Inside Mark Carney’s ‘grand bargain’ with the Canadian oil industry

Hello and welcome to Energy Source, coming to you today from London and Calgary.

In recent days I have been looking at expectations for oil demand growth this year and yet again forecasts are far apart. Last Friday the International Energy Agency said it expected global oil consumption to grow at its slowest pace since 2009, outside of the coronavirus pandemic, cutting its forecast increase to 700,000 barrels a day from a previous growth estimate of 720,000 b/d. The US Energy Information Administration also released a new short-term outlook last week, predicting a 800,000 b/d increase in oil consumption in 2025.

In contrast, the Opec+ cartel, which produces about 40 per cent of the world’s crude oil, has predicted demand will grow by 1.3mn b/d this year. That view was echoed by Saudi Aramco chief executive Amin Nasser on stage at an Opec seminar in Vienna last week.

However, in recent years Opec+ predictions have been particularly wide of the mark. In December 2023, it forecast oil demand would grow by 2.2mn b/d the following year but then revised that figure down several times and by the end of 2024 was estimating that annual growth had been 1.6mn b/d. On the other side of the aisle, the IEA in March 2024 predicted an annual increase of 1.2mn b/d for 2024 before revising that down to approximately 1mn b/d in the middle of the year.

Calculating global oil demand patterns is no perfect science but the consistent gulf between predictions suggests politics must be at play. And while it is generally Opec+ leaders who have criticised the IEA for alleged political bias, common sense dictates that the cartel has more skin in the game.

The producer group is in the process of unwinding 2.2mn b/d of long-standing production cuts, arguing that the market can absorb the extra supply. If it cannot — as most traders expect — then that surplus is set to weigh on prices in the second half of the year, with some analysts forecasting Brent crude, the global benchmark, to fall below $60 a barrel in the fourth quarter.

Never has monitoring demand forecasts been so exciting. Let’s see who is right.

Now for our main item today coming to you from Calgary, where the FT’s Canada correspondent Ilya Gridneff has been probing the government’s relationship with its oil industry.

Thanks for reading — Tom

Will Canada’s ‘grand bargain’ on oil hold?

Canadian Prime Minister Mark Carney’s effort to reset Ottawa’s relationship with Alberta’s oil industry is off to a rocky start, with a stand-off brewing over climate policy and who will pay for so-called decarbonised oil.

Carney came to office promising to make Canada an “energy superpower” in the wake of US President Donald Trump’s tariffs and trade war. Oil figures prominently in that plan, as long as emissions remain in check.

Calgary-based Jeff Lawson, an executive vice-president at Cenovus Energy, one of Canada’s largest oil and gas companies, told Energy Source he was “cautiously optimistic” about the government reset but numerous challenges are ahead.

“There needs to be a prudent sharing of costs between governments and industry,” he said. “We believe in decarbonising our [oil] barrels but it has to be done in a way that keeps investors interested. Otherwise, there won’t be any capital.”

Carney, a longtime climate finance advocate, has set about restoring relations with the fossil fuel industry, particularly Alberta’s oil sands producers, which were deeply antagonistic under former prime minister Justin Trudeau.

The sector says a decade of Trudeau-era legislation, taxes and environmental regulations have stifled their, and Canada’s, potential for economic growth.

In early June, Carney touted a “grand bargain” when meeting oil and gas executives. He offered tentative backing for new pipelines and a multibillion-dollar project to capture carbon from Alberta’s oil sands as a way to neutralise emissions and produce “decarbonised oil”.

Canada has the world’s third-largest proven oil reserves. But it also produces “the most carbon intensive crudes in North America”, according to the Pembina Institute, because the extraction process from the oil sands is more carbon-intensive than conventional drilling.

Six of Canada’s largest oil sands companies have formed the Pathways Alliance and are proposing a C$16bn (US$11.7bn) to C$25bn carbon capture and storage (CCS) megaproject that they say can reduce greenhouse gas emissions from oil production while supporting future output.

Canada’s energy minister, Tim Hodgson, a former Goldman Sachs banker and ex-board member at MEG Energy, has signalled support for increasing oil production via CCS but has not said who will finance the project, in particular the ongoing operational costs of decarbonising oil.

“Through innovation and technology like the Pathways project, there is an opportunity to grow our conventional energy industry and get our products to market in a way that is environmentally responsible,” he said.

Kevin Birn, chief analyst of Canadian oil markets at S&P Global, warned that without significant public investment in CCS, Canada risks missing its next oil boom.

“It’s a costly but necessary abatement technology,” he said.

Kendall Dilling, president of the Pathways Alliance, said the group “continues to work with governments to obtain sufficient levels of fiscal support and the required regulatory approvals to make the . . . [CCS] project a reality”.

But Canadian taxpayers already footed the bill for the Trans Mountain Expansion pipeline (TMX) that opened in May last year. After a decade of disruptions and costing C$34bn — four times over budget — TMX is enabling record overall Canadian oil exports, including increased shipments to US west coast refineries and new markets in Asia.

Alberta, where most of Canada’s oil comes from, argues the intensity of greenhouse gas emissions from its oil sands has decreased about 20 per cent since 2011.

But the costly decarbonisation process via the proposed Pathways project is a bill no one wants to pay at a time when Canada faces a widening budget deficit after increasing Nato defence spending and border security, in response to pressure from Trump.

In early July, Hodgson announced a C$21.5mn investment in an Alberta-based CCS project, however, critics said the spending needs to be billions — not millions — of dollars.

Lawson said Cenovus and its peers are committed to emissions reduction but other oil regions across the globe are not paying for such stringent environmental measures nor facing such regulatory barriers.

“We need to be competitive with the rest of the world or we will have no investors,” he said.

For Danielle Smith, premier of Alberta, Carney’s overtures are welcome but not enough.

“Industry capital is mobile, and right now, the US looks far more attractive,” Smith said in an interview with Energy Source in mid-June.

Earlier this month, Carney, in Alberta, said it was “highly likely” a new oil pipeline will be built to Canada’s west coast for new markets.

Alberta’s energy industry has made its demands clear.

Calgary-based Enbridge, operator of North America’s largest pipeline system, is among the 38 companies that wrote to Carney, after his April election victory, urging better conditions to implement energy proposals.

An Enbridge spokesperson said: “Any new pipeline project would require careful consideration and real provincial and federal legislative change.”

Carney faces a significant test balancing the political, social and economic realities of increasing oil production while maintaining environmental and policy standards.

Lawson said: “Unless existing regulations are changed, we cannot, with any speed, see a pipeline to the coast. We want regulatory certainty, and the current framework does not provide that.” (Ilya Gridneff)

Power Points

A Saudi Arabian consortium is to invest $8.3bn to build 15 gigawatts of solar and wind farms in the kingdom as it accelerates its push into renewables.

Rio Tinto — not technically an energy company but a big player in the wider energy ecosystem — has got a new boss and it has played it safe, appointing 25-year company veteran Simon Trott to the top job.

Britain’s energy regulator is carrying out special monitoring of National Grid as the company faces questions over whether it is doing enough to maintain key electricity networks.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Kristina Shevory, Tom Wilson, Rachel Millard and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.