Report on Sustainability 2018

Carbon risk and energy outlook

Integration of carbon risk into our decision-making processes

Breakthrough technology and shifting societal attitudes have led to governments in Canada and around the world adopting ambitious emissions reductions targets and supporting legislation. This transition risk includes measures relating to carbon pricing, clean energy and fuels standards, and alternative energy incentives and mandates which could impact profitability and/or Suncor’s reputation.

Since 2016, carbon risk has been considered one of Suncor’s principal risks. A principal risk is generally considered to be an exposure that has the potential to materially impact Suncor’s ability to meet or support its strategic objectives.

As a principal risk, carbon receives full Board and executive management attention and systems are in place to mitigate potential impacts. As such, it undergoes an annual Board of Directors review as a principal risk. Carbon risk is also brought forward to the Environment, Health, Safety and Sustainable Development Committee of the Board for oversight.

Each year, as part of our normal business planning process, a base case carbon price outlook is developed, taking into account existing regulations and the expected trajectory of those regulations as they apply to our assets.

The company business plan, investments and all capital decisions are tested against a range of variables, including our base and alternative carbon price outlook, to ensure an expectation of a competitive rate of return over the asset life. In 2018, we also developed an alternative case that takes a much higher view of future carbon prices. This alternative case serves as a “stress test” and adds confidence to capital decisions.

While the carbon price plays a role, the underlying crude oil price is the major driver of the investment return. A low crude oil price could be the result of a context where oil demand has been eroded through carbon policy or alternative transportation fuels and is believed to be an appropriate proxy for overall carbon risk to a project’s economics.

Our annual 10-year business planning process requires our businesses to run a planning case assuming a continuing low-price environment. Each business is required to demonstrate that it is expected to be able to continue to meet an acceptable rate of return, including funding its sustaining capital and enabling Suncor to maintain and grow its dividend. If the business cannot meet these objectives, it is required to outline the steps needed to achieve this target.

Our internal management model for project and asset development incorporates a review of climate change implications at the first two gate reviews, prior to a commitment of significant resources, and ensures that all climate change risks and opportunities are well understood. The process allows for analysis of technical options, but also the regulatory and external stakeholder context to be recognized in decision-making.

The energy system of tomorrow

We are starting to see credible global efforts to lower emissions through broader technology and policy pathways necessary to deliver energy to a growing global population, while at the same time mitigating climate change.

Limiting emissions will be achieved at an energy system-wide level in the most appropriate way for each region or jurisdiction. There are no single or simple solutions to this challenge. The phase out of coal will be a major part of this, as will gains in energy efficiency and the technologies that reduce carbon intensity across the energy system, including in oil production and consumption.

In our base case energy outlook, we take the following broad trends into consideration:

  • Forecasted population growth, the increasing need for energy in developing economies and the aspiration for a better quality of life. As such, we see the global demand for energy increasing steadily. Much of this increase is expected to come from developing countries in Asia, the Middle East, Latin America and Africa.
  • We expect a continuation of the trend towards decoupling economic growth and carbon emissions as new technologies and renewable energy starts to fundamentally change the energy mix.
  • National emissions reduction commitments made as part of the Paris Agreement will drive carbon pricing and complementary policy frameworks that are expected to accelerate energy efficiency and emissions reduction technology and incent broader scale adoption of alternative low-carbon energy.
  • We expect oil demand will continue to grow until approximately 2040 due to population growth, urbanization and increased living standards, but oil is expected to decline as a percentage of the global energy consumption mix.
  • Given natural declines, staying at current production levels, much less meeting increased demand, will require investment in new production from global shale, deep-water and oil sands reserves – a major challenge, given the reduction in capital investment due to depressed commodity prices in recent years.
  • We expect that supply cost will continue to be moderated by industry efforts to optimize production and invest in technological advances.

We recognize that the global effort to mitigate climate change introduces uncertainty into the range of outcomes for energy. In addition to our crude oil and refined products outlooks, we utilize three long-term energy futures scenarios*, all of which are plausible and could affect our operating environment and business strategy in markedly different ways.

Signposts and milestones are monitored to identify critical shifts in the external context. Signposts include changes in global energy demand and supply mix, political and economic indicators, climate data and policy trends and also include technology advances and consumer trends.

