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Heather Exner-Pirot: Why the oilsands’ weaknesses are turning into strengths


Few industrial projects have been more maligned than Canada’s oilsands. It has been called tar sands, a carbon bomb, the “dirtiest oil on the planet.” It’s suffered through the shale revolution, the COVID-19 shutdown, and a torrent of ESG (Environmental, Social and Governance) divestment. Its grade of heavy oil has been discounted and shunned.

But despite the challenges, things are coming up roses. In almost every aspect of the sector that has looked weak in the past decade—costs, grade, carbon intensity—the oilsands are coming on strong, and poised to provide unprecedented revenue streams for Canadian public coffers.

Oilsands are known as “unconventional” oil, which is extraction from anything other than traditional, vertical wells. In northern Alberta, the expansive hydrocarbon resources are in bitumen form, a molasses-like consistency too heavy to flow on its own. It takes a lot of capital and energy to turn the oilsands’ oil into a product that can be transported, refined and used by consumers.

For this reason, the oilsands were seen in the early 2010s as an expensive form of oil, with high up-front costs and a high break-even price: up to USD$75/barrel for new oilsands mines. This made it difficult to compete with cheaper American shale, which came online at scale at the same time as the oilsands, to great chagrin in Calgary.

However, global oil prices are recovering from a multi-year bust, and new “in-situ” extraction technologies have greatly reduced oilsands recovery costs. Break-even prices now average less than USD$40/barrel, and BMO Capital Markets assessed in September that the average oilsands producers could cover their capital budgets and base dividends at USD$46/barrel. By contrast the average large U.S. producer requires USD$53.50/barrel. For new shale wells outside of Texas last year, it was $69/barrel.

Another advantage is that oilsands are low-decline, which means they have decades of inventory, or oil available to be extracted. Shale oil sites have declined as high as 50 percent in the first year. While the oilsands reap the benefits of past investments, shale producers need to continuously drill and invest in new production. (But they haven’t been of late: the U.S. oil rig count has fallen 21 percent since December 2022, largely because of new well costs.)

Another challenge for the oilsands has been its grade: “heavy” or dense, and “sour” or high in sulfur. Light, sweet crudes are easier to refine and have historically sold at a premium. The difference can be stark: at its worst in 2018, West Texas Intermediate (WTI) oil sold for USD$57 a barrel, compared to just USD$11 for heavy Western Canada Select (WCS).

But heavy oil has qualities that are desirable, even necessary for some refined products. Whereas light crude is primarily made into fuels, heavy oil is advantageous for plastics, petrochemicals, other fuels, and road surfacing: things we will still need in a post-combustion, net-zero world. Many American refineries are configured to process heavy oil. Because the U.S. produces virtually none itself, they depend on cheap Canadian sources.

Geopolitical factors are also bolstering heavy and sour oil. Recent production cuts by OPEC+, designed to lift global oil prices, have limited supply of medium and heavy sour grades, which matches the kind of oil the Biden Administration released in its big Strategic Petroleum Reserve sell-off last year. This has brought higher prices for heavy, sour oil, more good news for the oilsands.

As for the oilsands’ biggest Achilles heel, its carbon intensity, this is another weakness turning into a strength. The oilsands are geographically concentrated, with a small number of facilities producing large amounts of emissions. This makes them far easier to decarbonize than conventional oil, which needs huge fleets of rigs creating hundreds of emissions sources in order to produce comparable amounts of oil. Seizing the opportunity, the major oilsands producers are working together on one of the biggest carbon capture projects in the world, building a 400-km CO₂ pipeline that could link over 20 CCS facilities with a carbon storage hub in northeast Alberta. Small modular reactors are another option being explored to reduce emissions. It’s not easy or cheap, but it’s possible to reach net zero, which producers plan to do by 2050.

All of this is not just good news for the oilsands, but for Albertans and Canadians as well. In 2022, royalties going into public coffers from oil and gas extraction hit a record $33.8 billion; that’s more than all royalties from 2016-20 combined. The boost comes not just from higher prices but from Alberta’s strategy to charge significantly higher royalties—up to 40 percent—from oilsands facilities whose upfront development costs have been paid off and revenues are exceeding operating expenses.

A large number of facilities have already reached this threshold, and more are added each year. This flexible new paradigm of permanently higher royalties helps governments moderate the budget rollercoaster of volatile oil prices: nine times more at $55/barrel, and four and half times more at $120/barrel. Next year, when the TMX pipeline adds more than half a million barrels a day of capacity from the oilsands to new markets, the value of royalties will also increase, along with corporate taxes.

Of course, the oilsands still face headwinds from Ottawa, none bigger than a proposal to reduce oil and gas emissions by 42 percent (from 2019 levels) by 2030. Although the oil and gas sector has invested heavily in emissions reductions, and greenhouse gas intensity per barrel fell 20 percent between 2009 and 2020, there is no way to meet the new target without cutting production. S&P Global estimates that 1.3 million barrels of daily output will need to be slashed, which would be an existential threat to the sector. Fortunately, the political tide in Canada is turning in such a way that the oilsands could hang on long enough to see friendlier policies.

