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7 Winners & Losers From Canadian Teck Oil Sands Project Withdrawal

Teck made a tough call and made it the right way. Its only fault was letting it get anywhere near this brink. The company should have canceled this process months ago. 

Climate action continues to be a political football in Canada. The election in late 2019 hinged on climate change as much as anything else. Big portions of our passenger and freight rail systems are shut down because of protests allied with a First Nations group that wants to re-route — not block, just re-route — a gas pipeline to the west coast. Alberta under its new conservative government vowed to fight the federal carbon price and actually managed to get a provincial court to agree recently.

Map of Teck Frontiers location

Map courtesy of iaac-aeic.gc.ca

Most recently a major federal approval was looming for the $20 billion CAD Frontier oil sands development in Alberta. Yes, a 40-year carbon emissions plan from the highest average CO2 per barrel extraction source of oil in the world, in a world which has 10 years to stop emitting the majority of the CO2 we do right now in order to keep under 1.5 degrees Celsius of warming. While the Green New Deal calls for 40% to 60% and the UN IPCC 1.5 degree reports call for 55%, Michael Mann is warning that we’re understating the problem as IPCC material excludes 0.2 degrees of warming from prior to 1850, per a podcast I recorded with him recently (coming up on CleanTechnica shortly).

There really isn’t a world in which this oil sands development could go ahead and in which our global emissions reduction targets could be met, but that wasn’t stopping things. The development had initially been proposed when oil was a lot closer to $100 a barrel and Teck had made clear that it wasn’t economically viable without ongoing prices of $75 per barrel, something almost no economists think is even remotely possible. In other words, the approval was for a project that was never going to be built, so it was a bit of a tempest in an oilcan.

The Canadian Minister responsible had made it clear that approval was contingent on Alberta having a credible plan to achieve its portion of Canada’s emissions targets, something that it clearly doesn’t have right now. That infuriated the staunch conservative supporters of extracting and selling as much CO2-laden oil as possible of course.

But over the weekend Teck announced that it was withdrawing the project from the federal approval process, and writing off the $1.13 billion that it had already sunk into the never-to-be-built hole in the ground. Naturally the spin has already started, so it’s worth looking at who is going to win and lose with this.


The Winners

The Planet

This project being shelved permanently is required for Canadian and global serious action on climate change. While individual oil sands projects have managed to get under the global average for CO2 extraction emissions per barrel, oil sands are still the highest CO2-emitting oil mining approach on the planet. Whether it’s massive removal of oil sand from surface deposits and using steam and chemicals to separate the oil from the sand and clay, or deposits hundreds of meters underground that have live steam injected in steam-assisted gravity drainage approaches, the oil doesn’t just flow out of the ground as it does in other sites, and has to be helped along with massive amounts of energy.

And that energy almost entirely comes from burning natural gas, another resource available in Alberta. That’s why emissions are so high. Alberta’s producers have done good and innovative work to reduce emissions per barrel, but physics remains physics, even while economic fantasies abound. And, of course, burning the barrels of oil in other countries just removes the emissions from Canada’s budget, but doesn’t remove them in reality. Alberta and Canada’s oil and gas industry are correct in saying that it’s a legal product and if Canada doesn’t sell it, others will, but that’s somewhat immaterial from a climate change perspective.

Canadians

Canada needs to do its part on climate change. That means transforming its economy to a modern, low-carbon one, not clinging to a 20th Century economy that has to go. The oil and gas industry is going to fade over the next 30 years to a shadow of its former self. It will still be extracting oil and gas for the small portions that turn into products that aren’t immediately burned, but that’s 20% of a barrel. And there are an awful lot of much cheaper, easier to extract barrels in other countries right next to water. Canadians enjoyed the period when the Canadian dollar was on par with the US dollar, but that was dependent on an awful lot of economic activity that was unsustainable and not innovating toward the future economy that was coming down the tracks. This is another chapter closed on the old economy, and it will help Canada and Canadians move forward in this century.

Trudeau & the Liberal government

There was no winning on the approval for this government. They are, sensibly, committed to climate action, but they have to balance that with transitioning Canada’s economy and not leaving behind Canadians. They’ve worked that balance for years, with a grand bargain on national carbon prices in exchange for approval of twinning the pipeline to coastline from Alberta for its product, and then actually buying the pipeline when Kinder Morgan realized it was economically non-viable regardless. Yes, Canada nationalized an oil pipeline and conservatives didn’t squawk about this horrific intervention into the market and business.

No matter which way the government decided this week, they would have lost. Approve it, and get an awful lot of sensible Canadians who care about the planet and climate change upset with them, and those are the people who voted them in. Can it and be attacked even more by the conservatives and oil and gas factions on the false charge of damaging the Canadian economy. Teck pulling the plug was the best possible outcome for Trudeau and the Liberals.

