What could kill the oil sands? Apart from a meteor the size of Prince Edward Island — destination: Fort McMurray — apparently nothing any time soon. The oil sands are one of industry's biggest bets on an oil-soaked future. They are a bet that the internal combustion engine will endure for another few decades (or maybe forever), that renewable energy will never take off, that China's hunger for oil is insatiable, that the skeptics are right about global warming, and that Naomi Klein and other environmental doomsayers are leveraging dubious science into self-promotion.
These beliefs have turned the oil sands into Canada's most capital-intensive industrial success. Hundreds of billions in development spending can't be wrong. Just ask shareholders. The frenzy in Northern Alberta has created vast stock market wealth. Never mind the recent dip in oil prices; the good times will keep rolling.
Yet the non-believers are surfacing. Long gone are the forecasts for $150 (all currency in U.S. dollars) or even $120-a-barrel oil. Also fading is the theory that every drop of oil saved in the Western economies will be eagerly consumed in China. Driven by its obsession with energy self-sufficiency, if not clean skies, China's strategy is to "manufacture" energy security through the use of vast amounts of nuclear, wind and solar power.
In September, the Rockefellers — the American family most closely identified with oil — ended their 150-year-old love affair with fossil fuels. The Rockefeller Brothers Fund, with about $860 million in assets, announced plans to unload all of its coal and oil sands interests. The fund's stated reason was its "deep commitment to combating climate change." Was that another way of saying the oil era has peaked? Maybe. Altruism alone rarely drives big strategic shifts in the investment world.
The long-term success of the oil sands may be less secure than it appears, and two possible events could accelerate their decline. The first is an environmental Pearl Harbor linked to climbing atmospheric and oceanic concentrations of carbon dioxide. The second is the rapidly falling cost of renewable energy and the batteries that would store that energy.
The first scenario has given rise to the "unburnable" carbon theory. Suppose there were a mass drought that wiped out the North American or European wheat crop, or the Asian rice crop, triggering mass hunger, starvation and migration. The frantic global effort to slash CO2 output would force oil and coal companies to leave vast reserves in the ground.
The scenario is remote. True, we have already seen small versions of it, such as the massive 2011 flooding that clobbered the Australian wheat harvest. But turning off the global oil tap would pile economic collapse on top of environmental collapse. Oil is still the lifeblood of the global economy.
Still, the scenario should not be dismissed as a paranoid fantasy. As climate summit after climate summit fails, CO2 concentrations keep rising. At some point, a binding agreement will be reached to bring down CO2 output; an environmental disaster would just accelerate that agreement.
The second scenario is the more immediate danger to the oil sands. For evidence, look at the smile on the face of Elon Musk. The PayPal founder has turned his attentions to all-electric automobiles. Backed by a fortune from the taxpayer, Musk plans to open a $5-billion lithium-ion battery factory — the world's largest — in Nevada. The hope is that prices of batteries will drop so far that electric cars would achieve mass-market status.
The cars would put heavy downward pressure on oil prices, since transportation is the biggest user of oil in the industrialized world.
Canadian industrial policy heavily favours the oil sands. Investors and banks love them. But some things that seem too good to be true really are too good to be true. Excessive carbon build-up and batteries may already be conspiring to wreck the oil sands' fortunes.
Eric Reguly