Assessing Oil-Related Investments Under a 2 C Global Objective

This research project analyzes the impact an international effort to stay within the 2 C climate constraint would have on global oil markets to 2050, with a focus on the economic outlook for Canadian oil sands investments. The approach involves (1) an historical analysis of past oil market conditions; (2) a survey of world-class energy-economy-emissions modeling groups; (3) a review of the latest analysis of the 2 C constraint conducted using these models; and (4) development of a graphics technique to illustrate key relationships between the 2 C constraint, the necessary global carbon price, the effect on the demand for refined products produced from oil, the effect on the oil price received by producers, and the resulting effect on investment prospects for the oil sands. The modeling results predict a rising carbon price on emissions would cause global oil demand to fall from almost 90 million barrels per day in 2014 to 63 in 2050. The falling demand would lead the average world oil price to fall below $40 per barrel well before 2050. The combination of low oil prices and higher production costs for relatively emission-intensive oil sands would render uneconomic new investment to further develop this resource, even in the near future.