If Albertans want to understand how economically viable our Natural Gas and Oil sector is, all we need to do is look towards California. California has the largest economy in the US. Its economic size is about twice the size of the next largest rival – Texas – and its economy is larger than the Canadian economy. If California were a sovereign nation, based on GDP per capita, it would be the 5th largest economy in the world. So, California’s economic policy has a large effect on the rest of the American economy and the Canadian economy.
Accordingly, if the state of California stopped buying something, it would change the demand and supply of the same product in the rest of the United States and in Canada. Well, last year, California decided to accelerate its transition rules as regards to non-emitting vehicles. Originally, California was supposed to ban the sale of new cars by 2040. That was up until last year. Now the California Air Resources Board (CARB) has changed their mind. Not only will CARB require automakers to speed up production of cleaner vehicles beginning in 2026; now CARB will also ban the sale of new gas-powered cars by 2035.
Coupled with the Biden Administration’s new legislative and regulatory victories, California’s moves will radically decrease the American demand for oil in 2026. Or put more plainly, in anticipation of a decarbonized future, automakers (both new and old), battery manufacturers and their attendant supply chains had already sped up their build out. Transition plans have already seen the building of mines and battery plants throughout Canada and the US. Incentives provided by the US and Canada were already there. California’s move to a 2035 ban of internal combustion engine cars (ICE), only increases that pace and it does so for three reasons.
Firstly, and most obviously, starting in 2026, in light of a changing market, Californians will weigh the desire to spend money on an internal combustion engine car (ICE car) that will have less after-market demand. Today, when someone sells or trades in a car, most people ask about the condition of the car and not about how the car is powered. We don’t ask about whether the car has a gas powered, hybrid, electric or hydrogen powered drive train. All we do is ask about the car. However, if the European example holds out in the US, we should not be surprised when future car buyers, those in 2028 or 2030, ask a simple question before they think of buying a car: “does that car have a plug in option?”.
The second, and not so obvious, reason will be that other States will follow suit. To date, at least 15 states including New Jersey, New York and Pennsylvania, have adopted previous California car vehicle standards. Given the politics of the Northwest, it is likely that Oregan and Washington State will follow California’s lead. Furthermore, car producing states like New York and Pennsylvania might also do the same. The end result is clear: California will not be alone in this forced, mandated transition.
However, those two reasons alone are not what Albertans should fear. The third and most ominous effect comes from the structural change of automakers. Toyota recently refurbished their hybrid facility in Woodstock. While GM, Stellantis and Ford are mothballing their ICE car production capacities. They are either transitioning old plants or building new North American facilities to help them become electric vehicle manufacturers. In fact, some of them are trying to do this before 2035.
Given that more than 50% of all oil goes to power cars, trucks, buses and tractor trailers; one would think that Albertans would be worried enough. However, it gets worse; because, CARB has also declared that California will start to phase out fossil-fueled furnaces and water heaters by 2030. It will do so by banning the sale of all natural gas-fired space heaters and water-heating appliances by 2030. Now this move shouldn’t be unexpected. For quite some time now, a few California cities have started to restrict the connection of new natural gas powered appliances to some homes; while the state of California has been encouraging the electrification of existing buildings. Imagine what will happen to the North American Natural Gas market as California decreases its reliance on it.
If you doubt that, let me remind you that California now has many building code requirements to encourage conservation of energy and the increased use of renewable energy. One such requirement is that new single-family homes and other dwellings built in California must have solar panels.
Now, if you are a curious Albertan, one would wonder if other North Americans are following suit. And the simple answer is yes. While California is the first State to ban Natural Gas, it might not be the only one to do so soon. Cities in Oregon, on the Pacific and Atlantic Coasts too, have moved toward banning new Natural Gas hook-ups.
Furthermore, Montreal is looking to also go in that same direction. As CBC recently noted, according to a report developed by Montreal’s water, environment and sustainable development commission, it has been recommended that “Montreal should ban the installation of new indoor fixed appliances, including gas stoves, that use fossil fuels as soon as possible”. Further, the same report has suggested a prohibition on connecting new buildings to natural gas lines and a program that could help existing buildings to convert from using a heat source using fossil fuels to another HVAC product like heat-pumps.
Consequently, if an Albertan wanted to look at how viable our Natural Gas and Oil Industry is, all one needs to do is look at California. The fifth largest economy in the world is moving away from Natural Gas and Oil to renewables. Through conservation, battery storage and engineering, they are finding a way to do it. Unlike Texas, their grid stability is increasing and they are increasing their GDP. Even worse – at least from an Alberta Oil and Gas Industry perspective – they are succeeding and providing an example to many other jurisdictions in North America. So much so that they might meet their goal of weaning themselves off of Alberta products by 2030 or 2035. So every Alberrtan should be concerned because in less than ten years, our main product is not going to be purchased by the fifth largest economy in the world. I wonder if the politicians in the Alberta Legislature are as concerned as the rest of us?
52 Ideas 