Last week, when a brand-new open-pit mine was officially opened in the oilsands of northern Alberta it was dubbed by some media to be an “oilsands revival.”
The Fort Hills mine is projected to be open for 50 years, with daily production peaking at 194,000 barrels.
Premier Rachel Notley, Alberta Energy Minister Margaret McCuaig-Boyd and federal Natural Resources Minister Amarjeet Sohi were all on hand to celebrate the project’s opening.
If Canadians are surprised to hear about a new oilsands project — in a time of embattled pipeline delays and oil prices that still haven’t recovered — they have reason to be confused.
There’s little doubt the messaging in the media as of late has been mixed. Is the Calgary Herald right that there are “new reasons for optimism for oilsands,” or, as CBC recently put it, is it true that “the great oilsands era is over”?
Some industry heavy-hitters think it’s the latter. At the Fort Hills grand opening, Suncor chief executive Steve Williams predicted a slow future for the oilsands, telling an interviewer that “it’s unlikely there will be projects of this type of scale again.”
But while Canadians are left to wonder if Fort Hills is indeed the last big oilsands project, another massive open-pit mine — possibly the largest to ever be built in Alberta — is quietly working its way through the Canadian Environmental Assessment Agency’s approval process.
Critics worry it is an environmental and economic blunder of epic proportions.
The Frontier Mine
Vancouver-based Teck Resources — which bills itself as “Canada’s largest diversified resource company” — has been busy making inroads in Alberta’s oilsands. The company has a 23.1 per cent share in Fort Hills, and its latest oilsands proposal, the Frontier Mine, first put before regulators in 2011, will be presented at a public hearing (part of the Canadian Environmental Assessment Agency’s review of the project) beginning in Fort McMurray next week.
The proposed Frontier project would cover an area of 24,000 hectares, producing 260,000 barrels per day of bitumen at its peak. The mine would be the furthest north in the oilsands, and just 25 kilometres south of Wood Buffalo National Park. Teck estimates the bitumen resources to be tapped are in the neighbourhood of 3.2 billion barrels.
The project would be a major investment in Alberta’s high-cost oilsands and is expected to be in production for more than 40 years.
In many ways, it’s a long-term bet on the economic and environmental viability of the oilsands themselves.
“Teck is committed to advancing Frontier in a socially and environmentally responsible manner,” Chris Stannell, a spokesperson for Teck Resources, told The Narwhal in a statement. “Frontier has the potential to deliver significant value over the course of a 40+ year mine life, operating through multiple price cycles and remaining economic at a range of oil prices.”
But Jeff Rubin, former chief economist with CIBC World Markets and a senior fellow at the Centre for International Governance Innovation, questions whether there’s an economic case for the project in the first place.
“Look at the returns you’ve gotten from the oilsands over the last five to six years,” Rubin told The Narwhal. “And consider how viable that resource will be if, in fact, the world does mitigate climate change.” He noted that if the world does take action on climate change in the long-term — as many nations have committed to do — world oil demand will be forced to decline.
There are also concerns about how the proposed project could impede efforts to reduce global greenhouse-gas emissions.
“Teck is putting a lot of their eggs into high-carbon developments,” Bronwen Tucker, Prairies-NWT regional organizer for The Council of Canadians (an intervenor in the Joint Review Panel hearing), told The Narwhal.
She’s concerned that new additions to Alberta’s oilsands are an anachronism when it comes to climate commitments.
Canada reaffirmed its target of reducing greenhouse gas emissions by 30 per cent (compared to 2005 levels) by 2030 at the 2015 Paris climate conference.
“The oilsands are Canada’s fastest-growing source of emissions,” Gordon Laxer, a political economist and professor emeritus at the University of Alberta, told The Narwhal. “Their growth is going to make it virtually impossible to meet our 2030 Paris climate targets.”
“The Frontier Mine is adding to that capacity, and it’s going to make it much that more difficult for Alberta and Canada to eventually wind down the sands,” he said. “And that is going to happen one way or another.”
Teck enters Alberta’s oilsands
Teck has historically been associated with coal mining — the company has interests in coal, zinc and copper across North and South America — but has recently devoted more time and energy to Alberta’s oilsands.