Finally, the oilsands remain unloved by investors, although the tide has been turning with higher prices. Their enterprise multiple (EV/DACF), a standard valuation formula, is on average 5.8x as of September and was even lower in 2022. This is much lower than the S&P 500, which has averaged between 11 to 16x in the last few years. In Calgary this has been called the Ottawa penalty box: the only logical explanation for their low valuation seems to be the lack of confidence investors associate with the Canadian energy policy landscape. At any rate, oilsands companies are currently free cashflow machines and are rewarding the shareholders they do have with share buybacks.

After nearly a decade on their back foot, the oilsands have reason for optimism. Lots of people still love to hate them, but they’re starting to rack up some wins.

Ginny Roth: Israel’s civic strength in response to the Hamas attacks should stiffen Canada’s spine


In the lead-up to Canada Day I wrote a lament for our country’s atomization and polarization. I bemoaned our decadence, our lack of national unity, and—rather cavalierly—pointed to Israel’s robust patriotism, strong birth rate, and shared sense of purpose to make the case that Canada ought to experiment with a mandatory year of national service, just as is required of young Israelis.

While the October 7th Hamas attack on Israel caused me to pause and approach the matter more soberly, it didn’t fundamentally change my view. In fact, it is increasingly clear that the horrific act of terrorism, and our subsequent inability to properly reckon with it, has revealed the true depths of Canada’s moral relativism. Fortunately, the event that so exposed our flaws can also be a source of inspiration. Israel’s 9/11, while revealing our weakness, calls on us to find courage, and provides us, in the brave reactions of Israelis themselves to the tragedy, with examples to aspire to.

Some thoughtful critics of the disturbing, morally bankrupt Canadian responses to Hamas’ attack on Israel have pointed to a creeping nihilism in the West to explain how mainstream Canadians can defend such evil acts. And there’s no question that a worldview which understands only power, identity, and oppression leads to a shocking inhumanity. But a few wrong-headed opinion leaders alone don’t make for a rotten culture. More concerning in the weeks following October 7th has been the deafening silence of their neutral appeasers. Brushing off tough questions, avoiding taking a stance by appealing to “both sides” and “de-escalation,” the newsroom editors, university administrators, and labour leaders choose neutral amorality when confronted with discomfort and sit idly by as their more radical peers ratchet up their justifications.

Our dominant culture of deference and equivocation seems mostly harmless in times of peace and prosperity when manifestations of evil are subtle. We value pluralism after all. Surely good ideas will win out, we think. Surely our proud history will guide us if ever we have to face an uncertain future. But that uncertain future is here, and as de-colonization discourse takes to the streets our neutral liberal mainstream is struggling to respond. Nowhere is Canada’s moral confusion playing out more dramatically than in the Liberal Party itself, where a leader who flirted with trendy post-modernism when times were easy is struggling to bring his team onside in defence of civilization when times are tough.

The apparent harmlessness of liberal neutrality when the impacts of evil are merely subtle explains our reluctance to take assertive action in favour of a common good. For libertarians like my friends at the Institute for Liberal Studies who opposed my mandatory service proposal, the potential benefits would never outweigh the coercive state power involved in implementing it. And for most Canadians, most of the time, our moral neutrality feels benign. But when world events force us to confront overt evil, it’s clear not only that Canada would fail were it to arrive at our doorstep, but that we cannot even summon the courage to consistently oppose it as it terrorizes our allies abroad.

If there is any benefit to the horrors of October 7th, it is in the fact that overt, unsubtle evil is clarifying—it shakes us out of our stupor and stiffens our spines. Stories from the attack remind us of what is important, and what is at stake. Tales of rape so vicious it broke bones, of an unborn baby cut from its mother’s womb, and of youthful revellers screaming in fear, their young lives cut short, remind us of the vitality of our bodies, their purpose, and their fragility. Tales of mothers losing daughters, fathers searching for sons, and family members burned to death in embrace remind us of the irreplaceable bonds of family, our most sacred relationships. Tales of terrorists crossing into sovereign territory, descending on a music festival and kibbutzim, and murdering thousands in order to make all Israelis feel terror in their own country remind us that in Canada our safety is a great privilege, our democracy delicate, and our geography lucky. We should never wish to witness the kind of evil that leads to war, but when it comes, we should be grateful for the gifts of its clarifications.

And while Canada’s weakness is shocking and concerning, we should take some comfort that that strength is not entirely inaccessible to us. Indeed, Canadian Israelis are summoning the call of their countrymen even today, flying toward bloodshed to fight for what they believe in. They are summoning an ancient virtue, often inaccessible to us neutral liberals. And their fellow compatriots provide ample models for those among us who wish to be inspired by their bravery: a young man throwing himself onto a grenade to spare his girlfriend, a Bedouin man trying to hide Jews from the terrorists who sought them out, a former IDF general leaping into a truck to drive into harm’s way to rescue his son and grandchildren and saving others along the way.

For those of us who have been lamenting Canada’s moral rot and cultural decay, our country’s social response to the events of October 7th—the nihilistic justifications and the neutral liberal equivocation—has felt like an unwelcome reminder. But just as the attack revealed unpleasant truths about the health of our country, it provided helpful hints as to how we might go about healing. If in response to future incidents of evil in Canada and abroad we can summon a shred of the courage shown by Israelis in the face of terror, perhaps we rise above our passive neutrality, reject the proliferation of nihilism’s death cult, and promote a shared vision of Canadian values—maybe even some we’d be willing to fight for.