Whereas Norway is committed to working to prevent global average temperature from rising by more than two degrees, the board of the Norwegian state-owned company Statoil is basing their continuing involvement with Canadian oil sands on an energy scenario that the International Energy Agency says points to a long-term temperature increase of 3.6 degrees.
This year’s annual general meeting of Statoil will take place on 14 May. As last year, some shareholders have proposed ending the company’s involvement in Canadian oil sands.
Statoil entered into the world’s largest oil sand reserves in Alberta, Canada in 2007. Today the company owns 60% of the Kai Kos Dehseh project, and has four licenses in total. Production is still small, but according to the government of Alberta’s quarterly update (pdf), Statoil is only just starting what they hope will be large-scale involvement in oil sands. The goal is to produce more than 200,000 barrels per day.
In the run-up to the annual general meeting, the board of Statoil has written a memo arguing against the shareholders’ proposition. (pdf) The memo reveals a mode of thinking at Statoil which is not in line with the targets which Statoil’s largest owner – the Norwegian government – defends in climate politics:
“It remains the board’s position that a growing world population and rising standards of living in the developing world will continue to drive oil demand. According to the International Energy Agency, global unconventional oil production will rise to 10 million barrels per day in 2035. Statoil’s operational strategy in the oil sands activities has from the NAOSC acquisition been based on principles of a step-by-step development to secure learning from operational experience, and by establishing clear and stretched ambitions for environmental and economic performance.”
Here are my comments to the arguments presented in the memo.
The board of Statoil says: “It remains the board’s position that a growing world population and rising standards of living in the developing world will continue to drive oil demand.”
It is correct that world population is growing. It is expected to reach 9 billion in 2050. But Statoil does not mention that if we are to meet the two-degree target we will have to reduce global emissions of greenhouse gases by 50-85% by 2050, compared to the level in 2000.
Through the UN and World Bank’s initative Sustainable energy for all, the international community has united around three specific energy targets towards 2030: 1) Ensuring universal access to modern energy services. 2) Doubling the global rate of improvement in energy efficiency. 3) Doubling the share of renewable energy in the global energy mix. Investing in large-scale oil sand production in Canada based on future energy needs, is the same as placing a bet on a development where these energy targets will not be met.
The board of Statoil: “According to the International Energy Agency, global unconventional oil production will rise to 10 million barrels per day in 2035.”
It is correct that unconventional oil production, according to the IEA’s “New Policies”-scenario, will rise to 10.4 million barrels per day in 2035 (page 107 of World Energy Outlook 2012). 4.3 million of these barrels will come from Canadian oil sand.
But what the board of Statoil does not mention is this:
- The IEA’s “New Policies”-scenario is based on an average temperature increase of 3.6 degrees.
- In “New Policies”, the expected demand for oil is 20% higher than in the scenario which aims for the two-degree target (the “450”-scenario).
- In the projections of the Canadian government, oil sand production is expected to reach 5.1 million barrels per day by 2035 – way above the IEA’s energy trajectory for a temperature increase of 3.6 degrees.
The board of Statoil: “Statoil’s oil sands project is long-life assets (30/40 years) expected to have considerable positive impact on the company’s long-term profitability and cash flow.”
Extracting oil from oil sands is costly, and therefore depends heavily on high oil prices in order to be profitable. Statoil’s oil sands project in Canada will be among the first to go under when demand for oil one day reaches its peak. It is impossible to know when this will happen, but it is certain that it will be within the next 30-40 years. Citibank has forecast that oil will reach “peak demand” by 2020, while Bloomberg New Energy Finance has said that fossil growth will have halted by 2030.
The board of Statoil also does not mention what the IEA says is a prerequisite to reaching the two-degree target, and which the Norwegian government refers to in a Finance Ministry report from 2013: At least two thirds of the world’s known reserves of fossil fuels will have to remain in the ground.
Statoil’s shareholders should also take note of the IEA’s reservations concerning the future of Canadian oil sand. On page 109 of the World Energy Outlook 2012, the IEA authors write:
«Production in Canada is projected to rise steadily as oil-sands production grows by two-and-a-half times to 4.3 mb/d by 2035, more than offsetting a decline in conventional output. This projection assumes that environmental concerns can be assuaged and that infrastructure to bring the oil to markets in the United States or to Asia can be built. (…).Without new export capacity, western Canadian oil production would exceed regional consumption and current export capacity before 2016».
If President Barack Obama rejects the Keystone pipeline and the EU decides to designate fuel from oil sand as “extra carbon intensive”, as the commission has suggested, there may be no market for Statoil’s planned oil sand.
(Translated from the original Norwegian version by Øystein Hellesøe Brekke.)