High costs, low prices and tough new environmental rules forcing companies to cancel plans to produce oil
Today, only about 20% of future oil sands projects in northern Alberta are capable of being profitable. Photo: Ben Nelms/Bloomberg News
A new era of low crude prices and stricter regulations on climate change is pushing energy companies and resource-rich governments to confront the possibility that some fossil-fuel resources are likely to be left in the ground.
In a signal that the threat is growing more serious, Exxon Mobil Corp. is expected in the coming week to disclose that as much as 3.6 billion barrels of oil that it planned to produce in Canada in the next few decades is no longer profitable to extract.
The acknowledgment by Exxon, after the company spent about $20 billion to put the oil sands at the center of its growth plans, highlights how dramatically expectations have changed about the future prospects of the region.
Once considered a safe bet, Canada’s vast deposits are emerging as among the first and most visible reserves at risk of being stranded by a combination of high costs, low prices and tough new environmental rules.
“For a lot of reasons the oil sands look like a prime candidate for eventual abandonment,” said Jim Krane, an energy fellow at Rice University’s Baker Institute. “One problem is that costs are persistently higher. The high carbon content only makes it worse.”
During most of the past decade, Exxon and other giant oil companies spent billions of dollars in Canada as part of a global quest for new sources of supply, as analysts cautioned about “peak oil,” or the risk of running out of the resource. Prices surged to $140 a barrel.