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The Fossil Fuel Wagers of 2023

Image by Joachim Kirchner from Pixabay

Watching the fossil fuel wagers of 2023 is enough to make you shake your head in frustration. With calamitous flood and wildfire seasons just behind us, one would hope for some sober, realistic restraint on the part of our most GHG-intensive industry. But alas, our hopes have been dashed in recent weeks.

Oil Sands Expansion in Canada

We can start with the appearance of Suncor CEO Rich Kruger before the House standing committee on natural resources. Kruger, you might recall, was summoned to appear before the committee because of his comment to shareholders that Suncor was overly focussed on the energy transition and would return to its core business in the oil sands. To defuse the controversy, Kruger told the committee that Suncor was merely bulking up on profits to accumulate cash for the investments in decarbonization. Which, we must note, have been slow in coming, despite record profits in the oil patch.

Kruger wasn’t the only Canadian oil and gas exec lowering hopes for the energy transition. Addressing the World Petroleum Congress in September, Shell Canada president Susannah Pierce remarked that oil companies could only decarbonize as fast as the rest of the economy — an odd position, given that oil companies have increased their carbon output at a rate far exceeding the Canadian economy as a whole.

Pierce also made the curious comment that a sectoral emissions cap would crimp profits needed for the energy transition, a prime example of doublespeak. The logic of markets is that profitable sectors see growth while other sectors wither. An emissions cap, with a corresponding drop in oil and gas profitability, would hasten the energy transition we so desperately need.

But Pierce was only following the dictates of Shell Canada’s parent company, which abandoned its plan to cut its global oil production by one or two per cent per year until the end of the decade.

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Expansion in the Shale

Other sectors of the petroleum industry may be preparing for decline. At least that’s the hopeful interpretation the Financial Times has put on two hefty oil and gas plays in the shale.

This view emerges in two pieces the FT ran on Chevron’s purchase of U.S. producer Hess ($53 billion USD) and ExxonMobil’s purchase of Pioneer Natural Resources ($64 billion USD). Chevron’s chief executive Mike Wirth cast doubt on the International Energy Agency’s prediction of imminent decline, but FT writer David Sheppard sees a hedge in these investments.

Sheppard views the Chevron and Exxon moves as adaptations to energy uncertainty, noting that large concerns may have an edge if they can produce more efficiently than their rivals. And Charlie Penner, also writing in FT, notes that Exxon’s bet on Pioneer’s Permian resources offers the advantage of a shorter development cycle, meaning it can quickly ramp up production for the current boom, yet scale it back down again should the boom die out, as many predict.

Production Gap

Against this backdrop, the United Nations just issued its Production Gap report (PGR). If you’re not familiar with this document, it’s the UN’s fourth annual assessment of the gap between “governments’ planned fossil fuel production and production levels consistent with limiting global warming to 1.5℃ or 2℃.” 

The findings of the report are sobering. Coal production will grow until 2030, oil and gas production until 2050. Governments around the globe — including our own — expect to produce more than twice the amount of fossil fuels in 2030 than is compatible with a global heating of 1.5℃ or less. If you extend the analysis until 2050, the production gap widens to 350 per cent.

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If you read the report in purely quantitative terms, such as barrels of oil or tonnes of CO2, you’ll see just where and by how much our fossil fuel production threatens to overshoot the bounds of a safe climate. That’s the literal production gap of the title.

But if you read the report metaphorically, you’ll discover a rhetoric gap — that is, a gap between speech and action — on the part of those who govern our precious blue orb. It’s not hard to mislead people, and many fall for, or into, the rhetoric gap. But nature will not be fooled. We shouldn’t allow ourselves to be fooled either.

Alberta’s Production Gap

The Production Gap Report draws on data from the Canada Energy Regulator’s Energy Futures 2023 report (EF2023). I reviewed EF2023 as a whole when it appeared, along with separate posts for its crude oil and gas production scenarios.

EF2023, you might recall, examined three different scenarios for Canada’s oil and gas production — Current Measures, Canada Net-zero, and Global Net-zero.

Using the Canada Net-zero Scenario, the PGR identifies production increases for Canada(PDF icon) from 2021–2030 at 3.0 exajoules of oil by 2030 and 0.6 exajoule of gas. (EF2023 did not provide data for coal production, so PGR does not examine this fuel either.)