Teck Resources

Frontier was a losing proposition for Teck. If it had been approved, it would have continued to suck money just keeping the pilot light on. The Alberta government would have been hounding the company to build it to create jobs and economic growth in Alberta, so they would have been fighting that crew for the next few years. It never would have been built because the global economics of oil are never going to return oil prices consistently to the level required for Frontier to make a profit. The only reason that it still had the process going was the sunk cost fallacy. That $1.13 billion that it had already spent is lost money, but that’s not the way it felt to the company. It felt like an investment. And no one likes to give up on investments. No one likes to commit losses.

Any decision by the federal government would have been negative for Teck. It would either be a global poster child for oil sands development in a post-oil sands world and stuck with an expensive asset that would never make money, or it would be a poster child for oil sands development who was foolish enough to propose a project like that and have it yanked out from under it by a rational government focused on this century. Either way, it was going to lose and be the one not making decisions on its own fate.

Teck worked hard to bring stakeholders, including First Nations, on board. It is being praised for its decision. It has gained a lot of political capital with the federal government. It has garnered a lot of positive press. It has dropped a dead asset. It has written off a bunch of money that it would have had to write off later anyway, so the bandaid is pulled from the skin. That pain is behind it now. The stock price is down, but that was just a matter of time.

Teck made a tough call and made it the right way. Its only fault was letting it get anywhere near this brink. It should have canceled this process months ago.


The Losers

Jason Kenney & the Alberta Conservatives

Let’s quote the letter from Teck withdrawing the application:

“…global capital markets are changing rapidly and investors and customers are increasingly looking for jurisdictions to have a framework in place that reconciles resource development and climate change, in order to produce the cleanest possible products.”

While Kenney and his energy war room are trying to spin this as a problem with federal policy, it’s a clear indictment of Alberta’s policy shift. Canada’s policies have been clearly stated, communicated, and in place for years. It’s Alberta that’s fighting them in court. It’s Alberta that pivoted away from the bargain that the previous government had made. It’s Kenney and his Conservatives who have created the massive conflict and turmoil in which Teck became a “nexus.”

If Kenney and co. had stuck with NDP policies, stayed aligned with carbon pricing, and not been a seriously bad actor in Canadian politics, this approval wouldn’t have turned into the mess it is. While the project was never going to go forward, there was still money to be milked from the Teck development organization to keep the lights on, money that would be going into Albertan worker pockets and fees that would be flowing into governmental coffers.

All gone now. Kenney and co. have leaned into the divisions and the 20th Century economic view, instead of leaning into a graceful transition. And now they reap the tailing pond. They’re trying to spin this as a federal issue, but it isn’t. Just as Ontario is slapping “Open for business” on its license plates and on signs at the border while taking action after action that make it clear to business that they should stay out of the province, Alberta is creating its own mess.

First Nations in Northern Alberta

Teck had done good work with the indigenous groups in northern Alberta, bringing them on board with good jobs, economic development, and a path out of the challenges that they faced. The systemic challenges that northern First Nations communities face in Canada are horrific and long-lasting. They are systemically tied to parcels of land, they’ve been tied to treaties which were then violated and they are in communities suffering from bad water, inadequate communications, expensive food, no work, and serious substance abuse challenges.

They are living, for the most part, surrounded by the environmental devastation of the oil and gas industry. As recent developments have made clear, there’s no money to clean up the mess that’s been made already. The only path forward to cleaning up the mess is making more of it, and that door is closing. They were onside with Teck but now they have only a devastated landscape and no jobs.

Not all of the northern Alberta First Nations were supportive of Teck, but a majority were. Now they are left with divided communities and no jobs.

Albertans

Alberta needs to turn the corner away from oil and gas. Albertans need a government that works with them to make the transition. Instead, they have a government, elected by them, that is pandering to the group of Albertans who are fearfully trying to turn back the clock on global economic transformation.

Albertans had managed to elect a government that was working for the transformation, bridging the oil sands and Albertans into the inevitable future. That only occurred because of a split on the right, and Jason Kenney mended that split in time to take the province back into the 1980s. But it’s 2020. Albertans need leaders that are taking them forward, not backward. Albertans need leaders who will be honest with them, not spend $30 million on propaganda war rooms. Albertans need leaders who will maintain decent governmental services for people suffering from a global shift away from oil and gas, not massive tax cuts for oil and gas companies that pick up and leave regardless.

Albertans have the leaders that they elected, but not the leaders that they deserve.

 

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Written By

is Board Observer and Strategist for Agora Energy Technologies a CO2-based redox flow startup, a member of the Advisory Board of ELECTRON Aviation an electric aviation startup, Chief Strategist at TFIE Strategy and co-founder of distnc technologies. He spends his time projecting scenarios for decarbonization 40-80 years into the future, and assisting executives, Boards and investors to pick wisely today. Whether it's refueling aviation, grid storage, vehicle-to-grid, or hydrogen demand, his work is based on fundamentals of physics, economics and human nature, and informed by the decarbonization requirements and innovations of multiple domains. His leadership positions in North America, Asia and Latin America enhanced his global point of view. He publishes regularly in multiple outlets on innovation, business, technology and policy. He is available for Board, strategy advisor and speaking engagements.

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