This text first appeared within the Washington Spectator.
Late twenty first-century graduate college students of business learning the rising drawback of stranded assets will virtually certainly deal with the history of Canada’s Athabasca Oil Sand (aka tar sands). The case research they learn will either describe the gradual abandonment of the world’s largest reserve of bituminous crude or they’ll learn about the tar sands’ miraculous final-minute escape from changing into the world’s largest stranded asset. For either consequence, the turning point they are going to look again on is just about now.
Of course, a few of Alberta’s crude has made its option to market, however so much slower than it could have, or was projected to, that producers, refiners, shippers, banks and other traders in tar-sands growth are beginning to surprise whether or not they’ve backed a good play by investing over $160 billion to show tar into oil.
So the financial stranding process has already begun. 5 global power giants–Shell, Whole, Suncor, Statoil and Occidental–have reduce bait on major bitumen deposits in Alberta, by which they had already invested billions. Suncor has just slashed another billion dollars from its capital spending program and $800 million extra from operating expenses. And as oil costs slide decrease, industrial and funding banks are reconsidering future underwritings. An trade that recently envisioned doubling manufacturing over the next 20 years is now taking a look at one thing nearer to the opposite, a halving of manufacturing or worse in far fewer than 20 years.
American media coverage of the tar sands has targeted primarily on the approval of the Keystone XL Pipeline, which, if completed, would carry 830,000 barrels of Athabasca crude, each day, to the world’s largest refining center close to Houston subsequent to a booming export hub. Because American and Canadian politicians and oil execs have lobbied so arduous for its approval, Individuals are likely to believe that construction of Keystone will secure the way forward for the tar sands. Not true. To even approach break-even, a minimum of four other pipeline routes will be needed to hold bituminous crude to the world’s market: two to the Canadian west, one to the east and one north. If two or three of these lines are one way or the other stopped, and that is quite prone to occur, the stranding of the tar sands will escalate, Canada will stop being a petro-state, and its business leaders will begin their search for yet one more staple to drive its nationwide economy.
Canada has all the time been what economists call “a staples economic system,” reliant virtually completely on one staple useful resource after another. Fur was adopted by cod, then wheat, potash, minerals, timber, and hydropower. At present, Canada’s staple useful resource is carbon, some of which derives from coal however most of it from oil. Oil, in actual fact, represents 46 percent of Canada’s commodity production. Unfortunately, over ninety % of its reserves are bitumen, the expensive production of which nets only 4 % to Canada’s GDP. However oil represents forty % of the country’s exports. So the urgency to develop and export the tar-sands oil has turn out to be a national priority.
Canada’s tar-sands booster-in-chief is Prime Minister Stephen Harper, an Alberta-primarily based petrolero who rose to prominence in politics as Chief Policy Officer of the Reform Party, Canada’s version of the American Tea Get together. Founded in 1987, Reform merged in 2000 with the floundering Progressive Conservative Social gathering to kind a brand new and almost unbeatable national coalition calling itself the Canadian Conservative Reform Alliance (after including “Get together” to its title, it turned CCRAP, and was nicknamed “see-crap”). Harper became social gathering chief of CCRAP, which has since gained two nationwide elections. It’s as if Ted Cruz turned the Republican entrance-runner and gained the White House twice.
Map by Kevin Kreneck
Once a member of Canada’s Young Liberals and a supporter of Pierre Trudeau, Harper went west as a younger man, labored in Alberta’s oil fields and adopted his father into employment with Imperial Oil, Canada’s second-largest petroleum firm (69 percent owned by ExxonMobil). There, like so many different western Canadians, he grew to despise Eastern Canada, quite like the scion of a distinguished American household transferring from Connecticut to Texas. In Calgary, he turned an outspoken and eloquent opponent of Trudeau”s National Energy Plan, which appeared set upon nationalizing Canada’s last staple useful resource. While there continues to be discuss of nationalizing oil and tar-sands oil in Canada, and in some polls a majority of Canadians help the idea, that could not presumably occur with Harper in power.
On the 2012 World Economic Forum, in Davos, Switzerland, Harper introduced that the expanded manufacturing and export of tar-sands bitumen was a nationwide precedence. Canada, he predicted, was set to grow to be an power superpower. In Ottawa, he took quick and aggressive steps to weaken environmental protections just like the Navigable Waters Safety Act, which was hindering pipeline construction, and to quick-track tar-sands manufacturing.
