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DALL·E generated image of Canada inflating like a balloon, digital art
DALL·E generated image of Canada inflating like a balloon, digital art

Air Quality

Canada’s Inflating Economy & Population Dwarfs Coming Collapse Of Oil & Gas

Canada is an economic powerhouse that is powering away from its hewer of wood and drawer of water economy.

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Like Australia, although a bit less so, Canada is a country with a massive fossil fuel industry which has far too much influence in the corridors of power. And like Australia, attempts to grow its economy run headlong into the looming decline of 2% to 5% of its economy. But there are some notable differences.

Australia, as I’ve noted recently, exports four times as much primary energy as it uses in its own economy. Per a recent International Institute for International Development (IISD) report, Canada’s in a similar position, exporting 80% of the oil it produces. Virtually all of that oil, 94%, goes to the USA. At least Australia’s exports are diversified. Peak oil demand, looming by the end of this decade by an increasing number of credible analyses and projections, is going to cause production drops, but it won’t be even across crude oil regions. Canada’s crude oil is probably more at risk than any other country’s, for several reasons.

Canada’s crude oil is heavy, which means it’s really tar mixed with sand. It has to be processed a lot locally, requiring a lot of energy mostly from natural gas, something that drives up costs, and incidentally, greenhouse gas emissions. Alberta has no carbon price of its own, and so the federal carbon price applies, except to Alberta’s primary export. That’s covered under Alberta’s TIER program, which applies a trivial cost to its carbon emissions for extraction, processing, and distribution, and then gives the companies the money back as long as they spend it on green initiatives, like carbon capture for blue hydrogen for their refineries. Of course, the provincial and federal governments are ponying up a lot more cash for that blue hydrogen beyond TIER. Can’t let the oil sands company pay for their own business expenses, after all.

Hydrogen is required, because in addition to being very heavy, Alberta’s product is sour as well, which is to say it’s very high in sulfur. Desulfurization of crude oil is one of the biggest uses of hydrogen. If we don’t desulfurize it, it causes acid rain when we burn it, along with harming human health. That makes Alberta’s product more expensive to refine, which is another strike against it. But hydrogen isn’t cheap today and will be more expensive in the future. At present gray hydrogen from natural gas is mostly what’s used, but in the future, carbon capture technology with sequestration must be bolted on and used at significant capital and operating expense (with limited likelihood of significant carbon emission reductions) or green hydrogen must be used.

Blue hydrogen will likely be double the cost of gray hydrogen when everything is said and done. Green hydrogen will probably be double the cost of blue hydrogen. That means desulfurization is going to become 2-4 times as expensive, and that’s another economic strike against Alberta’s product. When there’s a lot of oil in the world that is sweet and light, why pay more for oil that’s heavy and sour?

Alberta’s product is a long way from water too. Tripling the volume capacity of the Trans Mountain Pipeline the federal government bought for Alberta has quadrupled in price to over C$30 billion and climbing. The theory was that Alberta’s product would be loaded onto crude oil tankers and shipped off to China to be refined. Except that China has already stopped importing Alberta’s product, is electrifying transportation rapidly and doesn’t refine heavy, sour crude. In a world awash in cheap, light, sweet oil that’s close to water, China will simply buy the cheaper better product for its declining needs.

And the Trans Mountain Pipeline terminates in a port that can’t manage big oil tankers. Port Metro Vancouver can only handle Aframax tankers with a capacity of 120,000 tons. Very large and ultra large crude carriers with double and triple that capacity need not apply. And oil tankers are as big as they are because the bigger the ship, the cheaper the shipping costs per ton. China’s not interested in paying big shipping costs for its crude when it doesn’t have to. Of course, the tankers could sail down to the Panama Canal and up to Houston, but that would be a 13,000 km journey for a mid-sized ship with Panama Canal fees tacked on. Not much of a savings, if any.

But here’s the next problem. Why would the USA want Canada’s crude oil in the future? For a bit of history, around the OPEC oil crisis of 1972, the USA forbade exporting any of the USA’s precious crude oil. It started investing in fracking and shale oil technologies and techniques. Fast forward to the mid-2010s, and it was clear that the USA was going to go from a massive oil importer to a net oil exporter. That was without electrification. And so in 2015, the Democratic members of Congress brokered a deal with the Republican ones, extending the wind energy production tax credit (PTC) and taking away the export ban. The Cristal flowed in Houston like a 1930 wildcatters first strike that year.

