Why oilsands work in low-carbon transition
Why Suncor Energy sees the oilsands as a strategic asset in the low-carbon transition
By Deborah Jaremko
April 17, 2017, 6:06 p.m.
Suncor Energy CEO Steve Williams. Image: Suncor Energy
Suncor Energy does not feel threatened by the world’s shift to lower-carbon energy resources.
In fact, the company sees its dominating position in the oilsands—a higher carbon source than conventional crudes—as a strategic advantage for its business through this decades-long transition.
This view is supported by expectations for continuing growing global energy demand, a massive, long-life resource base and the ability for technology to dramatically improve efficiency, Suncor says in its first-ever stand-alone report [download here] on climate released this week.
The report is in response to a shareholder resolution passed at the company’s 2016 annual general meeting.
Last year Suncor also added carbon risk as a principal consideration in its investment decision making process.
Leadership is needed to unify a global vision of an energy future that is progressive, yet practical, notes CEO Steve Williams in the report.
“We do not see a picture of doom and gloom for our industry. We do believe that oil demand will likely start to peak within 20-30 years at a level that is higher than today and although demand will decline thereafter, we expect oil will still be needed for decades,” Williams says.
“However, we do test our business strategy under a scenario where policy and technology cause oil demand destruction sooner and still see Suncor continuing to deliver value to shareholders.”
Suncor tests its oilsands and business growth strategy against three long-term energy scenarios, the company says, from one where fossil fuels remain dominant to another where rapid technological and societal change transforms the energy landscape.
“Under each of these scenarios, including our most aggressive decline in oil demand, we believe a substantial amount of oil will be required for decades. Meeting that demand at either low, or highly volatile, oil prices will be a challenge,” the report says.
Here’s an excerpt that describes the company’s position.
“In this environment, operators with short life reserves will find it increasingly difficult to finance exploration and development programs to replace declines, let alone grow production. The more commercially successful alternative energy sources become, the more capital they will draw from traditional energy markets, and the less likely we are to see substantial new crude oil supply come to market.
“While often characterized as being the oil basin most vulnerable to a low oil demand scenario, the very long operating life and low decline rate of our assets are, paradoxically, a major advantage under a scenario of either declining demand for crude oil and a correspondingly lower oil price, or an extended period of uncertainty and volatility in investment and commodity markets.
“Our long term reserve base presents minimal finding and exploration costs or risk. The nature of the resource requires high upfront capital investment to develop a project, but once the initial infrastructure is in place, the reservoir can be incrementally developed over a long period of time, without exploration risk, or the high capital requirements of a new project.
“Oilsands facilities are more comparable to manufacturing operations. Once operating, they are built to last 40+ years with a steady output. Production does not rapidly peak and decline, so each new incremental expansion results in production growth.
“Once high upfront capital costs are depreciated, a facility can continue to operate for potentially another 30 years with low operating costs and sustaining capital requirements only.
“Over the next 10 years, we believe technology will deliver the advances to make oilsands crudes both a low cost and a low carbon source of crude. The unique characteristic of the oilsands resource positions us to continue to deliver substantial value for shareholders under each of these scenarios.”