The last few months have been marked by some massive shifts in the oilsands.

In December, there was the $830 million Statoil sale to Athabasca Oil, followed in January and February by the writing down of billions of barrels of reserves by Imperial Oil, ConocoPhillips and ExxonMobil.

On March 9, Shell sold a majority of its oilsands assets to Canadian Natural Resources Limited (CNRL) in a huge $7.25 billion sale, while Marathon Oil split its Canadian subsidiary between Shell and CNRL for a total of $2.5 billion.

The question is: why are all of these companies selling their oilsands assets? While some celebrate the moves as successes for the climate movement, others blame the Alberta NDP for the exodus of internationals.

But experts say the reality has more to do with a broader economic shift that’s made oilsands uneconomical — for the time being at least.

“The reason that Shell, Total and Statoil are pulling out, and the reason that Exxon has had to write down much of its Kearl Lake reserves, isn’t because of the emissions profile of the oilsands bitumen,” Jeff Rubin, senior fellow of Centre for International Governance Innovation, told DeSmog Canada. “It’s rather because it doesn’t make any economic sense, before we even look at emissions pricing.”

Canadian Companies Have ‘Bullish Long-Run View’ on Oilsands

Global oil prices have been extremely low for years. West Texas Intermediate is selling under $50/barrel. Meanwhile, Western Canadian Select — the benchmark for Alberta’s heavy oil — is currently priced at $35/barrel, about half of what’s required to build new “greenfield” production.

Such prices certainly are largely the result of the U.S. being flooded with oil thanks to the “shale revolution” that’s taken place in North Dakota’s Bakken Formation and Texas’ Permian Basin and Eagle Ford Group in recent years.

Of course, no company with oilsands assets likes the situation or prices. But some — especially those that have long specialized in heavy oil production, such as Suncor and Cenovus — have more of what energy economist Andrew Leach describes as a “bullish long-run view on oilsands” compared to international companies.

He says that their buying up of other companies and projects means they see some compatibility with existing assets, allowing for reduced costs in the long run by combining operations and maximizing economies of scale.

In addition, it’s far cheaper to acquire existing projects in the current market context than building new projects; Rubin says the likes of CNRL would argue the economics of oilsands projects span decades and that business-as-usual growth will eventually bring them online, even if they don’t look particularly viable at the moment.

“If you look at it from the buyers’ perspective, these are companies that see more value in the assets than the sellers do. It’s basic sales dynamics,” Leach, who teaches at the University of Alberta and chaired Alberta’s climate advisory team, told DeSmog Canada.

Shale Oil Increasing in Prominence for International Companies

After all, the oilsands still has the capacity to produce more than two million barrels per day of oil, even if production doesn’t grow in the next few years.

ARC Financial’s Peter Tertzakian recently told a Vancouver audience that the oilsands are “going to supply three per cent of the world’s oil needs over the next many decades, but that’s not where the growth is.” He emphasized the potential of the Montney Formation in northeast B.C. and northwest Alberta.

Mark Oberstoetter, lead analyst at the consultancy firm Wood Mackenzie, told DeSmog Canada in an interview: “It’s not so much that companies are exiting the oilsands, it’s the Canadians looking to take an opportunistic strategy on low oil prices and acquiring some pretty rare assets that you couldn’t normally get in normal times. You could almost say its aggressiveness from the Canadians.”

Take Shell for example. The Dutch company has played an increasingly prominent role in the oilsands in recent years, including publicly backing Alberta’s climate plan, constructing the Scotford upgrader and building the Quest carbon capture and storage (CCS) project.

But Oberstoetter says that Shell is now focusing on assets such as integrated gas, liquified natural gas, pre-salt Brazil, Gulf of Mexico deepwater and Permian tight oil assets. It’s about “shifting their portfolio down the cost curve into the assets they’re good at.”

And the oilsands just don’t make the cut for them.

“Tight oil has increased in importance for a lot of these companies,” Oberstoetter says. “They’re just refocusing their portfolios, at the end of the day. I don’t think they would have made these exits if they didn’t get a price that was attractive to them.”