But, peak oil demand. And the US Inflation Reduction Act. The USA is finally getting serious about decarbonizing light vehicles, and that means batteries, not oil (and certainly not hydrogen). About 50% of oil in the USA goes into light vehicle gas tanks. While the USA is a laggard, massive investment and federal subsidies are accelerating uptake of EVs. And every EV sold drops US domestic demand. Another big chunk of oil goes into buses and trucks, and they are all going to electrify too. It’s already started.

China’s way ahead of the USA on electrification, with 40,000 km of high-speed electrified freight and passenger rail in operation and another 10,000 km planned or in construction. It has around 1.1 million electric buses and trucks on its roads. It now manufactures and buys two-thirds of all electric light vehicles in the world, and internal combustion vehicle sales have collapsed. It’s manufacturing electric ships, with a 1,000 passenger cruise ship in the Three Gorges and inland container ships plying the Yangtze. The USA’s refineries, while efficient, won’t have many foreign customers, and will be forced to buy domestic crude only for the domestic market.

Every time I look at the economics of Alberta’s product, things just get worse. As I noted in my assessment of the steeply rising costs of Canada’ Trans Mountain Pipeline, it’s never going to be full. It’s probably going to be bankrupt by 2040. I’m very comfortable with that projection, and if anything think it’s possible it will happen sooner.

The future of Alberta’s product is a National Energy Program — not sure why, but that has a certain ring to it — where all regions of Canada are required to buy domestically to support Alberta’s economy. But remember, that’s 20% of Canada’s total production today. And Canada has strong EV policies as well, so domestic demand will be plummeting. Alberta is in serious trouble economically.

But is Canada? Back to the IISD’s recent report. It says much of what I’ve been saying for a while, but adds that natural gas is in the same sinking ship. And it says that the fossil fuel industry is not prepared at all for this, and that the federal government has to step in with a sensible, science-based transition plan for the industry and provinces that are dominated by oil and gas. That’s very true, but also remarkably challenging given Canadian politics. The federal government keeps giving absurd numbers of billions to Alberta, including buying and tripling the aforementioned pipeline to nowhere, and in return Alberta keeps loading up its shotgun with rock salt, shooting the federal government in the face, and threatening to use buck shot next time.

Headlines started crossing my screen about the IISD report, including ones that say that it’s not the oil region that’s unprepared, it’s Canada. But is that true?

Let’s look at some other headlines.

Wait, what? Canada’s an economic powerhouse that’s powering away from its hewer of wood and drawer of water economy? It’s rapidly increasing its population with talented, strategically minded, self-supporting, highly educated immigrants, drawing a million of the best from around the world in 2022 alone? (Canada brought in as many immigrants as the USA last year, by the way.)

Even through the challenges of the Trump and COVID years, the Liberals under Trudeau have been diversifying Canada’s economy so that it won’t be impacted by the end of oil and gas? And if Canada continues to diversify and grow its population with the best and brightest in the world, its economy could be much larger in 17 years?

That’s right. The current administration’s policies since first gaining power in 2015 have dealt with some of the worst challenges of this century, brought in one of the best carbon prices in the world, diversified and grown the economy substantially and are bringing a river of deep skills and talent to the country. They have kept Canadians’ lights and heat on through COVID, even when giving money to Alberta’s oil and gas industry was the unpopular price in the rest of the country and they received zero thanks from the province or oil companies. And they are positioning Canada to help Alberta as oil and gas disappear from our economy.

The IISD and the doom and gloom headline writers missed that the Canadian government is all over this file, strategically creating the conditions under which they can help the people of the oil and gas regions, and ensuring the money to shut down and clean up the messes that the industry is leaving behind. While the oil and gas industry is in denial, the Canadian government is acting. That seems a bit different than what’s happening in Australia.

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is a member of the Advisory Boards of electric aviation startup FLIMAX, Chief Strategist at TFIE Strategy and co-founder of distnc technologies. He hosts the Redefining Energy - Tech podcast ( , a part of the award-winning Redefining Energy team. 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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