Decreasing oil use combined with China’s increasing environmental concerns likely to impact oil sands in 2011

In my final blog post of 2010, it is worth taking into account a number of disparate sources and ideas I have touched upon previously. I also wanted to review some very recent stories that seem to confirm the idea that got me interested in the whole area of energy in the first place: namely that there will continue to be a push towards using less oil globally (which may or may not succeed), but in any event the moves to use cleaner and “greener” sources of oil will continue. I believe that there are a number of trends suggesting that this is happening, and that if nothing changes in the oil sands it will lose its social license to operate. In yesterday’s post, I briefly reviewed some of the events in 2010 that may lead to the loss of the social license. Today I review some of the other trends I have seen this year.

There has been much written about reducing oil use, although many remain skeptical this will happen and have repeatedly predicted oil shortages. Moreover, for this to be realistic it would have to be accompanied by other sources of energy. During 2010, several changes occurred that suggest this may end up being more realistic than previously assumed. Such changes will have major impacts on the oil sands.

In terms of using less oil, the Sierra Club has just summarized some realistic pathways about how this may occur in the US. Others have shown that there may be increasing non-carbon options to produce energy that may become increasingly cost-effective, which may include producing oil or oil products from natural gas, increasing recognition of cost-effectiveness of commercial geothermal and/or geoexchange techniques, and even possibly new inventions such as a novel solar reactor reported in Science. Of course, the biggest change is the increasing availability of shale gas in the US, which National Geographic has termed the “The Great Shale Gas Rush”, and which could dramatically reduce the need for oil in the US.

Others have suggested that increased requirements from Asia, particularly China, will sustain oil needs. However, in previous blog posts I have suggested that China may move increasingly to electric cars, possibly much faster than had previously been thought. This idea is supported by two very recent events showing firstly that China is reducing the export of rare earths even further (rare earths are needed in the production of advanced car batteries for electric cars), and secondly that China may be poised for a major change in their environmental approach as environmental issues are currently costing them at least 4% of GDP. Both of these actions could dramatically reduce their imports of oil.

My bottom line prediction? The oil sands remain the highest emitter of CO₂ on a per barrel basis. There are no meaningful actions by companies or governments (provincial or federal) which would lead to significant changes in this. Indeed, with the increasing move to extraction of underground oil, which requires natural gas to be burnt to create steam to melt the bitumen, CO₂ emissions will only get worse. Therefore without any action future development of the oil sands will increasingly be at risk. I believe that the world will actually decrease its use of oil over the next two decades, and if the oil sands want to be part of the future supply then they need to concentrate on producing the world’s greenest oil. This isn’t happening, and without this change it is likely that oil from the oil sands will become increasingly less acceptable around the world. It was this belief that started my interest in this whole area. Unfortunately, nearly everything that has happened since I started researching and writing on this topic nearly 18 months ago has confirmed that nothing has changed and the negative consequences for Albertans are increasingly likely.