Alberta Fossil Fuel Assets and Liabilities

This post introduces a series that will explore Alberta’s fossil fuel assets and liabilities in depth.

What Are Assets and Liabilities?

All companies have both assets and liabilities. Simply defined, a liability is something that is owed, while an asset is something that is owned. When compared against each other on a balance sheet, they provide a quick understanding of a company’s value.

Assets and liabilities are both essential for a business for different reasons. An asset can be a source of growth for a business and can include such things as buildings, equipment or brands.

Conversely, liabilities are short- or long-term obligations and can include such things as debts and salaries. Those sound like bad things, but they’re necessary. Without liabilities, we can’t purchase assets.

In this series, we will seek to understand the long-term financial health of Alberta’s fossil fuel industry. We will explore the types of assets and liabilities that exist in fossil fuel projects, the roles these projects play in our economy, and the evolution of assets into stranded assets, or even liabilities, as demand decreases and the emission impacts increase.

Projects and Investments

In Alberta, a large number of facilities produce oil and gas. According to the Alberta Energy Regulator (AER), Alberta currently has 28,000 oil facilities and 19,000 gas plants. Oil facilities include:

• 8 operational oil sands mines
• 25 thermal in situ oil sands operations
• 5 bitumen upgraders
• 5 refineries

Gas facilities include:

• 500 active gas plants
• 8 straddle plants

Coal facilities include:

• 3 coal processing plants
• 9 coal-producing mines

Oil

These operations produce a lot of output. Alberta produces 80 per cent of Canada’s crude oil, and over 75 per cent of that comes from the oil sands. Our province produced nearly 3 million barrels of oil per day (MMb/d) in 2020, including 1.09 MMb/d of synthetic crude. Alberta’s oil refineries make up 28.5 per cent of Canada’s refining capacity with the ability to refine up to 542.4 MMb/d. However, Canada exports most of its crude — up to 82 per cent, according to the Canada Energy Regulator.

Gas

When it comes to gas production, Alberta accounts for 63 per cent of the natural gas produced in Canada. In 2020, Alberta produced approximately 9.72 billion cubic feet of natural gas each day.

Coal, Pipelines and Electricity, Oh My

Alberta has produced a great deal of coal in the past, but production is now dwindling. According to the Alberta Energy Regulator, our province produced 9.6 million tonnes of coal in 2021.

According to the Canadian Energy Regulator (CER), Alberta has the largest coal-burning electricity grid in Canada in 2019, with a capacity of 5,555 Megawatts (MW) of potential electricity. In total, 89 per cent of all electricity produced in Alberta comes from fossil fuels: 36 percent originates from coal, 54 per cent from natural gas and 10 per cent from renewables. Additionally, there are approximately 26 intraprovincial pipelines in Alberta. These lines move fossil fuels from smaller areas to larger distribution centres or larger exporting pipelines.

Investors allocated capital to these projects on the assumption that the oil and gas produced would be sold at a profit. Unfortunately, these fossil fuels also yield enormous greenhouse gas emissions. For the most part, these emissions are currently uncosted, but we ought to count them as a liability.

Fossil fuel projects also create other liabilities, like tailings ponds and abandoned wells. The emissions from fossil fuels are causing damage in Alberta and other parts of Canada. For the most part, we are not compensated for these damages. We pay for them, however, through taxes, insurance premiums, and charitable contributions.

When a product creates costs that are not included in its price, economists call that situation externalization. To correct this market failure, we include those hidden costs in the price of the product. That’s the rationale behind carbon pricing.

Ongoing Investment in Fossil Fuels

Our heavy investment in fossil fuels, coupled with declining demand and massive environmental impacts, poses urgent questions about Alberta’s economic strategy and public finance. Will the fossil fuel industry continue to grow and produce revenue as it has in the past? Will its liabilities come to exceed its assets?

According to Canadian Association of Petroleum Producers (CAPP), the fossil fuel industry expects to see a 22 per cent increase in investment throughout Canada this year. CAPP predicts an additional $6 billion spent in capital, bringing the annual total to $32.8 billion. In Alberta alone, the fossil fuel industry expects to attract the largest share of that annual total — $24.5 billion.

The fossil fuel industry is making large investments in the Alberta economy, but those same investments are also creating liabilities. With this series, we hope to bring both Alberta fossil fuel assets and liabilities into clearer focus.

If you want to learn more about our fossil fuel assets and liabilities, check out my introduction to the oil sands.

Related posts:

Introduction to the Oil Sands Credibility and Choice Are Our Most Valuable Assets The Carbon Budget for 1.5 Degrees Alberta Wildfires and Climate Change