Diversify Alberta’s Economy Now Before Oil Demand Peaks

In 2022, Canadian oil and gas companies earned $120.5 billion of after-tax cash flow from a record $227 billion of revenue. Unfortunately, this is Alberta’s last boom, the beginning of the end for the old oil patch. The International Energy Agency (IEA) says global oil demand will peak by 2030, followed by a brief plateau, then decline.

There is still time to begin building a new oil and gas industry based upon advanced materials manufacturing like carbon fibre and low-emissions fuels like hydrogen. What is standing in Alberta’s way? The hubris of its leaders.

Premier Smith and the UCP government are clinging to the past, believing that oil and gas production will grow for decades to come, and seeing little need to diversify the provincial economy while there is still time. One only has to read Premier Smith’s comments following the recent conclusion of COP28 – the United Nations Climate Change Conference – in Dubai to find an example.

For the first time in December 2023, the conference of almost 200 countries was considering a phase-out or phase-down of fossil fuels. Canada was one of the developed countries arguing in favour of reducing consumption of coal, oil, and gas. The Organization of the Petroleum Exporting Countries (OPEC) countries, led by Saudi Arabia, opposed them. Major fossil fuels consumers, like China and India, were also not on board.

In the end, after an intense and sometimes rancorous extra day of talks, the compromise language of the final agreement called for “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner … so as to achieve net zero by 2050 in keeping with the science.”

Support for the agreement was unanimous. The reason why OPEC and its allies softened their stance isn’t hard to understand: the document isn’t binding. Each country is free to determine its own path to net-zero or carbon-neutrality. For the most part, those policy frameworks are already set. Developed economies like Canada, the United States, and the European Union have pledged to decarbonize faster. Emerging economies will decarbonize more slowly. China, for example, has pledged to achieve carbon-neutrality by 2060, while India has targeted 2070.

The COP28 agreement is generally regarded as an incremental step along the crooked and often perilous path to limiting the rise in global temperatures over pre-industrial times to 1.5 degrees Celsius. That is not the view of Alberta Premier Danielle Smith and Minister of Environment and Protected Areas Rebecca Schulz. They issued a statement bordering on the bizarre that, once again, attacked the Canadian government in apocalyptic language.

“It was a national embarrassment to witness Minister Guilbeault at an international conference actively sabotaging the interests of Albertans,” Smith and Schulz said. “Although he ultimately failed in his ambitions to include language in the final COP28 agreement regarding the elimination of oil and gas production, Albertans will not forget his continued treachery [emphasis added] against our province and millions of other Canadians.”

Alberta, they boasted, will “demonstrate to the world how an energy-producing jurisdiction can simultaneously increase renewable and non-renewable energy production while achieving carbon neutrality through investments in new technologies.”

This is the OPEC vision of the energy future. During the World Petroleum Congress, held in Calgary in September 2023, Premier Smith praised Saudi Aramco CEO Amin Nassar for his prediction that global oil consumption will grow from its present 102 million barrels per day to 116 million barrels per day by 2045, with decline not following for many years if it does at all.

A month later, Premier Smith mocked the IEA, claiming that the agency’s forecasts were never right. In this she was half correct, but on the wrong side, given that the IEA has consistently underestimated the growth of key clean energy technologies like solar, wind, batteries, electric vehicles, and heat pumps.

The problem is, Alberta is not Saudi Arabia, which can produce a barrel of oil for a fraction of Alberta’s cost. The Western Canadian Sedimentary Basin is aging, and costs are rising. The province is landlocked and suffers the unavoidable penalty of high shipping costs to far away markets. While oil sands producers have lowered their costs in recent years, they will never be able to compete with the Saudis on price.

What if the IEA is right?

Oil will be the first fossil fuel to peak because after 125 years it finally has a competitor: electric transportation. Most of Asia’s fleet of two and three-wheeled vehicles are already electric, displacing more than one million barrels per day of oil consumption. Global electric vehicle sales reached 14.2 million in 2023, representing 15.8% of international auto sales.

BloombergNEF forecasts that global consumption of road transport fuel – which is responsible for almost half of global demand for oil – will peak in 2027.

Smith’s intemperate language reeks of hubris. Not a good look for the Alberta premier. But, more importantly, her self-conceit has led her to a strategic error. Following OPEC’s lead, and encouraged by oil and gas corporate leaders, she has bet the farm on OPEC’s “slow energy transition” worldview.

Worse yet, she has done so in the face of copious evidence that the energy transition is rapidly accelerating, led by the clean energy arms race as the United States and European Union try to shrink China’s massive lead in clean energy technology manufacturing.