The future of Alberta oil
Because we are talking about billions of dollars of annual investment and output, even small setbacks create big holes to fill
By ATB Economics 9 March 2021 2 min read
Today’s Owl steps back from the near-term trends affecting the Alberta economy to examine the longer-term challenges facing our oil patch.
Not that long ago, it seemed inevitable that Alberta’s vast oil resources—the province is home to the third largest proven oil reserves in the world after Venezuela and Saudi Arabia—would continue to be developed until production reached six, seven or even eight million barrels per day. (Production averaged 3.7 million barrels per day in January.)
After all, the puzzle of how to extract bitumen economically from the oil sands of northern Alberta had been solved and the world was hungry for oil. The added production would be shipped to Asia, the U.S. and eastern Canada by new and improved pipelines and Canada would become a true “‘energy superpower.” There was talk of Alberta eliminating its provincial income tax, building up its oil and gas savings fund to rival Norway’s and creating economic opportunities that would improve the lives of millions of people.
But things changed. The U.S. fracking revolution increased supply, the price crashed, pipelines became environmental lightning rods and the war against carbon heated up.
On the one hand, the forces arrayed against oil use haven’t had much success. With the exception of 2008 and 2009 during the Great Recession and 2020 during the pandemic, global oil consumption has increased every year since the Kyoto Protocol of 1997 and there is a loose consensus that oil will be a major part of the global energy mix for many years to come.
On the other hand, the effort to reduce oil consumption continues. Several major oil pipeline projects have been cancelled. The large-scale adoption of electric vehicles—while still just a dot on the horizon—is becoming more realistic. It will take time, but the clock is ticking and global oil consumption could start to plateau or even come down. (Although a fossil fuel like oil, natural gas is seen by many as an important “transition fuel” and is, therefore, on a different track than oil.)
And because we are talking about billions of dollars of annual investment and output, even small setbacks create big holes to fill. If Alberta’s oil and gas output (using 2019 as an example) dropped by 15 per cent, the province would need to find new economic activity equivalent to Ontario’s auto sector to fill the hole.
Alberta’s oil industry is not disappearing. But we have to adapt to a world in which carbon is under siege. Growth, in turn, is going to have to come from different industries.
Some will be related to oil and gas extraction such as clean energy technology and petrochemicals. Some, like renewable energy, will complement oil and gas in the province’s energy portfolio. Some will build on other sectors such agriculture and agri-food, tourism and health services. And some will be in areas such as artificial intelligence, entertainment and anything existing businesses and new entrepreneurs set their sights on.
It’s a bright future for Alberta, but it’s going to take a lot of hard work to keep it that way.
Answer to the previous trivia question: Louise McKinney was the first woman to be elected to the Legislative Assembly of Alberta in 1917.
Today’s trivia question: How many litres are there in a standard barrel of oil?