The debate over approval of the Teck Frontier oilsands mine is reaching completely absurd levels, right up to warning that this will be an existential crisis for Confederation if the federal government rejects it. There is a fight brewing within the Liberal caucus, and Jason Kenney’s bombast is back to its dangerous stoking of anger for promises that nobody can deliver on. Conservative talking points, as with Kenney’s, are full of complete mistruths about the proposed emissions targets of the mine if it goes ahead, and they exaggerate the initial environmental assessment, which was skeptical about many of the claims the company made about their emissions. That Teck has promised to try and be carbon neutral by 2050 is also something that should be taken with a massive grain of salt because they haven’t outlined how they’ll get there, and it sounds an awful lot like technosalvation – that they hope to develop some miracle technology between now and then.
And it’s just so stupid because it’s unlikely that the project would even go ahead even if it were granted approval, and yet this is somehow supposed to be the great saviour of the Alberta economy. It won’t be. Teck has stated that even if they get approval, they would need another partner, more pipeline capacity, and the price of oil to be at least $75/barrel, and it’s currently sitting around $50, and unlikely to start climbing anytime soon as the global supply glut continues, and the shale boom in the US continues to drive down prices.
Nevertheless, a number of outlets are reporting that the federal government is preparing a fiscal rescue package in the event that it doesn’t get approval, which people are already panning as tone deaf, and the death knell of investment in Canada, but not one of them is looking at the current economics – that even if approved, it’s not financially viable, and as Andrew Leach points out, there are plenty of other approved projects that are not moving ahead because it’s not economically viable. Should the government prepare fiscal rescue packages for that eventuality too? The problems in the province and in the sector are not the fault of the current federal government, as much as people like to blame them. It’s a bigger, structural problem that has been decades in the making, and the ship isn’t going to be turned on a dime. Blaming Trudeau won’t solve anything.
Here's what Suncor did today, at the project that is closest in every respect to Frontier. A $2.8 billion write-down on its share of the project. Pro-rated, that's a $5.25 billion dollar decrease in the value of the project. That's ~ $1.25b decrease in Teck's share of it.
— Andrew Leach (@andrew_leach) February 7, 2020
Suncor's realized value for Fort Hills bitumen (a good proxy for Frontier) was $48.96. Their cash operating costs were $28.90 $28.65. That doesn't include maintenance capital or any return on capital in place.
— Andrew Leach (@andrew_leach) February 7, 2020
Pro-rate that up to Fort Hills size, and it's not getting any return on $20b initial capex in 40 years.
— Andrew Leach (@andrew_leach) February 7, 2020
Meanwhile, if you think this is somehow related to the former Bill C-69 and its environmental assessment process, it’s worth a reminder that this assessment process is under the process that the Harper government put into place, and even then, it’s not like this project is getting anywhere. That should be another signal.
The regulatory framework around Frontier, CEAA 2012, explicitly continued political decision making rather than technocratic ones. If you don't like that, I can think of a few people with whom you can discuss those choices.
— Andrew Leach (@andrew_leach) February 7, 2020