Shortly after Prime Minister Stephen Harper assumed office in 2006, he laid out his vision of Canada as an energy superpower. In the eyes of the new Conservative government, Canada would use its massive supply of oil to grow the economy.
Given the seemingly insatiable appetite for energy around the world, as well as increasing oil prices, the plan seemed like a reasonable proposition. Then everything fell apart, and PM Harper’s dream of turning Alberta’s oil sands into an economic juggernaut no longer seemed like a great idea.
In his excellent new book, The Carbon Bubble: What Happens to Us When it Bursts, Jeff Rubin, the former Chief Economist at CIBC World Markets, explains how the dream to turn Canada into an energy superpower burst, and what impact climate change could have on our country’s future.
Contrary to what the Harper government had originally predicted, Canada’s oil sands did not turn out to be the magical elixir for the country’s economic growth. Those who want to hear Rubin explain his reasoning first-hand can see him on Thursday, when he speaks at Centretown United Church (507 Bank). Frank Koller, a former foreign correspondent with the CBC, will host the event that starts at 7 pm. Tickets are $10 for general admission and $5 for students and those with low-income.
“I think much of the oil sands will become stranded assets and the whole oil boom over the last decade will be seen as one of the country’s biggest economic bubbles,” says Rubin in an interview with Apartment613. “We will probably see very substantial changes in ownership as the large multinationals pull up their stakes and divest from the area.”
In his book, Rubin explains how oil production differs in different parts of the world. While countries like Saudi Arabia have relatively inexpensive production costs, which allow them to turn a profit with low oil prices, Canada’s oil sands are much more expensive to produce and as such require high prices.
Unfortunately for Canada’s oil producers, high prices are not being predicted for the foreseeable future.
It is estimated that oil prices must be around $80 a barrel for new oil sands development to be economically viable. Goldman Sachs has predicted that global oil prices will be $55 a barrel in 2020, which is $5 less than oil was trading this week. If Goldman Sachs is correct, then there will not be an economic incentive to develop the oil sands.
“Even with higher taxes and royalty rates, the industry will play a much smaller role in Albert’s finances and a much smaller role in the Alberta economy,” says Rubin. “From a historical standpoint, to put it in investment terms, it will will look like the country doubled-down on a resource just as the rest of the world was about to short it.”
Jeff Rubin
But the tumbling price of oil is not the only thing that is impacting the oil sands. In the future, as the world faces the reality of climate change and switches to cleaner forms of energy, the demand for oil will decrease. The result will be even less demand for Canada’s oil resources.
This reality is something that the new NDP government in Alberta will have to face.
“I don’t t see the new NDP government being the decisive factor in the oil sands future,” says Rubin. “Yes, the Notley government will raise royalty rates that is long overdue, but the real challenge facing the oil sands is not higher royalty rates but their cost structure in a world of stagnant oil demand and weakening oil prices.
“I would advise Premier Notley, and for that matter all Albertans, that the old extraction model is no longer working. There isn’t going to be any massive expansion of oil sands production. Instead, Alberta has to focus on getting more economic value out of the 2 million barrels a day that the oil sands is already producing. That means moving up the value-added chain into refining and even petrochemicals.”
The real economic future of Canada, however, likely lies elsewhere. While climate change will have a lot of negative effects, it could also be an ironic ally for the country’s economy.
Much of Canada is comprised of fertile land, but due to the relatively short growing season agricultural production here is not as long as in other areas, such as in the United States. With an increase in temperatures caused by global warming, however, and the growing season in large parts of Canada suddenly becoming longer, the door will open to Canada becoming a global breadbasket.
“Canada is a huge land mass and as such has a huge share of resources. The question is which ones will have value in the future,” says Rubin. “I believe Canada’s greatest resource is its fresh water. But instead of exporting bulk water, like we export raw bitumen, we will move up the value-added chain and export food. The world’s ability to adapt to climate change will in no small measure depend on the ability to shift agriculture from tropical and subtropical regions to high latitude regions like Canada.”
