Analysis

Fossil fuels roar back in a world hungry for energy: Don Pittis

Carbon output that had plateaued for three years is surging again as stronger economies renew demand for energy. Investors need to know what comes next.

As U.S. coal exports rise and oil prices surge, climate change scientists remain optimistic

A ship loads coal in British Columbia. A surge in oil demand and growing exports of coal to Asia mean the world's carbon output has begun to grow again. But can it last? (Ben Nelms/Reuters)

Green car enthusiast Matthew Klippenstein pulls his early model plug-in Prius into a Tim Hortons in Maple Ridge, B.C., to take my call.

As gas prices begin to soar again Klippenstein, an engineer who, among other things, writes about the latest developments in battery-powered vehicles for Green Car Reports, tries not to sound smug.

Even before Alberta's threats to penalize British Columbia for blocking its planned oilsands pipeline expansion to the West Coast, B.C. pump prices were already high. But by the end of last week, a surge in global oil prices had pushed gasoline in the Lower Mainland to $1.50 a litre. 

A nudge from soaring gas

Dan McTeague, a former member of Parliament and a gas price analyst, says there is worse to come for those who still drive gas guzzlers. He foresees prices rising as high as $2 by summer.

For Klippenstein, that just adds to the list of reasons why British Columbians will be getting the nudge to buy more electric cars.

"I would say high gas prices would be adding to a resurgent wave," he says, pointing out that higher fuel costs have the same effect as carbon taxes in influencing consumer behaviour.

High gas prices are one more impetus to people considering switching to electric cars. (Chris Helgren/Reuters)
But despite a growing trend toward green cars and the investment in low-carbon energy to power them, a recovery in oil prices — heralded as good news for the Canadian oil and gas industry —  is just one more sign that the global demand for carbon-producing fossil fuels remains strong.

In fact, those who keep track of carbon output worry that a recent slowdown in greenhouse gas production in many parts of the world was a false dawn, better attributed to weakened economies that therefore used less energy of all kinds.

Previous data from The Global Carbon Project had offered optimistic evidence that atmospheric carbon had begun to plateau, but in its latest report the scientific monitoring group says, "the plateau of last year was not peak emissions after all."

'Snapping back' to $70 a barrel

Considering how much money is at stake, it's surprising how poor the oil and gas industry is at predicting demand and pricing. The success or failure of investments that will take a long time to pay off, such as Canada's Kinder Morgan pipeline, depend on guessing right.

When oil prices crashed in 2014, one of Canada's top resource economists foresaw oil prices "snapping back" to $70 US a barrel by 2015. More than three years later, even after last week's surge, prices still have not hit that level.  

By Friday, North American oil prices had settled well below $70. 

Art Berman is a petroleum geologist who has learned from long experience that predicting the price of oil ain't easy.

"Anything's  possible," he quips. "We're talking about oil price!"

Southern Saskatchewan's Bakken oil region produces high-value oil, but output per well drilled is falling. (Don Pittis, CBC)
From his Houston headquarters the oil and gas commentator and inveterate tweeter keeps a close eye on the global and Canadian oil industry. For instance, he says that Canadian sweet crude from the Bakken oil field in southern Saskatchewan and Manitoba has peaked. Production is falling despite an increase in drilling.

The data is not in yet, but Berman notes that rising gasoline prices are likely encouraging a U.S. trend toward driving less and burning less gas.

"Considering gasoline consumption is a very large percentage of every barrel of oil, if Americans are driving less, then that says, look out," he says.

China and India are hungry

Nonetheless, Berman thinks prices will settle above $70 US. He notes that overall consumption of oil and gas in the United States is still rising — he points to diesel used for trucking and heating oil — and he says demand from industrializing countries such as China and India will continue to surge. 

And it's not just oil. A recent report from the U.S. Energy Information Administration shows that not only did U.S. coal exports rise by 61 per cent in the past year, exports to Asia doubled.

In the face of such figures you might imagine those who fear the effects of a warming planet are throwing up their hands in despair.

That's certainly not the case for Kirsten Zickfeld, a climate change scientist and professor at B.C.'s Simon Fraser University.

Heavy smog obscures a building under construction in Beijing this month. Decarbonizing the economies of China and other nations will provide medical and quality-of-life benefits demanded by the growing middle class. (Jason Lee/Reuters)
She says the increasing number of events such as last year's costly and devastating Hurricane Harvey in Berman's home town, Houston, have convinced well informed people around the world that something needs to be done. And she says there is evidence the world remains on an inevitable path to a low-carbon economy.

"What we see very clearly is actually a decoupling between economic activity as measured by GDP and carbon emissions," says Zickfeld. "Our economies are growing but they need much less carbon in order to actually do that."

The middle class insists

While countries such as China and India continue to increase coal consumption, she insists they are strongly motivated to either invent or adopt lower-carbon methods developed elsewhere, especially as the cost of that technology falls.

Hot countries suffer more from more deadly heat waves, and the large and growing middle class in Asia's biggest cities is insisting their governments cut the medical and social costs of air pollution.

She is convinced all those factors mean companies and economies hoping to profit from long-term growth in oil consumption will be disappointed.

"As long as the rest of the world moves toward decarbonizing the energy sector and other sectors, these countries and these provinces that bet on use of oil increasing will have a very hard time," says Zickfeld.

"I think at some point the economics is not going to work out for them."

Follow Don on Twitter @don_pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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