The spectacular collapse in oil prices caused by the coronavirus pandemic has brought the costliest – and most polluting – oil projects such as tar sands to a standstill, a development some analysts say could be definitive.
Even though oil prices have partly recovered from the April market crash, they have not returned to pre-crisis levels yet and market analysts wonder if they ever will.
“Prices are significantly lower than what companies were previously expecting,” said Andrew Grant from Carbon Tracker, a London-based think tank researching the impact of climate change on financial markets.
As a result, “oil companies are still in a situation where they curtail their projects,” Grant told EURACTIV in a phone interview.
“The really high-cost projects like oil sands were already in a very difficult place” before the crisis, and now it’s mid-range cost projects such as shale oils, which are put in question, he said.
Tar sands looked attractive when oil prices were hovering around $100 a barrel in 2011-2014. But with prices currently around 40$ per barrel, new projects have been put on ice and it’s unclear whether they will ever go ahead.
ExxonMobil was the last oil major to approve an oil sands project – in Canada’s Northern Alberta region in late 2018 – and it may well be the last, Grant suggested.
“Those oil sand projects weren’t going ahead in any case,” he explained, pointing out that ExxonMobil had already delayed development at its Canadian site, where first output was expected in 2022.
Now, it is projects in “the middle-of-the-cost-curve, for example, shale projects” which are in trouble, Grant pointed out. Shale oil once created plenty of growth for the industry “but now we’re seeing a lot more bankruptcies in this sort of companies,” he said.
Chesapeake Energy, the US shale oil and gas drilling pioneer, filed for bankruptcy in late June, citing financial difficulties and piling debt that was compounded by the April oil price crash.
More than 200 oil producers filed for bankruptcy protection in the past five years, the Guardian reported. And that trend seems unlikely to stop, judging by the latest figures from the International Energy Agency (IEA).
“The risk to our market outlook is almost certainly to the downside,” the IEA said in its July oil market outlook. “While the oil market has undoubtedly made progress since ‘Black April’, the large, and in some countries, accelerating number of COVID-19 cases is a disturbing reminder that the pandemic is not under control,” it said.
So has the oil market definitely turned the page on tar sands? Industry representatives say not quite yet.
“Such projects have taken a harder hit than others lately, but they did so in 2014 as well and yet, oil sands production has kept growing steadily for over a decade, so we shouldn’t draw hasty conclusions on their future overall,” said Nareg Terzian from the International Association of Oil and Gas Producers (IOGP).
“After the 2014 downturn, producing regions such as Alberta…