Squeeze the industry to please his party’s green base or keep output, revenue and high-paying employment flowing?
Talk at the latest climate-change shindig in Dubai has centred around the future of the oil industry and whether countries should pledge to phase out oil and gas production entirely or simply transform the industry in decades to come. Canada always talks a deep-green game at these affairs but are we really ready to nail shut the oil and gas coffin?
Maybe not. In Dubai Canada announced a cap-and-trade approach to oil and gas emissions but argued it won’t actually stop oil and gas production outright. The provinces, who yet again weren’t consulted, may not agree. Besides, promises are one thing. The record is another.
It also emerged in Dubai that the Emirates, seventh largest oil producer, is expecting to increase its production by a million barrels a day (mbd) by 2030. This is not a new trend. According to the U.S. Energy Information Service, the UAE increased production of oil and hydrocarbon liquids like coal oil by 15.3 per cent between 2015 and 2022, from 3.7 mbd to 4.2, fourth-most of all oil-producing economies. That’s much faster than world output, which was up only 3.6 per cent since 2015, reaching 100.1 mbd last year.
The irony — maybe even the hypocrisy — is that three countries in the Americas have increased their petroleum output even more than this Middle Eastern oil sheikhdom has: the U.S., Brazil and, yes, us: Canada.
The Biden administration, which is promising 2030 emissions will be half 2005 levels, has so far failed to stymie oil and gas development. U.S. petroleum and liquids production has soared by 33.9 per cent since 2015, reaching 20.3 mbd in 2022. Two-fifths of the increase has been on Biden’s watch. The U.S., not Saudi Arabia, is now the world’s leading oil producer, accounting for fully 20 per cent of global supply.
The Trudeau government has pledged that 2030 oil and gas emissions will be 42 per cent lower than in 2005. This has led to tensions with the oil- and gas-producing provinces, which are resisting emissions caps for oil, gas and electricity. Ottawa’s opposition to liquefied natural gas sales even as the U.S. and Qatar are making great inroads in the world market has had industry leaders scratching their heads. Even so, since the Liberals came to power in 2015, Canada’s oil and gas production has grown second fastest globally, at 26.7 per cent, to reach 5.6 mbd last year. Much of this growth is due to big investments in the oil sands before 2015 but the production increase has been accommodated by pipeline expansion, with the federally-owned TMX soon to come on stream.
Neither Biden nor Trudeau is attending COP28 but Brazil’s president, Lula de Silva, stormed in at the head of a delegation of 2000 to repeat a pledge to cut 2030 emissions to less than half 2005 levels. Much of reduction results from reforestation, however, not phasing out oil and gas. And, to the surprise of attendees, Lula announced that Brazil will align itself more closely with OPEC. No shock there. Since 2015, Brazil’s oil and gas production has risen by 20 per cent, making it the 8th largest producer in the world at 3.8 mbd last year. It now evidently sees itself as a player.
Besides the U.S. Canada, Brazil and UAE, only Iraq (at 10.4 per cent) and Kazakhstan (at 4.5 per cent) have seen their oil production grow faster than the world average since 2015. The rest have had little growth, with seven countries registering declines, including 22.4 per cent in Mexico and 36.7 per cent in Nigeria, the biggest drop anywhere.
The standstill or even loss in oil and gas production in many oil-producing countries since 2015 is due to several factors. Oil prices dropped by three-fifths after 2014 and the pandemic caused another crash. More recently, Saudi Arabia and Russia have persuaded OPEC+ to constrain production and push prices to over US$80 per barrel — mainly in order to replenish their treasuries. In some places, including Ghana, the U.K. and Norway, old fields are depleting. Elsewhere, but especially in Africa and Mexico, crime and political instability continue to discourage development. Finally, in the face of lagging demand, investors have encouraged companies to distribute profits rather than invest in greenfield oil and gas projects.
But top producers like the U.S. and Canada are not holding back and governments aren’t stopping them. Phase-out is all short-term cost in pursuit of climate gains that won’t be realized for decades, if at all. Nor are politicians willing to eliminate the tax revenues and high-paying jobs the industry generates. With energy security crucial in an increasingly dangerous world, oil-consuming countries are finding that intermittent renewable energy and other high-cost energy sources are no substitute for fossil fuels.
As the federal Liberals sink in the polls, they face a many-ways existential choice. Do they pursue their climate promises and phase out oil and gas? Or do they secure the benefits of oil and gas production for years to come? Or, a third option: do they say one thing but quietly do the other? Is it all, as Shakespeare would say, “much ado about nothing”?
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Surveying the landscape of significant energy news each morning is a daily exercise for any energy-focused writer. It’s hard to write competently about energy unless you have a grasp on current events in that realm.
On Tuesday, one story’s headline almost leapt off the page as I was engaging in that daily task. That headline atop a story at industry trade publication Upstream Online reads, “Oilfield decline will hasten without $540 billion annual investment, says IEA.” In support of that thesis, International Energy Agency chief Fatih Birol says in a statement that, “Decline rates are the elephant in the room for any discussion of investment needs in oil and gas, and our new analysis shows that they have accelerated in recent years.”
Oh, you don’t say.
