Zombies in the oilpatch

["A study released recently concluded that solar will be the world’s cheapest energy source within a decade.... there will be no place even for bargain-basement oil in a residential market where solar is building market share" Meanwhile, see how The rush to hoard oil is getting so intense that there's a market forming for oil storage futures contracts. *RON*]

By Mitchell Beer, iPolitics.ca, 3 March 2015

You know times are tough when a company built on the promise of rapid growth and untold riches tells its primary suppliers the party’s over.

But that’s what happened last month when Steve Laut, president of Canadian Natural Resources Ltd. (CNRL), told a business audience in Fort McMurray, Alberta, that Canada’s oilsands industry is headed into a “death spiral” unless producers can get a break on costs.

Oilsands producers, said Laut, were making three times the profit in 2004 — when a barrel of oil cost about US$40 — than they were when the price hit close to $100 in 2013. He pointed the finger not at OPEC, but at the industry’s own suppliers.

What Laut said wasn’t as surprising as the fact that he was the one saying it — the head of one of the oilsands’ biggest producers, not some fossil fuel divestment analyst — and that the setting was the Fort McMurray Chamber of Commerce.

We know that oilsands producers are hurting. Prices have fallen by about half. The booming U.S. fracking industry can deliver a less expensive product. CNRL says it expects prices to rebound eventually to $60-$75 per barrel — but a mid-December Goldman Sachs study identified $930 billion in fossil fuel projects, some of them in the oilsands, that are no longer profitable even with oil at $70 per barrel.

“There are zombies in the oil fields,” Bloomberg’s Tom Randall wrote at the time. “After crude prices dropped 49 per cent in six months, oil projects planned for (2015) are the undead — still standing upright, but with little hope of a productive future.”

And none of this analysis accounts for the next wave of threats facing the costly, highly-subsidized, dangerously carbon-intensive fossil fuel projects that many Canadians think of as business as usual — and the Harper government mistakes for an economic strategy.

Deutsche Bank predicted last year that solar electricity will be cost-competitive with conventional energy in all 50 U.S. states by 2016. A study released recently concluded that solar will be the world’s cheapest energy source within a decade. And while there will be no place even for bargain-basement oil in a residential market where solar is building market share, the dawn of electric vehicles points toward a day when even personal transportation will no longer depend on liquid fuels.

And a European research project funded by electronics giant Philips concluded that today’s economies waste an astounding 98 per cent of the raw energy they produce, pointing to huge (and hugely profitable) opportunities to reduce demand.

“If we could double world energy productivity — from 1.5 per cent to 3 per cent per year — that would create six million jobs,” reported EnergyEfficiencyMarkets.com, in a detailed post on the study.

That wouldn’t solve CNRL’s problem, of course.

If Steve Laut’s remarks in Fort McMurray drew a “muted” reaction, as the Globe’s Peter Scowen reported, it was because he was dialling back the social contract that brought a sustained economic boom to a town built on oil. The implicit promise was that as long as there was product to be extracted, there would be enough fast cash to give everyone a slice.

Laut couldn’t have been surprised that his message wasn’t what his audience wanted to hear. Has anyone in Canada not heard the stories of oilfield workers who flocked to the oilsands for an economic bonanza, planning to return to their home provinces after a few years of very lucrative work?

“No city or region can develop or flourish without a critical mass of individuals investing time, money, and effort into building a future for themselves, their families, and their communities,” the Fort McMurray Chamber proclaims on its website. Quite right. But in oilsands country, that’s never been the deal.

Now, Fort McMurray will have to confront a painful reality: The single industry behind that “critical mass” may not be coming back soon — or ever. The hollowing-out will accelerate as companies like CNRL begin to feel price competition from clean energy technologies that are scarcely even factored into their industry’s day-to-day analysis right now.