Alberta Oil Sector Facing Volatile and Long-Term Decline Even in the Absence of Domestic Climate Policies

Winnipeg, MB (May 26, 2021) – A combination of market forces, international climate policies, and geopolitics will push Alberta’s oil sector beyond a tipping point and drive its long-term decline by the end of this decade. That’s the key finding of a new report and modelling by the International Institute for Sustainable Development.

The report identifies eight key factors that will affect the future of Alberta’s oil sector. It finds that five of the factors will apply downward pressure on the sector over the long term. The biggest factor is the global transition away from internal combustion vehicles and toward electric and alternative-fuel vehicles, which will sap the 44% of demand for crude oil currently coming from transportation.

According to the report, the only factor that will apply upward pressure on Alberta’s oil sector over the long term is increased global demand for plastics. Domestic climate change policies, such as a carbon price, were excluded from the assessment in order to focus on factors outside of Canada’s immediate control.

The report predicts a steady long-term decline in Alberta’s oil sector beginning by the end of the decade. Geopolitical dynamics, particularly in relation to the behaviour of OPEC+ members after peak oil, will make this a volatile decline.

New modelling in the report shows how volatility poses a much greater threat than low prices to the Alberta economy. A conservative outlook on price volatility finds that its damage to Alberta’s economy could be more than five times worse than the effect of just low prices.

The report concludes that, unless there are innovations in the uses of oil for non-combustion, also known as "bitumen beyond combustion," the oil sector will contribute less and less to Alberta’s prosperity. The report models a potential drop in employment from the oil sector of 24,300 full-time jobs per year on average toward 2050, as well as a potential 43% drop in royalties from the sector to the Alberta government.

"After a temporary rebound this decade, the long-term outlook for Alberta’s oil sector is bleak," said report author and economist, Aaron Cosbey. "Governments need to focus investments not on propping up a shrinking sector but on diversifying the economy and advancing new growth opportunities."

View the full report here.

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