What The #Oilsands Sell-Off Actually Means https://t.co/rsqhzHD6Xm @james_m_wilt #cdnpoli #ableg #bcpoli #ClimateChange #FossilFuels pic.twitter.com/nW1xLFnG3d

— DeSmog Canada (@DeSmogCanada) March 22, 2017

Some Companies Reference ‘Decarbonization’ While Still Focusing on Fossil Fuels

To be fair, some such companies have predicted “peak oil demand” arriving earlier than other major companies, as well as received what Leach calls “significant shareholder pressure relating to their oilsands holdings.”

“The interesting thing is if you look at Shell, Statoil and Total, who have all exited the tarsands, they’re the three companies that are saying, ‘we think a peak in oil demand is going to come in the next 10 to 15 years,’ ” says Keith Stewart, climate and energy campaigner at Greenpeace Canada. “It’s the Exxons of the world who are saying ‘oil demand will continue to grow for at least another 40 years’ who are doubling down on the oilsands.”

Recently, Shell announced it was tying executive packages to decarbonization. Leach notes the company has long had lower greenhouse gas emissions as a corporate priority, and has specifically carved out oilsands emissions in its annual sustainability report.

In addition, the company’s scrapping of the 80,000 bpd Carmon Creek project in October 2015 was reportedly tied to concerns about pipeline access, a problem arguably tied to activism by environmental groups. But it’s not like Shell is divesting from fossil fuels anytime soon.

While it has announced plans to increase annual spending on renewables up to $1 billion, there’s another $25 billion or so that will go to other non-renewable investments. Same goes for Statoil: while it operates in Norway, a country that’s had carbon pricing since 1991, and has indicated a desire to increase investments in renewables up to 20 per cent by 2030, the company’s speciality is still very much in offshore and deepwater oil extraction.

Writing Down Reserves Merely Reflects Last Year’s Prices

The writing down of reserves in filings to the Securities and Exchange Commission (SEC) simply indicates that oil prices were especially low, and that they wouldn’t be commercially viable if oil markets continue to look like they did on average last year.

If prices rebound, those reserves can and very likely will be added back.

What’s effectively happened over the last few months is the rearranging of corporate portfolios to get costs down and maximize strategic focuses, combined with some obligatory filings under SEC formulas.

Millions of barrels per day will continue to be pumped from Alberta’s oilsands. It will just be by different companies.

Photo: Syncrude Canada via Flickr

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The agriculture sector will rise in importance in coming decades as the world warms and moves away from fossil fuels.

That’s the most recent prediction from Jeff Rubin, former chief economist for CIBC World Markets, whose latest book, The Carbon Bubble, forecasts a not-so-distant future in which climate change will open up the possibility for cultivating crops, historically grown in places like Kansas and Iowa, much further north. At the same time, Rubin argues, global dependence on fossil fuels will drop, freeing up capital to migrate to crops like corn and soy.

“There could be some tremendous opportunity for Western Canada, in the same provinces that are likely to be victims of the carbon bubble,” Rubin told DeSmog Canada. “Food is the only real sector in the commodity field that has been resilient, that’s kept its pricing power. You could argue that just that alone is sufficient.”

Agriculture has always played a major role in Canada’s economy. Rod MacRae, associate professor of environmental studies at York University and national food policy expert, notes the food sector trails directly behind energy and automobile manufacturing, employing one in every eight Canadians.

Last year, farm cash receipts (the income from selling commodities combined with direct subsidies) totalled $57.4 billion. To put that in perspective, the auto industry sold $82.6 billion worth of products in 2012, with oil and gas contributing $133 billion to the country’s GDP in 2013.

But the energy industry is currently in trouble: projects in the Alberta’s oilsands are stalled out, with low prices and market access woes resulting in shoddy returns.

Rubin calculates that over the last seven years, the oilsands have lost 70 per cent of share value. Yet land in the prairies has seen double digit annual increases in the same window, he says, pointing to the Canadian Pension Plan Investment Board’s 2013 acquisition of 115,000 acres of Saskatchewan farmland as an example of the changing economic terrain.

