Recent commentary suggests the outlook for the oil sands industry is bleak and therefore the sector should not feature in Canada’s economic recovery from the pandemic lockdown. This assertion, based on misinformation and misrepresentation, is wrong.

Here are five of the main arguments claimed against the industry, and why they don’t stand up to scrutiny.

Myth 1:  The COVID-19 pandemic has dramatically decreased the outlook for global oil demand.

Wrong. It is already clear that the decline in oil demand this spring caused by pandemic lockdowns was temporary. According to analysts with IHS Markit, global oil demand has already seen a “meteoric” bounce-back to 89 per cent of pre-COVID levels and is expected to return to up to 95 per cent through the first quarter of 2021.

Growth is likely to continue, according to August outlook data from the International Energy Agency. The IEA now forecasts that based on the world’s current trajectory, oil supply will increase by approximately 9 per cent between 2018 and 2040, to 4.9 billion tonnes of oil equivalent. Although the IEA forecasts that with more aggressive climate action by 2040 oil supply will be decreased by 32 per cent, that still leaves 3 billion tonnes of supply for producers to meet. Pushing free-market companies like oil sands producers out of the business just leaves state-owned oil jurisdictions like Russia and the OPEC countries to fill the void.

This means that the world’s ongoing oil demand would be met by countries that are not as focused on environmental, social and governance (ESG) measures like greenhouse gas emissions, water use, worker safety, community investment, representation of women, Indigenous people and visible minorities, and board diversity.

Recognized as an ESG leader, Canada is in a unique position to benefit from future oil demand. Canada primarily exports heavy oil, which is particularly valuable for a growing number of oil-based petrochemical projects in Asia, according to Eight Capital. Analysts forecast that over the next five years, approximately 3.2 million barrels per day of additional heavy and medium oil demand for petrochemicals will come online. Canada’s current oil sands production is approximately 3 million barrels per day.

“The increase in petrochemical demand is partly driven by electric vehicles because those are largely made of plastic. China wants to also be the leader in polyester exports, so that requires petrochemicals. All these things really require the heavy barrels because of components that just are not in light oil,” Eight Capital’s Phil Skolnick told the Canadian Energy Centre earlier this year.

There is also a significant opportunity to grow Canadian oil exports to the United States, particularly to feed refineries on the U.S. Gulf Coast. Facilities there are configured to process heavy oil but have faced shortages as their conventional suppliers in Venezuela and Mexico suffer from U.S. sanctions and production declines.

Myth 2: US tight oil is more economically competitive than oil sands production, and oil sands producers need triple-digit oil prices in order to make money for investors and stakeholders.

Wrong. Canada’s oil sands projects are competitive with US tight oil or shale oil, which thanks to fracking technology has dramatically increased US oil production. According to the Federal Reserve Bank of Dallas, as of March 2020, tight oil producers reported the break-even price of benchmark West Texas Intermediate for new wells in the Permian Basin ranged from US$46 to US$52 per barrel. Meanwhile the cost to both build and operate in the oil sands has dropped significantly, with the WTI breakeven price down to US$45 per barrel for the drilling method SAGD as of late 2018, according to IHS Markit.

At the same time the breakeven price for a new oil sands mining project is estimated at US$65 per barrel, which is down from $100 per barrel in 2014 and far from requiring triple-digit oil prices to profit for investors and public stakeholders.

It’s important to note that US shale projects have steep decline rates that require constant drilling to support stable production rates, Canada’s oil sands projects do not. Natural reservoir properties mean developments in the oil sands have near-zero decline rates. Once the initial capital investment is made, an oil sands project generates a “wall of cash flow” with substantially lower maintenance costs over a period of decades.

According to Eight Capital, ongoing maintenance for high-growth shale oil in the US requires spending of US$9 to US$11 per barrel, compared to US$4 to US$6 per barrel for oil sands mining and US$3 to US$6 per barrel for the oil sands drilling method SAGD.

Myth 3: Technological innovation cannot significantly improve oil sands costs and environmental performance.

Wrong. Canada’s oil sands sector has a rich history of game-changing technological advances, and in recent years the industry has accelerated work to reduce its environmental footprint.

Greenhouse gas emissions are a key area of focus, with companies achieving meaningful results in reducing emissions intensity.

Emissions intensity measures emissions per unit of output rather than total emissions, allowing for more detailed analysis of operational efficiency and the progress of technology development.

IHS Markit reports that since 2009, the weighted average emissions intensity of oil sands projects has fallen by 20 per cent, from 88 kilograms of carbon dioxide equivalent per barrel (kgCO2e/bbl) to 70 kgCO2e/bbl.

This assessment is supported by Environment and Climate Change Canada, which in its 2020 National Inventory Report says that oil sands emissions intensity has declined steadily from 97 kgCO2e/bbl in 2005 to 78 kgCO2e/bbl in 2018. IHS Markit tracks a wider set of emissions, which is the reason for the differences in intensity compared to the NIR.

IHS Markit says that transformational technologies are advancing that could have a more radical impact on lowering oil sands emissions intensity.

Reducing the impact of tailings from oil sands mining projects is another key focus area where technology development is achieving results. With the main concern being the increasing volume of tailings in northern Alberta, it is notable that technology is starting to reduce tailings accumulations.

According to the Alberta Energy Regulator, between 2015 and 2019 Suncor Energy reduced the fluid tailings inventory at its Base Mine by almost 17 per cent, from 316 million cubic metres to 263 million cubic metres. Meanwhile, Canadian Natural Resources has proven its ability to reduce fluid tailings by approximately 50 per cent in its latest mine expansion, along with an approximately 14 per cent decrease in GHG emissions because of new technology, according to BMO Capital Markets.

Canadian Natural is also “on the cusp of commercializing” a technology called its In-Pit Extraction Process, which would create dry, stackable tailings and eliminate the need for fluid tailings, BMO said.

Myth 4: Economic recovery stimulus programs will be most effective if they focus on renewable energy.

Wrong. Canadians have experienced firsthand the negative impact of past public programs to incentivize renewable energy development, including job losses and business closures.

Ontario’s Green Energy Act (GEA), introduced in 2009, sent electricity prices skyrocketing up to 75 per cent higher than competing jurisdictions in North America, according to the Canadian Manufacturers and Exporters.

The GEA also hurt residential consumers, causing costs to rise from 5.2 cents per kilowatt hour in 2008 to 11.55 cents at the end of 2017, an increase of 122 per cent in nine years, according to a 2019 report by the Fraser Institute.

“Green energy policy in Ontario has been a disaster for manufacturing, specifically small to mid-sized manufacturing. People left, people went bankrupt, [and] people moved growth,” says Jocelyn Bamford, vice-president of Toronto-based Automatic Coating Limited.

“People just decided that they were done and closed up. The loss of jobs was staggering.”

Myth 5: If Canada moves away from fossil fuels, it will show global leadership in reducing environmental impacts.

Wrong. As leading energy analyst Peter Tertzakian said on a recent ARC Energy Ideas podcast, if free-market oil producers like Canada move away from fossil fuels it is unlikely to reduce global greenhouse gas emissions. The more likely effect would be a major geopolitical shift that hurts North America and Europe while benefiting countries that are not as focused on ESG measures, and that includes much more than just emissions.

ESG also includes indicators like water use, worker safety, community investment, representation of women, Indigenous people and visible minorities, and board diversity.

Canada is recognized globally as an ESG leader. Part of that is its commitment to continuous improvement in environmental performance, which is not found in state-owned competing oil jurisdictions like Russia and the OPEC countries. Canada moving away from oil production as global demand continues would have the opposite effect of showing global leadership in ESG performance.