Is This The End Of Canada’s Oil Sands?

TFT-admin | January 29, 2020

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By Irina Slav

Another billion-dollar energy project is polarizing Canada once again, but this time, it’s got nothing to do with pipelines, or even LNG terminals. It’s the Frontier oil sands mine that the federal government of Justin Trudeau must approve or reject by the end of next month.

According to most observers, this decision will seal the fate of Canadian oil sands forever.

Trudeau is no stranger to energy policy controversy. In 2017, during a community meeting in Ontario, Trudeau raised pro-oil hackles by saying the oil sands industry needed to be phased out.

“You can’t make a choice between what’s good for the environment and what’s good for the economy,” the Prime Minister said. “We can’t shut down the oilsands tomorrow. We need to phase them out. We need to manage the transition off of our dependence on fossil fuels. That is going to take time. And in the meantime, we have to manage that transition.”

Time is a relative concept so it’s anyone’s guess if Trudeau meant, among other projects, the Frontier mine, which is seen to have a productive life of 40 years, producing 260,000 bpd of heavy crude at its peak. For those committed to Canada reducing its greenhouse gas emissions, 40 years is bound to be too long a time. For those committed to keeping its oil industry going, Frontier is essential for the long-term survival of that industry.

The problem for Trudeau is that he is, once again as with Trans Mountain, between a rock and a hard place, and in the end, perhaps no one will be happy.

Last year, the Liberals won the elections, but could only form a minority government. This means they cannot make decisions on their own. 

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“We have got a Liberal minority and the balance of power shifts to the NDP and the Greens, who are completely opposed to any progressive energy policies,” the chief executive of Auspice Capital Advisors, Tim Pickering, told Reuters last October, following the election.

If that was the end of it, Frontier would probably never see the light of day, especially since the Liberals themselves promised to do more about emissions during this term in office. However, there are many groups that support the project, including not just the Conservative Alberta government, but also a number of First Nations willing to invest in new energy projects.

No wonder then that this week the federal Environment Minister, Jonathan Wilkinson, suggested, talking to media, that the government will delay its decision on the Frontier mine project.

“Cabinet can make a decision to approve, it can make a decision to reject, it can make a decision to delay,” Wilkinson said, as quoted by Reuters. It was a statement not particularly informative, but many took it to mean a delay could be the most likely outcome.

Alberta Premier Jason Kenney immediately responded to the suggestion of a delay.

“Their current deadline is the end of February for a decision … and I’ve been very clear to the prime minister … if they say no to this project, then they are signalling his earlier statement that he wants to phase out the oilsands,” Kenney said, as quoted by the Canadian Press.

Indeed, many see the approval or rejection of the Frontier mine project as crucial in indicating, once and for all, what is more important for the Liberal government, environmental protection or the development of Canada’s mineral resources. The public seems to be split on those, but to make matters more complicated, some polls suggest there is also significant overlap between wanting to protect the environment and develop the oil sands. 

Related: Can Europe’s Largest Economy Survive Without Coal?

Interestingly enough, whatever the federal government decides in February, the company behind the Frontier mine Teck Resources, might decide to not go through with it, as Sharon J. Riley notes in an overview of the issue for The Narwhal.

Frontier was planned at a time when oil price forecasts pointed to significantly higher Brent and WTI levels than we are actually seeing. Back in 2016, when Teck Resources submitted its project documentation to a federal panel that had to review the viability of the project, the company expected WTI to rise to $80-90 per barrel this year. Yet the U.S. benchmark is trading below $60 at the moment with little upside potential.

Teck even said it in its 2018 financial report: “The Frontier contingent resources have been subcategorized as “development pending” and “economically viable”. There is uncertainty that it will be commercially viable to produce any portion of the resources.”

Could this mean the whole approval affair is much ado about nothing? Not really. If the Trudeau government rejects Frontier, it would be a clear indication it is prioritizing environmental commitments over the energy industry. This is bound to anger a lot of people who are already angry at the lack of federal government support for the oil industry.

Besides anger, a rejection would worsen an already bad investment climate in Alberta, and it could lead to more companies going under, hitting the economy of the oil heartland. This means that if Trudeau was serious about the phase-out of the oil sands, he would need to come up with an alternative source for the 11 percent of GDP that the energy industry contributes currently.