By Johannes Kotilainen
Oil is at
more than five-year lows and people are saving substantial money at the gas
pumps, but what does this mean for Canada’s clean tech industry? At first
glance, lower oil prices mean the alternatives to oil are less attractive now.
Renewables’ biggest selling feature was that with rising oil prices it is more
cost effective with better payback in the long run. Despite oil’s current slide,
wind and solar in the long haul are still more cost effective as its costs do
not fluctuate with the market once it is up and generating. One way to look at
it is that with oil down, the manufacturing cost and transportation of the
required materials for renewables is less, lowering the construction costs. So
perhaps now is the time to create more renewable energy capacity while the cost
is down, so that when prices rise again the payoff will be that much better.
If we look
at Canada’s development of the oil sands, profits only became possible while
crude was trading at a higher price. The reason for this is that the oil sands
oil is extremely costly to produce as the oil is mixed into the sand. In order
to extract it, large volumes of the oil-laden sand must be dug and then
processed to remove the valuable hydrocarbons. It then needs to be processed
and refined to make the crude oil. The cost of doing this using current
technology is approximately $60 to $65 a barrel. Canada has known about its
large reserves for decades, however the markets in the past made it
uneconomical to extract it when other sources of oil were in great supply,
easily extracted, and much simpler to refine. When oil prices reached $70+ per
barrel, companies began to see the potential profits and began developing the
oil sands. Post the 2008 Great Recession, oil prices continued to rise and so
did the number of extraction projects in Canada’s oil sands and the subsequent
profits.
Now the
oil price has dropped drastically and the profit picture currently does not
look so good. As a result, new projects are being put on hold. Existing
companies are hoping the price doesn’t slide to a point where production costs exceed
the market value. What this means for renewables in Canada is that other energy
sources may get the funding that would have gone to oil, and energy companies
looking for profits may turn to renewables. In late 2014, news hit that the
renewable sector provided more jobs than the oil sector, which may further
justify greater funding for Canada’s clean tech industry.
Find out why
sustainability is important in business and investing: http://www.smallcappower.com/posts/why-sustainability-is-important-in-business-and-investing-johannes-green-investing
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