Canadian Oil Export Diversification

Energy and environmental organizations are reacting with alarm to the recent Canada-Alberta deal to build a new oil pipeline to the West Coast, questioning whether overseas buyers can be found for the oil that may eventually flow through the pipeline.

The Alberta government’s proposal estimates the pipeline would cost $35.2 to $43.7 billion, with the federal and Alberta governments remaining majority owners in the project. That’s despite an earlier promise from Prime Minister Mark Carney — enshrined in his government’s memorandum of understanding with Alberta — that the pipeline would be privately financed.

“What we’re seeing here is that we’ve got a pipeline that is being built for political reasons rather than economic reasons. And that’s tremendously concerning,” said Chris Severson-Baker, executive director of Pembina Institute, the energy think-tank which has been working for decades on decarbonization in Canada’s oil industry. 

“I think a big part of the reason for this deal is to try to address the concerns the prime minister has about national unity, which does not make the pipeline a good economic decision.”

Energy transition ramps up in Asia

Alberta Premier Danielle Smith’s pipeline push had become a symbol of the province’s break with Carney’s Liberal government in Ottawa, with last week’s deal marking a chance for the two sides to come together. But the governments were only able to get one private company, Calgary-based Pembina Pipeline Corporation — not related to the Pembina Institute — to join the project with a 10 per cent stake.

The company has not invested or pledged any capital to build the pipeline yet.

“There is simply no private company that is interested in taking this level of risk. They don’t see a future in that scale of oilsands production in Canada,” Severson-Baker said.

That’s because countries in Asia, where Smith wants the oil to end up, are quickly transitioning to electric vehicles and green energy, reducing their future demand for climate-warming oil.

According to the latest analyses from Ember, a widely cited energy research organization based in the U.K., exports of Chinese electric vehicles have reached an all-time high this May — up a whopping 49 per cent from just one year ago. 

Southeast Asian countries are importing those vehicles in record numbers, indicating that the fuel crisis caused by the Iran War has spurred the entire region to turn toward electrified transport. In China itself, more than half of new cars sold now are electric, and most electric vehicles are cheaper than their gasoline equivalent, according to the International Energy Agency.

Some regions do continue to see oil demand rise, such as India and Africa, but oil demand will decline in high-income countries in Europe and North America. Most of the global oil demand decline will be from electric cars and greener electricity grids, but oil demand will rise from aviation, petrochemicals and other industries, according to the IEA’s modelling.

In a scenario where countries around the world continue to lower their emissions and follow all the climate policies they have implemented or proposed until now, the IEA now says that oil demand will peak around 2030 before gradually declining. 

And in China, the agency says that demand for oil as a fuel has already hit a plateau because of the ongoing EV and clean energy boom.

But the proposed Alberta pipeline would start construction at the earliest by 2027, to be completed by 2034 — in a world that may have a declining appetite for this oil.

“We’re starting to see evidence that the decline in global oil demand will actually happen even more quickly. So, by the time that this proposed pipeline would theoretically come online, we’re not looking at long-term investments in a growing market,” said Emilia Belliveau, energy transition program manager for the advocacy group Environmental Defence.

Pipeline will need new oilsands expansion

Smith said the new pipeline would carry more than one million barrels of oil to Asian markets, and double oilsands production. But that would require new oilsands mines built in previously undeveloped areas — known as greenfield development — according to Severson-Baker.

But the industry has not done new large-scale expansion since the oil price crash in 2014, when oil companies turned instead to making their current operations more efficient. The Pembina Institute points out through these measures, Canadian oil and gas production increased by more than 47 per cent from 2012 to 2023. 

It’s unclear if oil companies would break ground on new greenfield projects, given they’ve mostly held off for more than a decade. “Companies are not investing in that because it’s a risky long-term investment at a time when the world continues to move away from using oil for transportation,” Severson-Baker said.

To convince companies to expand the oilsands, Alberta and Canada may have to pitch in further subsidies, he said. 

“One way or another, it costs Alberta taxpayers and Canadian taxpayers’ money in order to get oilsands operations to do something that is simply not part of their corporate strategy right now.”

https://www.cbc.ca/news/science/pipeline-asia-electic-vehicle-oil-9.7260221