To anyone familiar with the past pronouncements emanating from Mr. Birol and the IEA, this amounts to one of the most breathtakingly ironic about-faces ever seen. After all, it was only four years ago that Birol and his IEA analysts informed the world that new investments in exploration and development of additional crude oil resources were no longer needed or desired thanks to the glorious expansion of wind and solar capacity and electric vehicles that were destined to end the need to use oil and gas by the year 2050.
In May, 2021, the IEA published a report that urged every national government to immediately halt new investments in efforts to find and produce new reserves of oil, saying, “Beyond projects already committed as of 2021, there are no new oil and gas fields approved for development in our pathway, and no new coal mines or mine extensions are required. The unwavering policy focus on climate change in the net zero pathway results in a sharp decline in fossil fuel demand, meaning that the focus for oil and gas producers switches entirely to output – and emissions reductions – from the operation of existing assets.”
On Aug. 4 of that same year, Birol himself told a meeting of Catholic Church leaders that “there is no need to invest in oil, gas or coal.”
On Oct.14, 2021, Birol doubled down on that particular sophistry in a post on Twitter, with this claim: “There is a looming risk of more energy market turmoil. Oil & Gas spending has been depressed by price collapses in recent years. It’s geared toward a world of stagnant or falling demand.”
Of course, the problem with the IEA’s thesis then is the same as now: Demand for crude oil has been neither stagnant nor falling. It has in fact continued to rise apace with global economic expansion, continuing a trend that has characterized the industry’s growth path for well over a century now. Economic growth has always driven rising demand for oil, just as plentiful supply of oil at affordable prices drives further economic growth. It is and always has been a mutually sustaining relationship.
Finally, IEA appears to have reached a point at which it is willing to accede to this enduring reality.
In my previous piece here, I detailed the apparent move by Birol and the IEA to shift back to the agency’s original mission to serve as a provider of reliable, fact-based information about the global energy picture. It was a mission the agency consciously abandoned in 2022 in favor of serving as a cheerleader for an aspirational energy transition that isn’t really happening. That return to mission appears to have been motivated by Energy Secretary Chris Wright’s threat to pull U.S. funding from the Agency if it continued down this propaganda pathway.
The IEA report published on Tuesday finally acknowledges the troubling under-investment in exploration and development of new reserves that has plagued the industry for more than a decade now as banks and investment houses discriminated against investing in fossil fuel projects.
Regardless of the reasons behind this latest shift, it is encouraging to see the IEA once again living in the world as it exists rather than the fantasy realm advocated by the global political left.
David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.
To state the obvious, poorly-devised government policies can not only fail to provide benefits but can actually do more harm than good.
For example, the federal government’s so-called “Clean Fuel Regulations” (or CFRs) meant to promote the use of low-carbon emitting “biofuels” produced in Canada. The CFRs, which were enacted by the Trudeau government, went into effect in July 2023. The result? Higher domestic biofuel prices and increased dependence on the importation of biofuels from the United States.
Here’s how it works. The CFRs stipulate that commercial fuel producers (gasoline, diesel fuel) must use a certain share of “biofuels”—that is, ethanol, bio-diesel or similar non-fossil-fuel derived energetic chemicals in their final fuel product. Unfortunately, Canada’s biofuel producers are having trouble meeting this demand. According to a recent report, “Canada’s low carbon fuel industry is struggling,” which has led to an “influx of low-cost imports” into Canada, undermining the viability of domestic biofuel producers. As a result, “many biofuels projects—mostly renewable diesel and sustainable aviation fuel—have been paused or cancelled.”
Adding insult to injury, the CFRs are also economically costly to consumers. According to a 2023 report by the Parliamentary Budget Officer, “the cost to lower income households represents a larger share of their disposable income compared to higher income households. At the national level, in 2030, the cost of the Clean Fuel Regulations to households ranges from 0.62 per cent of disposable income (or $231) for lower income households to 0.35 per cent of disposable income (or $1,008) for higher income households.”
Moreover, “Relative to disposable income, the cost of the Clean Fuel Regulations to the average household in 2030 is the highest in Saskatchewan (0.87 per cent, or $1,117), Alberta (0.80 per cent, or $1,157) and Newfoundland and Labrador (0.80 per cent, or $850), reflecting the higher fossil fuel intensity of their economies. Meanwhile, relative to disposable income, the cost of the Clean Fuel Regulations to the average household in 2030 is the lowest in British Columbia (0.28 per cent, or $384).”
So, let’s review. A government mandate for the use of lower-carbon fuels has not only hurt fuel consumers, it has perversely driven sourcing of said lower-carbon fuels away from Canadian producers to lower-cost higher-volume U.S. producers. All this to the deficit of the Canadian economy, and the benefit of the American economy. That’s two perverse impacts in one piece of legislation.
Remember, the intended beneficiaries of most climate policies are usually portrayed as lower-income folks who will purportedly suffer the most from future climate change. The CFRs whack these people the hardest in their already-strained wallets. The CFRs were also—in theory—designed to stimulate Canada’s lower-carbon fuel industry to satisfy domestic demand by fuel producers. Instead, these producers are now looking to U.S. imports to comply with the CFRs, while Canadian lower-carbon fuel producers languish and fade away.
Poorly-devised government policies can do more harm than good. Clearly, Prime Minister Carney and his government should scrap these wrongheaded regulations and let gasoline and diesel producers produce fuel—responsibly, but as cheaply as possible—to meet market demand, for the benefit of Canadians and their families. A radical concept, I know.
