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Oil Prices in Canada: How Do Oil Sands Affect Them?

Oil Prices in Canada: How Do Oil Sands Affect Them?

Oil prices in Canada plunged to below zero on the 20th April, 2020. This means a historic low was reached.1 ‘Black April’ follows years of setbacks for the industry, ever since the international price of oil collapsed in 2014.2 In fact, with US President Biden revoking the permit for the Keystone XL pipeline, oil sands in Canada could be permanently crippled.3 

There is an irrevocable link between oil sands and oil prices. But, can the oil sands sector affect oil prices in Canada?

What are Canada’s oil sands?

Canada’s oil sands are the largest crude oil deposit on the planet.4 They cover over 142,000 square kilometres (km2) in western Canada. They are predominantly around Alberta.5 97 per cent of Canada’s proven oil reserves can be found in the bitumen.6 

However, the oil sands industry faces opposition from environmentalists and Indigenous peoples.7 Crude from oil sands generates 2.2 times more emissions per barrel than the North American average.8 What’s more, it creates vast amounts of tailings fluids which are toxic to animals, particularly aquatic organisms.9 Meanwhile, Canada’s clean energy sector exceeded the number of jobs provided by the oil sands industry in 2014.10 

Jobs in Alberta

Canada’s oil and gas industry never recovered from the oil price collapse in 2014.11 About 53,119 jobs were cut from 2014 through 2019.12 The COVID-19 pandemic caused another slump in 2020.13 It has left the 140,000 or more people employed in Alberta’s upstream energy sector in a vulnerable position.14 They are at the mercy of a volatile market that can change unexpectedly and drastically. 

Moreover, 98 per cent of Canada’s crude oil exports go south to the US.15 This situation is even less likely to change following the cancellation of the Keystone XL pipeline. Therefore, the oil sands sector is at the capricious whim of the US market.16 As a result, Canada’s oil workers are exposed to additional market instability.

But, can Canada exert influence over oil prices?

Oil prices in Canada

Canada is the fourth-largest oil-producing country in the world.17 However, it accounts for just six per cent of the global total.18 The world marketplace sets the price of oil, including domestically in Canada.19 

At least 100,000 barrels per day of extra production would be needed to affect global prices.20 In fact, Canada is a small player and is incapable of rapid production increases.21 They produce 4.6 million barrels per day.22 In comparison, the US and Saudi Arabia produce 17.87 million and 12.42 million barrels per day, respectively.23 As such, Canada has little clout over global oil prices.

Canada’s oil sands account for 63 per cent of Canada’s total oil production.24 This is equivalent to 2.95 million barrels per day.25 Throughout 2020, Alberta’s production was further limited to maintain higher prices for producers.26 Therefore, oil sands have minimal influence over oil prices in Canada, as the far larger global market dictates them.

