This column is an opinion from Max Fawcett, a freelance writer and the former editor of Alberta Oil magazine.
If you’d asked most Albertans about the Teck Frontier project at this time last year, chances are they wouldn’t have had much of an opinion on it. After all, as the Globe and Mail’s Adam Radwanski tweeted, it wasn’t even on the radar a few months ago.
“When I was in Alberta in November, I honestly had to check to make sure I was getting the project’s name right, because of blank looks I was getting when I casually mentioned it to some people who I thought would care deeply about it,” Radwanski wrote.
He wouldn’t get many blank looks today.
Teck’s announcement on Sunday evening that it was withdrawing the application for its Frontier oilsands project just days before the federal cabinet was expected to make a decision on its future drew impassioned responses from all sides of the political spectrum.
For some, it was yet another sign that Canada’s needlessly intrusive regulatory system is interfering with investment and capital flows — and that this outcome aligns with the federal government’s desire to choke the remaining life out of Alberta’s oil and gas industry.
Lame-duck Conservative leader Andrew Scheer released a statement on Monday arguing that the prime minister’s “weakness and fear in dealing with his left-wing caucus and radical activists” was the driving force behind Teck’s decision, while former Wildrose MLA Derek Fildebrandt went his usual step further by suggesting that “the federal government is now a hostile colonial power, and we should treat it as such.”
For others, though, the reasons Teck provided for its decision were a repudiation of Jason Kenney’s decision to cut the legs out from under the Climate Leadership Plan, and a reminder that economic development and environmental responsibilities are now two sides of the same coin.
As former Alberta Environment minister Shannon Phillips tweeted on Sunday night, “Teck backed away from Frontier mine because Alberta’s Climate Leadership Plan has been dismantled by @jkenney and UCP.… Billion-dollar consequences for conservative climate denial and bellicosity.”
Such is the beauty of Teck CEO Don Lindsay’s letter to federal environment minister Jonathan Wilkinson, which was circulated on Sunday evening. It allowed both sides to see what they wanted in the company’s rationale, and it ensured that Teck wouldn’t get caught in the ensuing crossfire.
Whoever crafted that statement surely deserves a raise.
But while it’s a public relations win for Teck, it’s another black eye for Alberta — and another reminder that, for all the talk about balancing economic goals and environmental objectives, Canada still hasn’t really figured out how to do that effectively.
It also raises an important question: How did a project with such obviously marginal economics become such a crucial litmus test for Canada’s ability to balance economic objectives and environmental responsibilities — and, if the premier’s response to the decision is any indication, Alberta’s relationship with the rest of the country?
Teck’s odyssey with Frontier began more than a decade ago, when the mining company started kicking the tires on a megaproject at the northern reaches of the Athabasca oilsands.
By 2011, with oil prices well above $100 per barrel and the U.S. shale industry still just a glint in the market’s eye, the project’s application was submitted to the Alberta Energy Regulator.
At the time, it surely seemed like a good hedge for the Vancouver-based mining company — a way to expand and diversify into a sector that seemed poised for almost limitless growth and opportunity.
Well, so much for that.
Earlier this month, Teck wrote down the value of its other oilsands project — the Fort Hills mine that it owns a 21.3 per cent stake in. The $900-million writedown is an accounting decision that reflects the new reality of lower-for-longer oil prices.
Fort Hills, as it happens, is the last major oilsands mine to be built, and the financial challenges its owners are already facing (Suncor, for its part, reduced the value of its 54 per cent stake by $2.8 billion) doesn’t exactly argue in favour of building another one.
Yes, as oil prices have fallen, so have the once-astronomical costs associated with building oilsands facilities. But there’s only so far those costs can be cut, as Wood Mackenzie’s Mark Oberstoetter told the Calgary Herald’s Chris Varcoe, a newly built oilsands mine “would destroy value under most price scenarios.”
That’s why Teck’s pursuit of federal approval for Frontier (a project whose budget, cost-savings and all, is still bigger than Teck’s entire market capitalization) was less about actually building the project than it was about preserving the bet on higher oil prices that it had spent hundreds of millions of dollars and more than a decade on already.
Unfortunately for Teck, the odds on that bet paying out look longer with each passing day.
As Andrew Leach and Martin Olszynski argued in a piece earlier this month, “while some have argued that the investment could be viable if average oil prices are above $65 WTI (assuming very small discounts on heavy crude oil), that still positions the project as a multibillion-dollar bet on pipelines being built and oil prices being much higher than we see today for most of the next 50 years.”
Those sorts of bets used to be fairly common in Alberta, of course, and at the time Teck started to lay its chips on the table, it was one that had paid out handsomely for many. But the cards have turned over the past few years, and some of the players at that table have been bled dry trying to win back what they lost.
That might explain why the project has suddenly become so important to some people in Alberta, and why the provincial government decided to invest it with so much importance.
Frontier is a metaphor for a version of Alberta that no longer exists, and its postponement is both a reminder that this version may not ever come back and how much people have already lost trying to pretend otherwise.
There are many who don’t want to acknowledge that the world is changing, that capital markets are rapidly pricing in the risks associated with climate change, or that oilsands mines with 40-year life spans are no longer viewed as attractive investments. And there are many who would prefer to fight for the restoration of this past rather than come to terms with the reality of a lower-carbon economy.
But Teck’s decision on Frontier should be a wake-up call to everyone that it’s time to move forward — and a reminder that bets on the past don’t tend to pay out in the future.