A managed decline of the tar sands isn’t a popular idea in Alberta, or in Canada for that matter. The idea of sunsetting the tar sands industry is about as polarizing as it gets. The problem is that people have been led to believe that a managed decline undercuts a booming oil industry that is on the cusp of bouncing back after a few bad years. It’s not. The only real alternative to a managed decline is something much worse: an unmanaged decline.

Almost everyone understands that the world will eventually wean itself off of fossil fuels, hopefully sooner than later. A rarely discussed consequence of this is that there is no reasonable scenario in which the high cost tar sands sector remains the last man standing as the transition takes hold. Indeed, this dynamic appears to be already in play.

In a new briefing note published today, we use industry data to provide a snapshot of a tar sands sector on the precipice of decline. It won’t necessarily be a surprise that capital expenditure (capex) for new projects has taken a downturn in recent years, but it may be a surprise that there is currently no commitment to project construction beyond 2020.

Figure 1 (below) shows the steep decline in project approvals since 2013. Note that in 2017, no new capacity has been approved to date.

Figure 1: Tar sands capacity additions by approval year

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Figure 2 (below) shows the annual capex spent on developing new tar sands production capacity since 2000. Projected capex beyond 2016 only includes investment in projects that have already been approved. This capex ends in 2019 as currently under construction projects begin production. For that to change, new projects will have to be sanctioned by oil companies.

Figure 2: Tar sands capex in new project construction/development

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This is a dramatic change of events in a sector that just a few years ago was anticipating major expansion and sustained growth. Instead, the sector is facing the end of any significant capex in new growth, and the challenge of trying to squeeze a profit out of projects that were sanctioned in a $100 per barrel world in one that is instead moving towards decarbonization.

What matters now is that decision makers, thought leaders, and citizens wrap their heads around this new reality. If there is a failure to step in and manage the inevitable decline in the sector as production dwindles and profits shrink, workers, communities, and the economy are going to be the ones that suffer.

Companies and industry advocacy groups (like CAPP) are quick to point to rising production as a sign of resilience, but the only production growth that is happening is a relict of decisions made several years ago before the oil price crash. These projects are still lumbering toward their start-up dates because of the long construction timelines that are common to the sector. What is less discussed is the exodus of major international oil companies that have seen the writing on the wall, leaving a handful of Canadian companies holding the reins of an industry that has likely boomed for the last time.

Because tar sands projects are so capital intensive, take a long time to build, and produce for many decades, investors need to feel confident that oil prices are going to be sustained at high enough levels to make massive up-front capital expenditures worth it. This isn’t the picture that they see right now. In the near-term, U.S. shale production is likely to keep a lid on prices as the U.S. frackers continue to drill-baby-drill no matter the harm they cause. Goldman Sachs analysts currently expect prices to stabilize around $55 for the foreseeable future. This is at least $20 below the price needed to trigger significant new activity in the tar sands.

In the longer term, the combination of climate action, electric vehicles and clean technology development and the push in Europe and Asia for cleaner air, are poised to radically change the oil market forever. The boom and bust cycle we have seen for the last century and a half may just be a bust.

Suggesting, as government and industry are doing, that the best course of action in response to a struggling economy is to build more infrastructure that requires sustained high oil prices and assumes a global failure to address climate change is not only misleading but reckless, and risks blowing up a bubble of debilitating stranded assets.

Before anyone suggests that there is a silver lining in that the climate work here is done (i.e. the end of the tar sands is happening anyway), do not speak too soon. The fossil fuel industry specializes in making itself seem indispensable, and they will be digging in their heels over the coming months and years to do as much climate damage as possible while they still can. The evidence can be seen in the increasing clamour to ditch regulations and support new infrastructure.

The movement has done incredible things to delay and stop infrastructure, and those battles will continue as the industry continues to use convoluted arguments to demand new pipelines (for example).

A managed decline is highly preferable to an unmanaged one, but it requires recognition that the decline part is inevitable, which is the conversation we hope to trigger.

Read the full briefing note here and the press release here.



  • Is there not a great deal of hypocracy in your stance, as this message is being received and sent via computer and cell phones made with plastic created by and minerals mined with oil based fuels, via satellites, placed in space with oil based fuels, and electricity, in many cases, from natural gas. The oilsands are suffering at present as the world gets it’s oil from Saudi, Russia, the US – and if those sources were not available, there is good probability that much of the developing world would return to coal for the power needed to pull their economies out of extensive manual labour dependence. Is that better ?
    Do you know how good Canadian oil producers are at what they do ? Do you know how many are family people, outdoor enthusiasts, who also care about this country, this planet ? Their vision may not be exactly as yours, but they too want to drink clean water, breathe clean air, pass on a world that is better for their children.
    Can’t we stop celebrating another Canadian’s demise ? Can’t we recognize that oil and gas products have allowed us a standard of living enviable in this world, and desired still, while working towards more sustainability where possible. Local food, local clothing, smaller, more efficient homes – good goals, but is everyone ready to pay the higher price? and forgo bananas and oranges until the greenhouses in Canada can produce them… at some higher cost… Do you know any cobblers ? to make all leather shoes – no more composites, no “cushioned” soles. When was the last time you bought an all leather shoe ? Do you just walk – no bikes, no electric cars (still must be built of plastic and metal – oil) on grass laneways (no ashpalt) ? Do you ever fly anywhere ?
    Is there really a need to vilify the oil and gas industry that supplies product to make this possible?
    You cheer the demise of the “tar sands”. People in the industry look at their work as the world’s largest oil spill clean up – because the oil has been oozing to the surface and leaking into the Athabasca for millennia’s – long before anyone decided to do something helpful with it.
    Still, you cheer – do you have plans for comparable multiple high income jobs for people in this country – the people from all over the country who have made products to support the industry, or worked there directly ? Can Canada support 30+ million farmers ? urban or otherwise ? What about the world – can 7 billion people thrive in your oil-less scenario ? How will buildings get built ? Out of what (no mining, right ?) ?
    There is a reason we, as a society, stepped towards oil and gas usage. It wasn’t evil manipulation – it was a desire to be able to do more, accomplish more, without as much time and hard labour as had been required in the past. It was because oil and gas were cleaner than kerosene and coal. And as improvements were made, people gravitated to cleaner safer means of production, locally. Or to cheaper, if offshore (think clothing, manufacturing).
    On your website you have advocated eliminating rail transport of oil….. and pipeline transport of oil….. you call this a “managed” decline.
    A “managed” decline is where demand lessens because other, better technologies have been developed . What are your better technologies for large scale food production ? for roads ? for heart valves ? for protective gloves in hospitals ? for makeup? for clothing ? for affordable (ie that a whole society will embrace) toys, games, kayaks, skis? And of course for communication without cell phones and computers ?
    I think until you have some large scale (ie adaptable REALISTICALLY by whole society) answers to the above questions, answers that YOU are able to live by, you should be thankful for a highly regulated, answerable oil and gas industry in your own country.

  • Judy H. I find your post not much more than a lot of fear mongering. Oil companies have proven they do not give a care that the people living downstream from the oilsands do not have access to clean drinking water. Their water has been polluted. As far as the environment is concerned, have you seen an aereal view of the tar sands? It’s environment destruction as it’s worse and they have no plan in place to clean it up. There are already products coming on the market made with biodegradeable materials that were once made from plastic (oil). This trend is going to expand and grow and there won’t be any use for plastics that take years to break down; that are ending up in our oceans and killing turtles, whales, fishes and other marine wildlife. Growth only comes through change and we are growing and learning there is a better way. I hope you will get on board instead of leaving yourself stuck in the oil sands.

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