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Canadian oil sands investment slides

Oil sands, tar sands or Athabasca oil sands in isolated northern Alberta Oil sands, tar sands or Athabasca oil sands in isolated northern Alberta Chris Kolaczan
27 May
2015
After a liberal democrat candidate won a surprise victory in Canada’s oil province, oil shares suffered. However, US fracking might also be to blame for the drop

Considered the bedrock of Prime Minister Stephen Harper’s conservative government, the oilfield province of Alberta has been a safe conservative seat for more than forty years. When New Liberal Democrat (NDP) candidate, Rachel Notley, won a surprise victory in Alberta province this month, energy stocks fell. Large oil companies, such as Imperial Oil, Cenovus, Husks and Suncor all experienced a three to six per cent fall in the value of their stocks. Is this a political backlash? Or does it reflect the sliding trust in the industry’s viability?

When it comes to oil, the heavy crude bitumen deposits under Alberta are huge. The 167 billion barrels underground make it the third largest oil deposit in the world after Saudi Arabia and Venezuela. For the past decade, energy companies have estimated that continued investment in the oil sands would generate $2,484billion in revenue. The cities behind the country’s prime export, Edmonton, Fort McMurray and business capital Calgary, have boomed with the industry. 

albertaSo far north, there is very little infrastructure outside the isolated boomtown of Fort McMurray (Image: Alberta Oil)

Stephen Harper, an Albertan oil veteran himself, has bolstered the oil sands since he was elected in 2006. The oil sands extraction is central to his government campaign, dubbed a ‘petrostate’ by his worst critics. In a controversial move to liberate the industry, he pulled away from the Kyoto Protocol in 2011 and later diluted the Navigable Waters Protection Act. For this reason, oil is a deeply political subject in Canada – the back and forth debates between environmentalists and the oil industry are as volatile as the crude oil is viscous.

However, the slide in investment is more nuanced. Canadian oil sands production is as much influenced by the global energy market as the politics at home. ‘Political change is very short term,’ says Barry Cooper, Professor of Political Science at University of Calgary. ‘In fact, the government under the NDP will hardly make any difference to the oil sands development. The reasons for cutback in investment are a consequence of the low price of oil.’

The back and forth debates between environmentalists and the oil industry are as volatile as the crude oil is viscous

The viability of heavy crude processing is being outrun by the influx of fracked oil and gas from the US. ‘The oil produced by fracking,’ explains Mark Barteau, Director of the University of Michigan Energy Institute, ‘for example, in the Bakken region of North Dakota, is generally lighter, easier to process, and closer to refineries and markets, than that from the oil sands.’

The fracked US product is becoming more attractive to investors. Unlike the oil sands, shale fracking reserves are not in remote regions – staff can be paid less and transport is not as much of an environmental and logistical issue. Meanwhile, oil sands extraction has been hindered for years by environmental protests to pipeline constructions, specifically, the Keystone XL which has been trying to get off the ground since 2010.

eiaCompeting shale deposits in the US are far less isolated (Image: Energy Information Administration)

With shale production on the increase, the oil sands might expect more divestment and slower production. ‘As long as we are in the situation of relatively abundant supply in North America and depressed prices globally for the foreseeable future,’ adds Barteau ‘development of the oil sands is likely to be less favourable, regardless of environmental or other impediments.’

So what are Rachel Notley’s plans for Canada’s oil province? ‘No one wants to end the oil industry,’ says James Meadowcroft, Professor of Political Science at Carleton University. ‘In fact, the NDP may ultimately help the industry become a more attractive investment.’ Harper’s removal of the red tape of the Kyoto Protocol and the Navigable Water Protection Act has made the oil sands the antithesis of sustainability and clean energy. Albertan oil will continue to be the butt of divestment while there is pressure for business to become greener. However, if the NDP helps streamline the industry by improving environmental regulations and increasing royalties for the province, investment could be saved. 

‘Oil production will go on, it may even grow,’ explains Meadowcroft. ‘However, what we have seen is the end to unabated expansion of the projects in the north which is where all the new jobs come from.’ With a surplus of cheap oil in the US and new royalty restrictions by the NDP, energy companies will have to re-evaluate their multi-billion dollar projections. Edmonton, Fort McMurray and Alberta may need more diverse job opportunities and long-term, stable industries if they are to remain prosperous.

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