But Harper’s focus remained on Europe, where in 2012 the European Parliament and member European Union governments have been debating phrases of a revised Fuel Quality Directive (FQD) and contemplating an official ban on the import of “dirty fuels” — oil shale, liquid coal and tar sands, all of which have excessive extraction impacts, releasing more greenhouse gasoline than standard oil by means of their “nicely to wheel” life cycle. A Stanford College research that many members of the EU Parliament relied on projected a 23 percent improve of lifecycle carbon emissions from tar-sands manufacturing.
Harper and his advisers instantly saw the hazard of that examine and the catastrophe a European ban on dirty gasoline represented for Canada’s largest new staple. One vote in Brussels may go away the tar sands stranded immediately and ceaselessly, even when oil producers found a route to the Chinese language market.
Throughout the 2 years leading up to the EU parliamentary vote on the issue, Harper mobilized Canadian oil executives and his cabinet behind a $30 million nation-to-nation lobbying effort. Their first goal was the Stanford examine, which they drove into the bottom with their very own business-funded studies.
Week after week, planeloads of oil execs and PR flacks crossed the Atlantic, Harper aboard at any time when he might be, laterally threatening a commerce struggle with Europe if the vote went the mistaken way. Facet trips have been made to Washington. And members of the European Parliament had been flown to Ottawa and Alberta for gold-plated junkets.
With out Harper’s effort, the Parliament in Brussels would almost actually have voted to ban soiled fuels. After two years of intense lobbying, the measure lost by a 12-vote margin 337 to 325, with forty eight abstentions. A number of months later, within the fall of 2014, the primary shipment of tar-sands crude arrived in Europe, with many more to comply with, as a vote on the Gasoline High quality Directive won’t come up again for at the very least 4 years.
Within the meantime, if a few EU member nations condemn tar-sands oil, and ban its import, extra small nails can be driven into the tar-sands coffin. And if two of the proposed supply-to-port pipelines on the drawing boards are blocked (see map and sidebar here), extra producers and investors will abandon the sands.
If Canada’s tar sands do one day turn out to be stranded, the equal annual emissions of over 65 coal-fired plants and 50 million passenger automobiles will remain underground. And a whole lot of the credit score (or blame) will go to environmental activists, aboriginal communities, litigious farmers and teams like Greenpeace, 350.org, who’ve added to their anti-pipeline advocacy a marketing campaign to pressure institutional buyers to divest their “Large Fossil” holdings. Even earlier than divestment began, nine of 10 tar-sands producers’ stocks had underperformed the market. So they are weak.
Strand Their Capital
In keeping with the Institute for Vitality Economics and Financial Analysis, a suppose tank in Cleveland, the campaigns of environmentalists and native communities have already value tar-sands producers $17 billion. However that has not stemmed the dedication of the North American fossil-gas business to maneuver Athabasca crude to refineries world wide.
Regardless of the insistence of American Republicans and petroleros that everything rests on completion of Keystone XL, the pipeline means little to the U.S. economy. In Canada, however, economists estimate that U.S. rejection of the pipeline could value the country as a lot as $1.7 billion a yr, far more vital than the lack of two or three hundred permanent jobs the pipeline would create within the U.S. And by simply raising break-even higher than it already is for bitumen producers, stopping Keystone might place the tar sands in far greater danger of being stranded.
While assets like the tar sands ought to be stranded, as a result of mining and burning them will elevate the temperature of an already overheated planet a level or extra, they usually tend to develop into stranded, because they’re either unable to reach market or have misplaced market value.
The unhappy irony is that earlier than Canada selected tar-sands crude to be its staple export, the nation was poised to change into a significant international contributor to scrub vitality. It had signed climate treaties, promoted photo voltaic-energy, developed hydroelectric power and had a prosperous renewable-vitality industry beneath sail, for which the nation possessed all the necessary natural and financial assets. Then one powerful neoliberal free-market zealot decided to double down on high-carbon fuels and announce to the world that tar sands would grow to be the subsequent nation-constructing staple for his nation.