the need to seriously consider the geopolitical impacts of both the long and short-term decisions implemented in response to the invasion.
Should governments and industry focus on resolving instability in one region with fossil fuels, if the long-term result is increased global instability through climate change? Given Russia’s reliance on oil and gas for its economy, is simply shutting it out for a time enough to have a significant impact?
In Canada, Environment Minister Steven Guilbeault said climate change was not going to go away, “and if we’re thinking we can solve the crisis by exacerbating another one, those people who think that are clearly mistaken.”
There are short-term impacts that need to be addressed that go beyond choking off Russia’s revenues.
Speaking at a Calgary Chamber of Commerce conference on the energy transition on March 2, Kevin Birn, an oil analyst with market intelligence company IHS Markit, said high prices might be good for some who stand to profit, but they’re disastrous for most.
“For many reasons, for developing nations, affordability is absolutely critical,” he said.
“Higher energy prices contribute to inflation that drives up the cost of our essentials of life — food, water even,” Birn added. “Higher prices can be the spark which ignites broader issues of geopolitical instability and even affect the toppling of governments.”
And while there’s strong reason to believe renewables will stabilize international relations and ease conflicts associated with energy over the long run, there is an interim period of potential instability during the transition. That has been made stark with the possible locking out of the second-largest exporter of fossil fuels in the world and the resulting price spikes.
The International Energy Agency argued in its 10-point plan for Europe that a short-term tax should be implemented on what it calls “windfall profits” from suppliers as gas prices soar. That tax, it said, could raise up to $200 billion euros which could be distributed to those struggling to pay bills. Perez said similar discussions around lessening the impact on global communities should be considered.
In the meantime, that renewable capacity will be expensive and require ongoing political will.
Frank Jotzo, a professor at the Australian National University and head of energy at the Institute for Climate, Energy and Disaster Solutions, argued in a recent article for Australian think tank The Lowy Institute that the Ukraine crisis will inevitably lead to a rapid shift toward renewables.
In that article he quoted Germany’s finance minister, Christian Lindner, who said during a special meeting to discuss the invasion: “Renewable energy resolves dependencies. Renewable energy is freedom energy.”
But it won’t be cheap.
In a report released last year,the International Energy Agency, said investment in clean energy needs to triple from current levels to US $5 trillion annually by 2030 to achieve net-zero global emissions by 2050.
The agency also estimated 2021 expenditures on all energy projects were $1.9 trillion.
The shift is already underway, and Europe could be more determined than ever to move aggressively away from long-term dependence on fossil fuels that would necessitate the kind of investment the Canadian oilpatch and its supporters want.
“Germany, they already have a target of 80 per cent of renewables, that was already agreed,” Perez said. “Now with this crisis, their response has been not only to cut their dependence on natural gas from Russia, but also to say that they’re going to accelerate efforts to have 100 per cent renewable power by 2035.”
The momentum toward renewables is not completely lost on those in the oilpatch.
Sitting in the Telus Convention Centre in downtown Calgary on March 2, the business crowd listened to speaker after speaker talk about the need to move forward on reducing emissions.
The focus was on carbon capture and storage, hydrogen, solar, wind and gas.
Calgary’s mayor, Jyoti Gondek, took to the stage to extol the benefits of rapid investments in clean technologies and said it could add up to $61 billion to Alberta’s GDP by 2050.
“If we continue to invest appropriately, this means we would need to invest $2.1 billion annually until 2030 and then ramp that up to 5.5 billion by 2050,” Gondek said.
Current investments are less than $1 billion, she said.
Shortly after, Kent Ferguson, co-head of global energy for RBC Capital Markets said the sector is sitting on approximately $75 billion in cash from the recent price surges and years of cost cutting.
But it’s unclear where that money will flow, how quickly and to what end. The soaring price of oil can be an irresistible lure for those whose business is producing a barrel, and much of the talk in that conference room was about reducing emissions intensity while arguing for the ethical value of what Canada produces. For now at least, oil companies are busy using their windfalls to increase payouts to investors and pay down debt.
As that conversation plays out in the boardrooms of Calgary, the world is changing quickly. The war in Ukraine has exposed fault lines that will need to be addressed — and addressed immediately.
In Alberta, the calls for increased production have been loud and they have been persistent.
Writing for Alberta’s so-called war room on Feb. 25, the day after the invasion, oil and gas consultant and writer David Yager asked whether the real war in Ukraine would force Canada to rethink its energy policy.
The answer to that question, both at home and abroad, could have profound implications not just for Europe, Ukraine and Russia, but for the long-term stability of the planet.
It just might not be the answer the war room, or the provincial government that backs it, was looking for.
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