The report doesn’t say so explicitly, but those 3.6 exajoules represent oil and gas production growth from 2021 to 2030 under the Canada Net-zero Scenario. (I thank Ploy Pattanun Achakulwisut, a Stockholm Institute research fellow, for clarifying this point in a personal communication.)

I’ve previously downloaded this data from the CER, so I can easily provide the numbers here for both Canada and Alberta.

For crude oil (all types, thousand barrels per day):

2021202220232024202520262027202820292030
Canada4931.275146.155461.785652.955748.485813.645896.795995.476066.476060.02
Alberta4081.374283.814532.744684.664762.344813.894900.284947.914982.984970.56
Canada & Alberta crude oil production (all types, thousand barrels per day)

During this time, Alberta produces 82 per cent of Canada’s oil.

For gas (million cubic metres per day):

2021202220232024202520262027202820292030
Canada456.25489.64492.09470.91475.38486.15479.74477.79485.4500.22
Alberta284.74304.98301.18283.83273.63266.64259.89255.41249.45245.58
Canada & Alberta gas production (million cubic metres per day)

During this time, Alberta produces 50 to 62 per cent of Canada’s gas.

These production plans exist despite Canada’s commitment to reduce emissions to 40–45% below 2005 levels by 2030 and to reach net-zero by 2050. The net-zero by 2050 commitment is law, codified since  2021 in the Net-Zero Emissions Accountability Act.

They also exist despite Canada’s participation in high-profile international climate initiatives, including the Net-zero Producers Forum, the Powering Past Coal Alliance, and the Global Methane Pledge and the Glasgow Statement.

Those production plans also ensure that Alberta, like every other oil-producing jurisdiction, will doom our chance of salvaging a livable climate. I ran the numbers after EF2023 came out, and I found that Alberta, all by itself, will produce enough oil and gas between now and 2050 to use up 8–14 per cent of the carbon budget.

The View from the C Suite

I’ve never been anywhere near a C suite, so I can only speculate about the things that happen there. But we know that oil and gas executives are well paid, and that their compensation includes incentives for specific outcomes, like increased revenue, lowered costs, and a rising share price.

Petroleum firms increase revenue by expanding production, whenever demand permits. They lower costs through automation and efficiency. They increase share prices by expanding their reserves.

With incentives built into their compensation, fossil fuel executives are highly motivated to achieve these outcomes. It does not matter to serving executives that the assets they bring online may one day be stranded. Those managers will have already reaped the benefits of their actions, leaving the subsequent failures to their successors.

Once built, oil and gas facilities will churn on, delivering fuels into an oversupplied market. Prices will naturally fall, but with adequate cost control, the owners will at least recoup their operating expenses, even if they do not recover their capital expenditures.

The resulting lock-in will lead to a self-fulfilling prophecy of continued fossil fuel demand, brought on by oversupply, which lowers prices and delays or completely derails the energy transition we so badly require.

Alberta’s Choice

Fossil fuel boosters are fond of saying we have no choice except to meet demand. As Susannah Pierce said, “[If you are] a company that is servicing its customers that are still demanding a fossil fuel energy source, it’s very difficult to then not provide your customers with that energy they demand,” she said. Pierce is alluding here to the leakage theory — the notion that if a particular source reduces its supply of a particular commodity, another source will simply make up the difference.

But we do have a choice about fossil fuel production. If Alberta reduces its fossil fuel supply, leakage may occur, but not automatically or instantaneously. A judicious tightening of the valves while demand contracts will constrain consumption, resulting in a speedier drop in GHG emissions.

Fossil fuel production is authorized by our provincial government. Export is authorized by the federal government. We have a choice; we are making it every day. As long as we consent to production and export, we are opting for greenhouse gas emissions.

The wrangling over demand and production forecasts suggests a kind of multiverse, with an infinite variety of scenarios leading to an ever-expanding range of futures. But we will have just one future. If we continue to maximize our production, it will be a future of oversupply and stranded assets, a surge past 1.5℃ or 2℃, or perhaps a mixture of both. But it will be the future we have chosen.

It’s November as I write these words, and the holidays are just around the corner. So is the federal government’s announcement of an oil and gas emissions cap.

All I want for Christmas is a strong emissions cap. If it reduces production, so much the better.

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