This past summer, the company made its social debut at the Calgary Stampede — described by Reuters as a “rodeo and corporate networking destination” — by hosting its first sponsored Stampede Reception, where Teck lobbyists mingled with Canadian Association of Petroleum Producers (CAPP) executives, as well as government officials, including Alberta’s Minister of Environment and Parks Shannon Phillips.
Teck has been busy arranging lobbying opportunities with various wings of the government since it filed its first registration with the Alberta Lobbyist Registry in 2017.
According to registry filings, the company has been holding meetings and making presentations in an attempt to “ensure effective and efficient climate change policies that enables responsible ongoing oilsands development” and have had “discussions with government regarding concerns with current climate change policy.”
They’ve lobbied everyone from the Office of the Premier to Alberta Environment and Parks to Alberta Energy and the Alberta Energy Regulator. Teck declined to answer specific questions from The Narwhal about its lobbying campaign in Alberta, saying only “Teck is supportive of policies to address climate change, including Alberta’s Climate Leadership Plan.”
Oilsands projects blow past emissions cap
In 2016, the Alberta government passed Bill 25, which sought to limit the total greenhouse gas emissions from oilsands development to 100 megatonnes, though regulations to manage the limit are yet to be passed. Oilsands emissions are currently around 70 megatonnes each year, according to government figures.
Nikki Way, an analyst with the Pembina Institute (a member of the Oil Sands Environmental Coalition), told The Narwhal that Teck’s approval would almost certainly mean oilsands emissions would be beyond the 100 megatonne cap.
A 2017 report from the Canadian Energy Research Institute (CERI) — funded in part by industry associations — also estimated oilsands emissions in a business-as-usual case will exceed the 100 megatonne cap. They project the cap will be exceeded in less than ten years, by 2026.
In a separate analysis, the Pembina Institute found emissions to already be higher than government figures, pegging currently operating projects at roughly 77 megatonnes. Once projects that are under construction or have received approval are added into the calculation, that number rises to 131 megatonnes, well before projects like the Frontier Mine are added in.
“According to the government of Alberta’s own data, Alberta has granted approvals that cumulatively add up to 131 megatonnes of emissions — blowing well past its own 100 megatonne oilsands limit and consuming a massive share of Canada’s own climate budget,” Way told The Narwhal. “Alarmingly, we still have no regulations to determine an equitable way to manage under that limit.”
And when projects seeking approval are added? The Pembina Institute pegs that figure at 167 megatonnes — well above the Alberta government’s 100 megatonne cap.
“Projects like Teck Frontier that are seeking approvals add up to 167 megatonnes of carbon pollution,” Way said. “If the Alberta government wants to continue approving projects, it needs to have regulations in place for the oilsands limit that ensure the province holds itself accountable to its promise to Albertans to act on climate and provide certainty to industry.”
Frontier mine’s economic viability questioned
With an expected lifetime of 41 years, the proposed Frontier project faces significant challenges as future world oil demand remains in question.
In last year’s long-term outlook for Canadian oilsands production, the industry-funded Calgary based Canadian Energy Research Institute (CERI) noted that supply costs for new stand-alone mines were over $70/barrel. CERI was frank about its projections for new projects, should oil prices remain low: “one can assume that these greenfield projects are not economic or [will] have to accept a lower rate of return.”
But the industry remains optimistic that oil prices will rise. CERI notes that “oil prices are expected to recover, [and] so will the profitability of oilsands projects.” Teck, too, has used optimistic projections in its assessments of the economic viability of the Frontier Mine.
In projections for the economic benefits of the project, the company used “an average long-term real oil price of US$95 per barrel for West Texas Intermediate” — a price not seen since 2014 — to calculate its base case for the economic impact of the project.
“Prices are forecast to be US$80 to US$90 per barrel by 2020, and increasing thereafter,” Teck said in a 2016 submission. In its low-price scenario, Teck assumed an average WTI price $76.51 per barrel and a high-price scenario of $115 per barrel. As of this writing, the price for WTI crude oil was under $70 per barrel — and has been under $75 since November 2014.
One might wonder if Teck updated their projected oil prices since 2016, to reflect the lower oil prices we’ve been seeing in recent years.
The company declined to answer The Narwhal’s questions about the oil prices it uses in its current analyses, but bold economic promises on their website reflect that their projections have — if anything — actually increased.
In April 2016, Teck estimated the mine would contribute “property taxes, corporate taxes and royalties in the amount of $66 billion,” to be distributed between federal, provincial and municipal governments.