Sources

  1. 2021 Could Be A Much Better Year For Canadian Oil. (2020). Crude Oil Prices. [online] 24 Oct. Available at: https://oilprice.com/Energy/Crude-Oil/2021-Could-Be-A-Much-Better-Year-For-Canadian-Oil.html [Accessed 6 Nov. 2020].
  2. pemedianetwork.com. (n.d.). Canada’s oil sands under siege. [online] Available at: https://pemedianetwork.com/petroleum-economist/articles/upstream/2020/canada-s-oil-sands-under-siege.
  3. OilPrice.com. (n.d.). What Will The Death Of Keystone XL Mean For Canada? [online] Available at: https://oilprice.com/Energy/Energy-General/What-Will-The-Death-Of-Keystone-XL-Mean-For-Canada.html [Accessed 17 Mar. 2021].
  4. CAPP. (2019). What Are the Oil Sands | Canada’s Oil Sands Facts & Information. [online] Available at: https://www.capp.ca/oil/what-are-the-oil-sands/.
  5. CAPP. (2019). What Are the Oil Sands | Canada’s Oil Sands Facts & Information. [online] Available at: https://www.capp.ca/oil/what-are-the-oil-sands/.
  6. Nrcan.gc.ca. (2017). Crude oil facts | Natural Resources Canada. [online] Available at: https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064.
  7. Leahy, S. (2019). Alberta, Canada’s oil sands is the world’s most destructive oil operation—and it’s growing. [online] Environment. Available at: https://www.nationalgeographic.com/environment/article/alberta-canadas-tar-sands-is-growing-but-indigenous-people-fight-back.
  8. Institute, P. (n.d.). The Real GHG trend: Oilsands among the most carbon intensive crudes in North America. [online] Pembina Institute. Available at: https://www.pembina.org/blog/real-ghg-trend-oilsands#:~:text=When%20looking%20at%20the%20carbon.
  9. Energyeducation.ca. (2018). Oil sands tailings ponds – Energy Education. [online] Available at: https://energyeducation.ca/encyclopedia/Oil_sands_tailings_ponds.
  10. Green energy sector jobs surpass total oil sands employment. (n.d.). The Globe and Mail. [online] Available at: https://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/green-energy-sector-jobs-surpass-oil-sand-employment-total/article21859169/.
  11. financialpost. (n.d.). Oil price war tests Canadian energy producers’ years-long drive to cut costs. [online] Available at: https://financialpost.com/commodities/energy/oil-price-war-tests-canadian-energy-producers-years-long-drive-to-cut-costs.
  12. Parkland Institute. (n.d.). The Future of Alberta’s Oil Sands Industry: More Production, Less Capital, Fewer Jobs. [online] Available at: https://www.parklandinstitute.ca/the_future_of_albertas_oil_sands_industry.
  13. Sharma, R. (n.d.). What Happened to Oil Prices in 2017. [online] Investopedia. Available at: https://www.investopedia.com/articles/investing/100615/will-oil-prices-go-2017.asp.
  14. Alberta.ca. (2017). Oil sands facts and statistics. [online] Available at: https://www.alberta.ca/oil-sands-facts-and-statistics.aspx.
  15. Nrcan.gc.ca. (2017). Crude oil facts | Natural Resources Canada. [online] Available at: https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064.
  16. DeSmog. (n.d.). Why Canadian Tar Sands Oil May Be Doomed. [online] Available at: https://www.desmogblog.com/2018/10/25/canadian-tar-sands-oil-financial-losses [Accessed 17 Mar. 2021].
  17. Nrcan.gc.ca. (2017). Crude oil facts | Natural Resources Canada. [online] Available at: https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064.
  18. Nrcan.gc.ca. (2017). Crude oil facts | Natural Resources Canada. [online] Available at: https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064.
  19. Nrcan.gc.ca. (2019). Oil Pricing | Natural Resources Canada. [online] Available at: https://www.nrcan.gc.ca/our-natural-resources/energy-sources-distribution/clean-fossil-fuels/crude-oil/oil-pricing/18087.
  20. Mabee, W. (n.d.). The coronavirus is just the latest blow to oil producers. [online] The Conversation. Available at: https://theconversation.com/the-coronavirus-is-just-the-latest-blow-to-oil-producers-133498.
  21. Mabee, W. (n.d.). The coronavirus is just the latest blow to oil producers. [online] The Conversation. Available at: https://theconversation.com/the-coronavirus-is-just-the-latest-blow-to-oil-producers-133498.
  22. Nrcan.gc.ca. (2017). Crude oil facts | Natural Resources Canada. [online] Available at: https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064.
  23. Mabee, W. (n.d.). The coronavirus is just the latest blow to oil producers. [online] The Conversation. Available at: https://theconversation.com/the-coronavirus-is-just-the-latest-blow-to-oil-producers-133498.
  24. Nrcan.gc.ca. (2017). Crude oil facts | Natural Resources Canada. [online] Available at: https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064.
  25. Nrcan.gc.ca. (2017). Crude oil facts | Natural Resources Canada. [online] Available at: https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064.
  26. Mabee, W. (n.d.). The coronavirus is just the latest blow to oil producers. [online] The Conversation. Available at: https://theconversation.com/the-coronavirus-is-just-the-latest-blow-to-oil-producers-133498.
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