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The Unmistakable Impact Of The IEA’s ‘Fantasy’ Report

In an effort to adapt to Trudeau’s recent green policies and owing to pressure from the International Energy Agency (IEA), Canadian oil sand producers have formed an alliance to achieve net-zero emissions by 2050.

This would see a huge shift from current practices as, at present, oil sands producers extract some of the most carbon-intense crude oil. However, as the cost of carbon increases to meet environmental objectives in Canada, oil companies face increasing pressure to shift practices towards achieving net-zero. 

The alliance will include Canadian Natural Resources, Cenovus Energy, Imperial Oil, MEG Energy, and Suncor Energy, which together operate around 90 percent of the country’s oil sands production. They will be working alongside both the federal and Alberta governments to make operations less carbon-intensive. 

The companies are expected to invest in several areas in order to reduce their carbon emissions including, carbon capture and storage (CCS) technology, repurposing waste into hydrogen energy, fuel switching, as well as innovative technologies such as direct air capture and small modular nuclear reactors.

The alliance aims to maintain its oil production, which will contribute an estimated $3 trillion to Canada’s GDP over the next 30 years while creating jobs and advancing clean energy practices.

Significant actions towards achieving net-zero have been taken across the oil and gas sector over the last month, as companies have felt the mounting pressure from governments, regulators, and stakeholder activists. 

Last month, an activist investor managed to oust two Exxon directors from its board in a push for a greater response to climate change. The small hedge fund, Engine No. 1, demonstrated its dissatisfaction with the poor financial performance of Exxon during the pandemic, as well as its limited effort to introduce climate change initiatives. 

Anne Simpson, managing investment director of the California Public Employees Retirement System, stated of the dramatic move that “Investors are no longer standing on the sidelines. This is a day of reckoning.”

Related: Judge Blocks Biden’s Ban On Oil Leasing

In another blow to big oil, Royal Dutch Shell was ordered by a Dutch court to massively reduce its CO2 emissions in a landmark climate ruling last month. The company must cut emissions by 45 percent by 2030, on its 2019 levels, including emissions on its own operations and on all energy products sold by Shell.

The court ruling was the first of its kind against such a huge international player, showing that there is a clear trend happening across the oil industry. 

This comes after the IEA published its May report encouraging governments as well as oil and gas companies around the world to curb their oil production, invest in renewable energy projects, and reduce carbon emissions. 

Randy Ollenberger, managing director of oil and gas equity research at BMO Capital Markets said of the IEA recommendations that they are “a bit of a fantasy. It’s not going to be achieved, but it does create some potentially dangerous side-effects in so far as policymakers look at those prescriptions and say, ‘We’ll do all of this including tell oil and gas companies to stop spending money’.”

As companies feel the pressure to cut spending and limit oil supply, we may expect an oil price spike of up to $100 per barrel. Green policies introduced by several governments around the world have already put pressure on oil and gas companies to limit investment in fossil fuels to the short term while thinking about longer-term renewable energy projects to add to their portfolios. Pressure from governments, regulators, and investors as well as the potential for courts to rule in favor of green policies could spell a major shift in oil and gas.

By Felicity Bradstock for Oilprice.com

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