New analysis warns investors and provinces of financial risks

Key Findings

  • Under a fast-paced energy transition, new projects place up to 30% of Canadian oil and gas value at risk, roughly triple the potential upside under a slower transition.
  • Provincial oil and gas revenues could fall by over 80% in the 2030s under a Paris-aligned scenario.
  • Diversifying into clean energy and critical minerals presents a more sustainable path for long-term fiscal stability and investor returns on Canadian assets.
  • Accelerated decommissioning costs could strain both government budgets and corporate balance sheets.

London, 20 November – The value of Canadian oil and gas is increasingly under threat as the energy transition unfolds, risking investor returns and provincial government revenues, according to two new reports from financial think tank Carbon Tracker.

The reports – Fading Fortunes and Petro-Provinces at Risk – find that both Canadian oil and gas company valuations and provincial budgets are exposed to the same structural risks of weakening long-term oil and gas demand.

The reports are published in the context of Canada’s 2025 federal budget, which underscores the tension at the heart of the country’s energy strategy. While the budget continues to offer incentives for fossil fuel projects such as liquified natural gas (LNG) and carbon capture, utilisation and storage (CCUS), it also expands support for clean energy and critical minerals. And while there is no explicit push for new upstream oil and gas production in the budget, there is ongoing speculation about new pipeline construction.

Corporate risk: high-cost oil and gas threatens long-term value

Carbon Tracker’s Fading Fortunes report explores whether investment in new projects risks eroding Canadian oil and gas value. It benchmarks Canadian firms against global peers to determine relative positioning and provide a view on risk exposure in a worldwide context.

The analysis finds that investment in new projects exposes the Canadian oil and gas sector to risk of significant value erosion. In a Paris-aligned, fast-paced transition scenario where prices fall to $30/bbl, around 30% of the sector’s total value is at risk if the sector maintains business-as-usual investment behaviour. By comparison, the potential upside in a slow-paced transition is far smaller, meaning the downside risks significantly outweigh the upside.

New projects at exploration stage are found to be notably unattractive under the considered scenarios, adding negligible upside even under a slow-paced transition scenario seeing prices of $70/bbl. New gas projects – long considered a strategic pillar of Canada’s energy sector – erode value under a moderate-paced transition seeing gas equivalent prices of $50/bbl.

Canadian oil and gas companies are more exposed to value erosion than most global peers. A more cautious “Managed” investment approach – reducing new project sanctions – would significantly improve the sector’s positioning relative to integrated oil companies (IOCs) and national oil companies (NOCs), although downside risks would still exceed the potential upside.

Olivia Bisel, Carbon Tracker Analyst and lead author of Fading Fortunes said: “Canadian oil and gas expansion is increasingly a high-risk, low-reward strategy. Our analysis shows that new projects threaten to erode value even under relatively moderate price environments, while offering only limited upside in slower transition scenarios. Investors and policymakers should be cautious: the long-term risk profile of Canadian portfolios is deteriorating. Capital allocation decisions and public policy need to reflect this reality.”

Provincial budgets under pressure

Carbon Tracker’s Petro-Provinces at Risk report finds that the energy transition could reduce Canadian provincial governments’ expected revenues from upstream oil and gas by over 80% in the 2030s, placing considerable strain on budgets.

“Provincial governments need to prepare for a future of lower oil and gas demand,” said Rich Collett-White, Carbon Tracker Analyst and lead author. “Rising global deployment of clean energy and electrification of transport threaten to wipe out future tax-take, with high-cost Canadian production likely struggling to compete globally. Diversification into transition-resilient sectors is the safest route to maintaining fiscal stability.”

These risks are likely to unfold through the 2030s as global oil demand peaks and Canadian production is outcompeted by lower-cost producers. While industry-favoured technology may help reduce operational emissions, its high cost and slow deployment make it unlikely to shield the sector from declining demand for, or lower prices of, fossil fuels. Both governments and companies also face mounting decommissioning liabilities, creating additional fiscal pressure.

The report encourages provinces to pursue diversification strategies, including investment in clean energy and critical minerals, to build a broader, more resilient fiscal base and offset potential shortfalls in upstream tax revenues.

Investor and policy implications

Carbon Tracker urges financial institutions, regulators, provincial governments and policymakers to reassess risk exposure:

  • Financial institutions should strengthen valuation models, assess exposure to transition risk and engage companies on the viability of new upstream spending, especially on exploration.
  • Regulators should stress test the financial system to lower long-term commodity price scenarios and require clearer disclosure of oil and gas cashflow risk.
  • Policymakers should:
    • phase out public financing and tax support for new fossil fuel projects, prioritising diversification and clean industry investment.
    • build up fiscal reserves while oil and gas revenues remain healthy and develop robust decommissioning plans to ensure taxpayers are not burdened with future clean-up costs.

Read Petro-provinces at Risk HERE

Read Fading Fortunes HERE

 

Notes to editors
For more information and to arrange interviews please contact:

Sally Palmer – sally.palmer@tracker-group.org – +44 7799 472 82

About Carbon Tracker
The Carbon Tracker Initiative is a not-for-profit financial think tank that seeks to promote a climate-secure global energy market by aligning capital markets with climate reality. Our research on the carbon bubble, unburnable carbon, and stranded assets has begun a new debate on aligning the financial system with the energy transition to a low-carbon future. www.carbontracker.org