May 27th, 2020

The resources are there, but won’t come cheap

By Letter to the Editor on November 22, 2019.

Re: “Canada’s energy industry being killed by misplaced virtue signals,” Nov. 5

The piece by Jillian Lazic suggested that Encana and Canada’s energy industry are being slowly killed by virtue signalling and restrictive federal environmental laws, with $30 billion of foreign investment having already fled. While some of this is arguably true, the real challenges of Alberta’s oil and gas industry lay squarely at the feet of physics and economics.

Lazic notes that Encana (which has seen its share price decline by 90% since 2008) was one of the first Canadian companies to deploy horizontal fracturing (fracking), an expensive technology which has yet to demonstrate its economic viability. The Wall Street Journal noted in June 2019 that the top 40 shale producers have collectively spent $200 billion more than they made in the last 10 years.

Much like the financial calculation of return on investment, the physics-based calculation of energy return on investment or energy return on energy invested (EROI/EROEI) of Alberta’s unconventional oil and gas resources is an order of magnitude lower than the conventional fields of its heyday last century. The result is that unconventional oil and gas technologies require much higher prices to be sustainable, with much lower profit margins for producers. And with global oil prices languishing between $50 and $60 a barrel, companies are understandably experiencing significant challenges.

The University of Calgary’s Haskayne School of Business recently published a study of Alberta’s oilsands, showing that the EROI of mining operations is as low as 3.9:1, burning one barrel of oil for every 4 produced, and in-situ projects as low as 3.2:1. Contrast this with conventional fields that produced oil with an EROI of 80:1 some 40 years ago, and the trend is obvious. Alberta’s oil and gas producers are literally burning more and more of their own product just to get it out of the ground. While fracking and other related technologies have allowed for the ongoing extraction of oil and gas in Alberta, the real question is whether they can produce a profit in the long-term – which is the more likely reason investors are dubious. Alberta has plenty of remaining oil and gas resources, none of which will be cheap or easy to produce in the future.

Brent Smith

Instructor, Environmental Reclamation Program

Medicine Hat College

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