Droughts in California and British Columbia may further incentivize purchases of prairie lands.

“The strength of food prices themselves are going to make that land valuable,” Rubin says. “But once you start taking into effect the corn belt and a lot of food belts may be migrating to higher latitude regions, which is certainly what all the climate change models are suggesting, then that’s an even more compelling reason.”

Farming in a Hotter World

However, diseases, pests and weeds will also benefit from increased temperatures and atmospheric carbon dioxide, says York University’s MacRae.

Add in the inevitable rise in extreme weather events (like microburst rainfalls that drop several inches of precipitation in a very localized area) and climate change may have some seriously detrimental side effects on Canadian agriculture.

While MacRae likes Rubin’s argument that the food system should be a greater priority, he questions if current agricultural practices will survive such rapid and significant changes.

If Canada promotes local and organic farms, it might be a different story, he says.

“If we dramatically change the food system, we can create resilience and also mitigate emissions,” MacRae said. “Then, we’re in a much better place to deal with climate change. If we manage that properly, we can create a very viable food system economy.”

That requires government intervention — specifically, a national food strategy, he says.

Without one, MacRae says, “We can’t design anything around big pictures challenges and solutions, because it’s so fragmented and nobody wants to take the lead on it so there’s no way to marshal and coordinate resources.”

Rubin said the transition from an energy-centric to a food-centric economy is already being guided by market forces.

But for MacRae the right type of agricultural industry will require a heavy interventionist approach. He added there hasn’t been an adequate level of government participation in the food system since the Second World War.

A future of carbon taxes, biofuels and local power

But a shift to an agriculture-oriented economy may not just revolve around food, according to John Parkins, professor of rural and environmental sociology at the University of Alberta.

In coming years, oilsands majors like Suncor, Syncrude and Shell may be keenly looking for new opportunities to reinvent themselves, especially if a significant economy-wide carbon tax or another type of polluter-pay system is implemented, he said.

Parkins suggests such transformation may take the form of biofuels, which can range in origin from corn to potatoes to vegetable oils to wood chips. Oilsands companies, he says, are ultimately in the business of transportation: as alternative fuels become more viable, they could significantly reduce the need for fossil fuel-generated energy.

“In a big way, [agriculture] is related to questions about how we electrify the grid and how we put fuel in our vehicles,” he said. “If the solutions become more located within agriculture, then I could see a massive transition. That takes the question around agriculture beyond just the food question to a whole bunch of other sectors.”

Yet that shift will also require some power moves from various levels of government.

While a carbon tax may serve as a stick, capital (which Parkins describes as “agnostic about what sector it’s in”) may need more incentive to invest in socially beneficial areas.

Unfortunately, MacRae reiterates that food or agriculture is rarely a priority for the federal government, making such options significantly less probable. Based on the vague planks in the platform of the three major federal parties, he’s not optimistic that will change soon.

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The White House confirmed today that President Obama will veto Congressional legislation designed to greenlight construction of the Keystone XL pipeline, the contentious project first proposed six years ago to carry more than 800,000 barrels per day of Canadian oilsands crude from Alberta to refineries and export facilities along the Gulf of Mexico.

Despite strong indications of support in Congress, the Obama Administration has already indicated it will veto the bill to expedite approval of the $8 billion project if approved. A similar bill was blocked by Democrats in the Senate in November.

“If this bill passes this Congress the president won’t sign it either,” Josh Earnest, White House press secretary, said. Obama rejected TransCanada's application to build the pipeline in 2012, suggesting congressional Republicans had set a "rushed and arbitrary deadline" for the project's approval.

The bill, proposed by Republican Senator John Hoeven from North Dakota and Democratic Senator Joe Manchin from West Virginia, will be debated in a Senate Energy and Natural Resources Committee hearing Wednesday with the panel set to vote on the project Thursday.

