Oil and gas companies plan to spend billions to boost future fossil fuel supply

John Woodside,
Local Journalism Initiative Reporter

Economic uncertainty may be building as the threat of a full-blown trade war  ramps up, but an analysis of Canadian oil and gas companies’ spending  plans paints a picture of an industry that remains extremely confident  in the future of fossil fuels.

Over the  next decade, just over 180 oil and gas companies in Canada plan to  collectively spend more than $600 billion developing new oil and gas  fields, according to data reviewed by Canada’s National Observer.

The  towering sum does not include spending on existing oil and gas fields,  or those already under development. It can also be specifically broken  down into three categories: capital expenditures ($342 billion),  exploration spending ($22.7 billion), and operational spending ($249  billion). The original amounts were recorded in U.S. dollars and  converted to Canadian, so these are approximate figures.

The  forecasted spending represents an increase from the previous decade,  and annual investments in Canadian oil and gas production are expected  to reach the highest levels ever recorded in the country in the early  2030s. The previous highest level of investment occurred around 2013 and  2014 during the fracking boom. The figures were originally sourced from  the Rystad Database, and were included in the International Institute  for Sustainable Development’s Carbon Minefields Newsletter.

Mark  Kalegha, an energy finance analyst with the Institute for Energy  Economics and Financial Analysis, said company forecasts that show  increased spending indicates they “have a bullish view internally,” even  if it goes against the grain of global energy forecasts from the  authoritative International Energy Agency which expects global oil  demand to peak by 2030.

One  reason Canadian oil and gas companies may have high expectations over  the next 10 years is that the country has only recently developed new  markets for exports. The Trans Mountain expansion project became  operational last year, and this summer LNG Canada is set to begin  exporting gas from British Columbia to international markets, Kalegha  said.

“Now  that raises concerns,” he said, adding that while he believes private  businesses have the right to increase investment to boost profits for  shareholders, it’s crucial to face the reality that the oil and gas  sector is the country’s largest and growing source of greenhouse gas emissions.

“So  the concern is if this industry is going to ramp up production in a  time where the government has made commitments to reduce those  emissions, that’s a red flag,” he said.

According to government estimates,  the oil and gas sector was responsible for 208 million tonnes of carbon  pollution, roughly 30 per cent of the country’s total, in 2023 — the most recent year data is available.

Fossil  fuel companies’ spending to increase the supply of oil and gas could be  affected by the trade war with the United States. If oil and gas  exports to the United States are curbed due to tariffs, it is unclear  how companies would adjust their planned spending. However, U.S.  President Donald Trump’s “drill, baby drill” agenda and increased talk  from Canadian politicians about building new pipelines could encourage  companies to invest more in oil and gas supplies.

Beyond  increased emissions posing a severe risk to the climate, there are  financial risks if a trade war unfolds as oil and gas production ramps  up, said Kalegha. In the short term, if demand for Canadian oil and gas  drops, where do companies expect to find buyers?

“Longer  term, a lot of leading credit agencies, think tanks, market observers  and researchers have noted there’s a general lack of preparedness for a  low carbon future in the industry, and that exposes oil and gas  [companies] to severe risks,” he said.

What  helps to explain the gap between independent market forecasts and the  planned spending put forward by oil and gas companies, is that to  attract capital from investors, fossil fuel companies are incentivized  to project a strong industry, Kalegha said. Even if executives might  have personal reservations about the future of oil and gas demand when  studying market forecasts, they “need to keep the market confident in  their companies, so they need to project that bullish outlook,” he  said.

“If you keep the ball rolling, keep  the gravy train rolling, continue to enjoy your perks and your  compensation, nobody wants that to stop,” he said.

According  to the data, Tourmaline Oil is planning to spend approximately $60  billion over the next decade — the most of any company on the list,  representing one-tenth of the total spending. About 80 per cent of the  planned spending is aimed at developing new gas fields in Alberta and  British Columbia.

Major oilsands companies  formed the Pathways Alliance in 2021 to collaborate on building a  major, $16 billion carbon capture and storage project to lower  emissions, but four years later have not even confirmed they intend to  build it — let alone put shovels in the ground. Instead, the group  (which includes Suncor, Imperial, Canadian Natural Resources, MEG  Energy, ConocoPhillips Canada, and Cenovus) has been lobbying for more  government subsidies to build it despite the project’s economics being challenged by experts.

Over  the next decade, Pathways Alliance companies are planning to spend more  than $50 billion developing and exploring for new oil and gas fields.

Planning  to spend more than $50 billion boosting the supply of fossil fuels,  while putting off a decision to spend $16 billion on carbon capture,  “speaks to the level of priority that’s been given to decarbonization  efforts,” Kalegha said.

The Pathways Alliance, and its member companies, did not return a request for comment.

Aaron  Cosbey, a development economist and senior associate with the  International Institute for Sustainable Development (IISD), said as long  as government subsidies aren’t being given to oil and gas companies  it’s up to them to decide how to invest their money.

“Until  we have regulatory control over supply then I guess they can go fill  their boots and we’ll find out who was right about projections of future  demand,” he said, acknowledging his “glib” response. “But here’s my  concern, the more you expand that sector the more you set it up for a  sector in distress when demand goes sour.”

In  a scenario where oil and gas companies go bust as demand evaporates,  Cosbey said it’s not easy for government officials to let them collapse  for a handful of reasons. First, those firms would look for government  support to stay solvent. Second, they would likely advocate for relaxed  environmental regulations to help stay in business. Third, millions of  Canadians have savings tied up in mutual funds that “are overexposed to  the oil and gas sector.” And finally, if companies go belly up, workers  and dependent communities will be severely impacted, he said.

In  its dying days, the federal government is, at least in theory, still  developing a policy to cap emissions from the oil and gas sector. With  the oil and gas pollution cap draft regulations unveiled  in November, Environment and Climate Change Minister Steven Guilbeault  previously said he’d hoped the department could finalize the rules by  June.

With an election widely expected to soon be called, that policy is likely to die on the vine.

John Woodside,
Local Journalism Initiative Reporter
Canada’s National Observer