Now, two years later, their website advertises the “Frontier will contribute $55 billion in provincial royalties and taxes, $12 billion in federal corporate income and capital taxes, and $3.6 billion in municipal property taxes” — which suggests a slightly higher total of over $70 billion in economic benefits to governments.
It seems Teck continues to have faith that Frontier will be profitable in coming years.
Teck’s growth aspirations run smack into world oil demand
The idea that projects like the Frontier Mine are long-term assets that will eventually become profitable, according to Rubin, is based on the idea that “inevitable, relentless 1.5 per cent annual growth in world-oil demand will eventually take prices back on side to where projects like Fort Hills do make economic sense.”
But, he added, “that’s not consistent with any of the commitments that Canada…made at COP 21 to limit global climate change to less than 2 degrees.”
“If the world does avert the worst consequences of climate change, whether that’s 1.5 or 2 degrees, we’re going to see a significant reduction in world oil demand,” Rubin said.
Meeting those commitments, he said, “would require not only do we not see business-as-usual growth in world oil demand — roughly over 1 per cent per year — but that we would see anywhere from a 20 to 50 per cent decline in world oil demand over the next 30 to 40 years, which would shut-in productions in places like the oilsands… because their cost of production would no longer be supported by oil prices.”
New greenfield developments, Rubin said, rely on the assumption that producing oil will remain profitable. But he cautions that there is much lower-cost oil elsewhere in the world. If world oil demand shrinks, Alberta’s oilsands may be the first to lose out.
“Low-cost oil [is] oil that still will be viable even if the world starts consuming less of it and prices decline,” he told The Narwhal, noting that oil in Saudi Arabia and Kuwait will be economically viable for much longer than Alberta’s high-cost oilsands. “That’s the kind of oil that’d be the most commercially sustainable, if in fact we’re going to mitigate climate change.”
Laxer agrees, calling the proposed oilsands expansion “total folley,” in the face of what he said is sure to be diminished world demand for oil. “Saudi Arabia produces oil for just a tiny fraction of what Alberta does. That oil will have a much longer lifespan than sands oil.”
That calls the long-term economic feasibility of projects like Teck — and their projections for long-term world oil price — into question.
“Some of these projects have an expected lifetime of 50 years,” Laxer said. “The ground is going to be pulled out from under them.”
It seems Teck also has its doubts. The company’s 2017 annual report presents a less rosy picture, saying “there is uncertainty that it will be commercially viable to produce any portion of the resources” slated to be tapped at the Frontier project.
But that hasn’t stopped Teck from publicly billing the project as a “major economic driver for Northern Alberta.”
Frontier mine ‘inconsistent’ with emissions targets
There are also questions about Canada’s ability to meet its federal climate targets if the Teck mine is approved.
In its submission to the Joint Review Panel, the Oil Sands Environmental Coalition made its position clear: “emissions from the Project will be inconsistent with the steps Alberta and Canada will need to take to meet Canada’s 2030 and 2050 targets.”
Canada’s climate commitments include a mid-century greenhouse gas emissions target of 80 per cent below 2005 levels, which is the equivalent of a total national greenhouse gas emissions budget of 150 megatonnes by 2050. At four megatonnes per year, Teck’s proposed project — which would still be operational in 2050 — would be responsible for nearly three per cent of all of the emissions in Canada, if climate targets were met.
And if emissions from the oilsands reach the 100 megatonne cap set in place by Alberta, the oilsands as a whole would also represent the majority of Canada’s total emissions under Canada’s 2050 plans.
“We can’t get to the Paris climate commitments, even at existing sands production,” Laxer told The Narwhal. “We’re supposed to be going down 30 per cent in our emissions by 2030. The sands take up 70 million tons, that’s about 10 per cent of the total emissions… If the sands are allowed to grow or stay [at current emission levels], all other sectors will have to cut emissions way more than thirty per cent in order for us to meet that level,.”
The Oil Sands Environmental Coalition’s submission highlights the effects this would have on the rest of the economy: “It is fundamentally unfair that the oilsands be allowed to grow and account for more than two-thirds of Canada’s emissions in 2050 while all other sectors of the economy decarbonize.”
“If Teck goes ahead,” Laxer told The Narwhal, “it’s going to make it that much more difficult — virtually impossible — to meet our climate targets.”