“For us to continue to produce more energy and compete in the global market we need more pipelines to move crude at the lowest cost and in the safest, most environmentally friendly way,” Hoeven said in a recent press conference. “That means that pipelines like the Keystone XL are in the vital national interest of our country.”

According to Danielle Droitsch, director of the Canada Project at the Natural Resources Defense Council, Obama “made the right call.”

“What’s needed now is for him to kill the dirty tar sands pipeline outright,” she said in a statement.

Droitsch said the president is clearly focused on the question of national interest.

“On principle, the president is right to put the national interest first. It’s not the role of Congress to short-circuit the legitimate process of presidential review designed to ensure the best outcome for the country."

She added Keystone XL “would pipe some of the dirtiest oil on the planet through the breadbasket of America so most of it could be shipped overseas. It’s not a plan to help our country. It’s about big profits for big oil – and big pollution for the rest of us.”

The president indicated he will stick to the official pipeline review process and noted an ongoing challenge to the pipeline’s route through Nebraska has yet to be resolved.

In addition to massive public opposition to the pipeline, plummeting oil prices are calling into question both the short and long-term viability of North American oil projects.

As Canadian economist Jeff Rubin recently put it in a Globe and Mail op-ed, the political economy of oil is rapidly changing our relationship with fuel transport infrastructure:

“The first thing Canadians should recognize about the new world order for oil prices is that – contrary to what we’re being told by our federal government – the economy is no longer in dire need of any new pipelines. For that matter, it can live without the new rail terminals being built to move oil as well. Yesterday’s transportation bottlenecks aren’t relevant in today’s marketplace.

At current prices there won’t be any massive expansion of oil sands production because those projects, which would produce some of the world’s most expensive crude, no longer make economic sense.”

Bill co-sponsor Joe Manchin – one of the few Democrats to support the pipeline – said he is encouraged by the fact that the Keystone XL bill is one of the first pieces of legislation this year.

“We have everything to gain by building this pipeline, especially since it would help create thousands of jobs right here at home and limit our dependence on foreign oil,” he said.

Yet to the White House, the move is symbolic of potential discord with the Republican-led Congress.

"Congressional Republicans are well aware of the position of this administration, which is that we believe clearly that this administrative process is the one that should determine the viability of this project and that is a long held view," White House press secretary Earnest said.

"So it may raise questions about the willingness of Republicans to actually cooperate with this administration when you consider that the very first bill that is introduced in U.S. Senate is one that Republicans know the president opposes," he added.

According to The Hill, Hoeven and Manchin already have a plan to push passage of the pipeline legislation later in the year, despite Obama’s veto.

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TransCanada’s proposed Energy East pipeline is more likely to be an export pipeline than supplier of western Canadian oil to eastern Canadian refineries. A new report released this week revealed as much as 90 per cent of Energy East’s oil and bitumen from the Alberta oilsands will be shipped out of Canada.

“Publicly available information from TransCanada, as well as sources from industry, government reports and legal documents show that most of the pipeline’s oil would be exported unrefined, with little benefit to Canadians,” reads the report, released by Environmental Defence, the Council of Canadians, Ecology Action Centre, and Equiterre.

The report finds eastern Canadian refineries – two in Quebec and one in New Brunswick – will be nearly fully supplied with oil from Atlantic Canada, rail and tanker shipments from the United States and the recently approved Line 9 pipeline by the time Energy East begins pumping in 2018. Eastern Canada can refine 672,000 barrels of oil per day (bpd). TransCanada wants to ship 1.1 million barrels via Energy East every day.

“250,000 bpd of eastern Canada’s capacity will be served by Line 9. Take away another 100,000 bpd of Canadian offshore crude from Newfoundland, and 200,000 bpd of US crude and you're left with a pretty small gap to fill, of 122,000 bpd,” says Shelley Kath, energy consultant and lead researcher of the report.

“That means the rest, some 978,000 bpd is likely export bound,” Kath told DeSmog Canada.

