Will Canada’s Oil and Gas Become ‘Stranded Assets?’

Canada’s vast resource wealth could become ‘stranded’ as the world’s carbon reserves become increasingly risky to develop.

A coalition of 70 investors managing some $3 trillion in assets launched an initiative last week petitioning the world's top oil producers to "assess the financial risks" of what will happen to their massive oil and gas investments in a carbon constrained world.

Ceres, which advocates for sustainable business practices globally, launched the initiative in tandem with another environmental advocacy group, Carbon Tracker. Carbon Tracker found in a recent report that 200 of the largest publicly traded fossil fuel companies invested $674 billion on developing new oil and gas reserves in 2012, raising the question of how many billions of those dollars would be left unused and stranded in the ground.

These organizations are arguing that after the latest U.N. climate report, oil and gas companies are investing in resources that are better left in the ground. They believe governments and environmentally conscious consumers are going to make these assets uneconomic and an eventual burden for shareholders.

Where does that leave Canada with its vast carbon reserves, most notably in the Alberta oilsands? Some believe Canada is "playing with fire" and could potentially strand massive investments while ignoring opportunities the rest of the world is seizing.

Canadian Prime Minister Stephen Harper has no plan B, as he clearly indicated in his latest throne speech outlining the Conservative government's legislative plan for the coming months. “We must seize this moment,” according to text from the speech. “The window for gaining access to new markets will not remain open indefinitely. Now more than ever, our future prosperity depends on responsible development of these resources.” 

Yet Canada could pay the price when the carbon bubble bursts and Big Oil reduces oilsands investment.

Jeremy Leggett, author of the recently published book "Energy of Nations," told DeSmog that Canada is missing out on new opportunities by throwing all its efforts into expensive oilsands ventures:

"Given the emphasis they are putting on tar sands, they are playing with fire as these are exactly the type of high carbon, high cost assets where investors around the world are already starting to challenge capital expenditure plans or reduce exposure. Indeed, if a carbon-fuel stranded-asset risk debate takes off globally, and people start divesting en masse even ahead of regulation, as has already started to happen with insurance companies and pension funds in Norway, Sweden and Australia, Canada itself could wind up as some kind of stranded asset: a country with both significant actual stranded assets in the tar sands, and lost opportunity-cost potential assets in all those cleantech companies it could have incubated in the suburbs of Vancouver, and never did."

Canada’s commitment to developing its carbon reserves has led to a common petrostate plight: Dutch Disease.

Canada's currency has soared and is at near par with its giant neighbour to the south, the United States. The manufacturing sector has been hollowed out, severely reducing the breadth of Canada’s overall business sector.

"We have an endowment of a resource and we're just trying to spend it as fast as we can which is a pretty irresponsible," Tim Weis, Director of Renewable Energy at Calgary's Pembina Institute said in an interview. "You wouldn't run your personal finances that way."

Canada, once the envy of the world as an open democracy and protected natural spaces seems to be working hard to tarnish its own brand. The Harper government is gagging its scientists, upending environmental protections and missing targets to reduce greenhouse gas emissions, all in the name of keeping oilsands development on track.

"If the world ever takes climate change seriously, Canada will be revealed to all as a pariah nation," Bill McKibben, the author and founder of 350.org, said in an email. "I don't know what damage a bad brand can do to a country, but I fear that Canada (a country where I spent five years of my boyhood and that I love a good deal) is going to find out eventually."

Image Credit: Kris Krug via flickr