The size of the oil and gas sectors’ economic contribution to Canada means 'the coming decline of those sectors is a huge issue economically for national unity and for those workers,' Aaron Cosbey, co-author of The International Institute for Sustainable Development, says.Jeff McIntosh/The Canadian Press
The Canadian oil and gas sector is ill-prepared to weather a forecast drop in global demand, according to a new report that says governments must take a more active role in developing fiscal policies and bolstering economic diversification.
The International Institute for Sustainable Development (IISD) analysis, released Tuesday, found that global economic trends in oil and gas are swiftly departing from business-as-usual, as the world scrambles to reduce greenhouse-gas emissions to avoid the worst effects of climate change. Since the most influential factor affecting the viability of the Canadian oil and gas sector is global demand, it will be impossible to avoid disruption to the industry, the authors conclude.
The enormity of that economic challenge is “one of the most important topics in climate policy” and “therefore, one of the most economically important topics Canada can be broaching,” co-author Aaron Cosbey said in an interview.
The size of the oil and gas sectors’ economic contribution to Canada – and regionally to Alberta, Saskatchewan and Newfoundland and Labrador – means “the coming decline of those sectors is a huge issue economically for national unity and for those workers,” Mr. Cosbey said.
The report encourages the federal government to continue strengthening climate policies, and explore tools within its jurisdiction to prepare for phasing down oil and gas production. It also said government fiscal policy should more closely align with the expected decline of fossil-fuel demand.
The IISD is a think-tank funded by various government agencies, charities and industry groups in Europe, North America and Asia, including the Canadian government and provinces such as Alberta and Quebec. Its goal is to accelerate solutions for a stable climate, sustainable resources and fair economies.
The new report, titled Setting the Pace: The economic case for managing the decline in oil and gas production in Canada, found that global demand for oil will “go into terminal decline by the end of the decade,” partly driven by uptake of electric vehicles. Other end uses such as plastics production will not make up the shortfall, it said.
The authors further concluded that Canadian producers are vulnerable to low and volatile prices, and will not be able to preserve their share of remaining markets through price or through reputation as clean or ethical producers.
Scads of oil and gas companies have instituted net-zero production targets, including the bulk of Alberta’s oil sands producers, though fossil fuels continued to dominate global energy consumption in 2022.
Various bodies, from energy giant BP to the International Energy Agency and the Canada Energy Regulator, have forecast a looming reduction in demand, though all emphasize the difficulties of energy predictions in an uncertain global climate and indicate fossil fuels will continue to play a role.
But there has been an unwillingness by some governments to prepare economies for falling fossil fuel revenues, the IISD report argues. Even those that do accept a different future are making changes at a glacial pace that will be far out-stripped by a global economic shift.
In Alberta, for example, Mr. Cosbey said the government “is too wedded to the illusion that oil and gas will continue to churn out jobs, investments and royalties well into the future.”
The province’s Energy and Minerals Minister, Brian Jean, countered on Tuesday that “every credible forecaster sees oil and gas continuing to play a key role in the global and North American energy mix for decades to come.” He added that the energy sector is already diversifying into green petrochemicals, hydrogen, carbon capture, small modular nuclear reactors and critical rare earth minerals.
Mr. Jean also pointed to Alberta’s Emissions Reduction and Energy Development plan to reduce emisisons and boost clean technology and sustainable resource development.
“We are ensuring that Alberta is best positioned to produce the most reliable, responsible, affordable and environmentally conscious energy products the world needs.”
The IISD’s report focuses on the economics of a green transition and its effect on workers and communities, rather than the environmental impacts, and also highlights the growing risk that taxpayers will foot the bill for stranded assets as the global market for oil and gas shrinks.
“We’re not denying that environmental reality, but we’re hoping that this approach – which is equally valid – has a little more resonance,” Mr. Cosbey said.
Alberta could even look to its past as a fossil fuel pioneer in the 1970s, he said, when premier Peter Lougheed’s government made a huge bet on the oil sands, and bolstered the development of the scientific, engineering and entrepreneurial expertise that led to its economic success.
“To extract the lessons from that, it takes a recognition that you need to go down a different path. It takes determination, planning led by strong vision, and it takes decades. So we have no time to lose.”
Tuesday’s report is the first in a series of three that the IISD is planning to address the economics of a potential drop in oil and gas demand, and the sectors that could help plug the resulting gap in jobs, investment and government revenues.