The report punches a major hole in claims by TransCanada and the federal government that Energy East will be a “nation building” project strengthening regional energy security with western Canadian oil. The 4,600-kilometer proposed pipeline will begin in Alberta and end in Saint John, New Brunswick, crossing through every province in between.

Valero, operator of the refinery in Quebec City, announced this week it has “no firm interest” in the Energy East project because the oil company already has made commitments to receive oil from other sources.

Energy East Will Have A Larger Carbon Footprint than an Atlantic Province

“Energy East will be the largest pipeline in North America. It will increase production in the tar sands by 40 per cent at a time when First Nations living downstream are asking industry to slow down,” says Andrea Harden-Donahue, climate and energy campaigner with the Council of Canadians.

Energy East will carry more oil than TransCanada’s controversial and stalled proposed Keystone XL pipeline (830,000 bpd) and more than the Northern Gateway and Line 9 pipelines combined (525,000 and 300,000 bpd respectively). 

“The greenhouse gas emissions associated with this project alone will be more than the emissions of any Atlantic Canadian province,” Harden-Donahue told DeSmog Canada.

Last month the Pembina Institute released a report indicating Energy East would produce thirty-two million megatons of greenhouse gas emissions, similar to the output of Ontario's recently retired fleet of coal-fired power plants.

Marine Oil Tanker Export Terminals To Play a Big Role in Energy East Project

TransCanada recently submitted its project description for Energy East with the National Energy Board noting the project could serve 3.3 million barrels of oil tanker traffic.   

TransCanada has not denied that some of Energy East’s oil and bitumen would be exported. The pipeline company publicly stated part of the $12 billion pipeline project is to construct two marine oil tanker terminals – one in Quebec and one in Saint John – for the purpose of shipping oil by sea. A proposal for a third terminal has been floated for Nova Scotia as well.

Pipeline Companies Have Little Say On What Happens to Oil at End Destination

“TransCanada has not been forthcoming on how much of Energy East’s oil will be shipped overseas. The report confirms what we have suspected for a long time – Energy East is an export pipeline,” Harden-Donahue told DeSmog from Ottawa.

“It may sound strange to say, but pipeline companies like TransCanada aren't actually in business to supply refineries – they're in business to move crude from point A to point B. Once that delivery is done, their role is over,” says Kath.

Kath says pipeline companies make 'Transportation Service Agreements' with refineries or oil producers to deliver oil to a certain destination. The contracts are about selling space on the pipeline not about what happens to the crude when it reaches its destination via the pipeline. The product could be exported, stored or refined by the shipper.

Refining Oilsands Bitumen

It is unlikely crude shipments from Energy East will displace current and soon-to-be oil suppliers to eastern Canadian refineries, especially if Energy East is shipping oilsands bitumen. As DeSmog Canada reported last October only a specialized refinery can refine bitumen. Eastern Canadian refineries lack the necessary equipment – usually a coker unit – to process large volumes of bitumen.

“Ample supplies of light crude from growing U.S. and offshore production may also dissuade refiners from making costly investments aimed at converting refineries in order to process heavy crude,” concludes the report. Retrofitting a refinery to process bitumen can cost as much as $2 billion.

Jeff Rubin, former CIBC economist, argues the price for bitumen will only increase when oilsands producers can get their product to global markets. At the moment, bitumen is sold at a discount because there is a glut in production and oilsands producers can only sell in North America. Constructing Energy East means bitumen can finally fetch higher global prices, which may be another financial disincentive for refineries in eastern Canada to start refining bitumen.

The report concludes the vast majority of Energy East’s product will be shipped to the U.S. and overseas destinations such as Europe and India.

TransCanada is expected to submit its application for the Energy East project with the National Energy Board sometime this year. The project involves converting a 3,000-kilometre natural gas pipeline in Saskatchewan, Manitoba and Ontario and building an additional 1,600 kilometers of pipeline in Quebec, along the St. Lawrence River, to the pipeline’s proposed end destination in Saint John, New Brunswick.

Image Credit: TransCanada's Energy East: Export Pipeline, Not For Domestic Gain Report

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