For Christopher Ragan, Alberta’s oilsands industry has two blessings and one curse.
Ragan, who is associate professor of economics at McGill University and chairs Canada’s Ecofiscal Commission, told this week’s Conference Board of Canada Oil & Gas Summit that there is a place for Alberta oil in the longer term, but not in the status quo scenario. “I think they net out positively, but they don’t net out positively without some work and without some effort and without some careful thinking,” he said.
"You actually have an endowment of a tremendously valuable resource, and valuable means the world wants it. When the world is prepared to pay for this resource, as it has been and it will in the future, it would be crazy not to develop this resource. Of course Alberta’s prosperity has been based to a large extent on developing this resource and that’s wonderful.”
Ragan said this blessing is tempered by the challenges presented by market access and environmental impacts. “You can’t just kind of throw [oil] into the back of a 747 and get it to market; getting this stuff to market requires a little bit of effort and that typically involves pipelines, port facilities, railway links, and almost certainly those are going to cross jurisdictional lines. Market access really matters. It’s something you have to work hard at,” he said.
“The production of oil, especially in this province because of the nature of the oil, and the consumption of the oil first and foremost, involves environmental damage and you’ve got to take that seriously. Today we have this conversation much more than we had it 40 years ago.”
The curse: Costs
Ragan said that, “While you are blessed with these wonderful resources, these are for the most part are high cost and emissions intensive. When you look at the global industry cost curve for the world oil industry, the Alberta oilsands tends to be in the right hand part of that curve.”
He said that global oil demand is expected to continue to rise until about 2030 when emerging economies shift from manufacturing to services, renewables really start to scale up and carbon policy kicks in around the world.
“You’ve got the world oil market that is going to rise above where it is today, probably for 15 years before it starts to scale back. The problem for Alberta is not over the next 15 years so much, but when the world oil market then starts to contract and Alberta production is at the high end of that cost curve. At some point, when that world demand curve starts to shift to the left, if it is status quo, Alberta industry gets kicked off [and] starts generating zero income for this province. The challenge is to somehow figure out a way to not get kicked off.”
“You live in a province and in a country that is full of well-educated and smart people,” Ragan said. “You have governments that for the most part don’t expropriate assets, you’ve got governments that for the most part respect the rule of law and you’ve got governments that are generally supportive of good business environments through their policy. Those are all real blessings.”
Innovation and carbon pricing
Ragan said that the future of Alberta’s oil industry is based on tying these issues together through innovation that drives down costs, emissions and emissions intensity.
“For me the number one tool to drive this innovation, and its not the only tool but it is the number one tool to drive the innovation that will secure the future of Alberta’s oil patch, is a carbon price. That carbon price will change behavior, not just for consumers, but for producers.”