Each scenario has an implied crude oil price range and climate change regulatory impact. Two of the three reflect the current global aspiration towards reducing carbon emissions; what differentiates the scenarios is the context, pace and scale at which that comes about.

Of these scenarios, autonomy is the scenario that we consider best represents the technology and policy context that would be essential to meet the aspiration of limiting cumulative emissions to “450 ppm.” Suncor continues to build on our experience to consider business resilience against a range of scenarios, including a credible 2°C scenario.

All three scenarios point to long-term resilience being a function of aggressively lowering both costs and the carbon intensity of the entire value chain.

The scenarios are reviewed annually by the Executive Leadership Committee and the Board of Directors to assess the robustness of the business and growth strategy and identify strategic directions. This process continues to be a useful tool for stress testing our business on a number of key dimensions, including climate risk.

Scenario Summaries*


Energy markets impact
Expected impact on Suncor
  • Rapid technological and societal change will transform the energy landscape.
  • Millennial shift – focus on sustainability and collaboration, sustainable urbanization.
  • Falling costs and improved reliability of clean energy allow developing countries to bypass large scale hydrocarbon-based energy infrastructure.
  • Natural gas is a transitional fuel for power generation, but after 2030 increasingly renewable power generation fuels a largely electrified energy system.
  • Breakthrough battery technology development supports growth in electric vehicles.
  • Oil’s role in geo-politics is substantially diminished contributing to a generally stable geo-political environment.
  • Stable, moderately strong economy.
  • Carbon intensive industries face high regulatory costs and requirements.
  • No new export pipelines are built out of the Athabasca Oil Sands region.
  • Abundant and cost effective supply of energy coupled with moderation and eventual decline in demand, particularly in transportation, drives oil prices to stay low in the long term.
  • Oil exploration and production slows as investment moves to other sectors, reducing but not choking supply.
  • High cost supply falls off fast.
  • Oil is still required and continues to provide a significant share of the world’s energy need.
  • No existing assets are stranded.
  • Existing long-life assets continue to produce, funding their own sustaining capital or modest growth capital requirements for incremental production expansion.
  • New oil sands growth projects are challenged and unlikely to proceed.
  • Oil sands continues to provide a stable dividend base while growth options in other resource basins are considered.
  • Only the top tier refineries will remain profitable – Suncor’s Downstream maintains a focus on reliable, efficient and low-cost operations.



Energy markets impact
Expected impact on Suncor
  • Improving standard of living and greater personal wealth, particularly in China.
  • Expanding use of advanced technologies increases demand for energy.
  • Population growth, urbanization and growing middle class drive energy demand – diverse supply required to satisfy demand, with intense competition for market share between energy sources.
  • Shift of economic power to millennials with the desire and means to address pollution and climate change.
  • Geo-political landscape remains tense and strong global economic growth shifts global influence.
  • Technology advancements allow access to greater oil reserves, with unconventional supply growing.
  • Natural gas and LNG play a larger role in transportation.
  • Strong growth in renewable energy.
  • Carbon intensive industries face high regulatory costs and strict standards.
  • High global energy demand fed by diverse energy supply.
  • Refined products still dominate transportation fuels, but are losing market share to alternative fuels.
  • Fuel efficiency standards and technological innovation moderate growth in refined product demand.
  • Oil and natural gas are increasingly costly to produce and the oil price continues to trend upwards with some cyclical downturns.
  • No existing assets are stranded.
  • High price and market access enable robust oil sands growth and further investment in improved extraction techniques.
  • Continued focus on carbon footprint reduction through capital projects, technology development and efficient operations.
  • Competitive downstream provides robust returns and enables physical integration of oil sands crude.



Energy markets impact
Expected impact on Suncor
  • Continued conflict and geo-political instability.
  • International trend towards isolation and self-preservation with energy security a key concern.
  • Economic volatility, unbalanced wealth distribution, overall weaker GDP growth.
  • Air quality, traffic congestion lead to smaller, higher efficiency vehicles and some electric vehicle adoption.
  • Extreme weather events lead to social unrest.
  • Investor risk aversion and tight capital markets constrain both technology advancement and high capital projects.
  • Pipeline projects constrained by stakeholder protests and investor risk aversion.
  • Unstable, boom/bust energy market.
  • Environmental progress and climate change mitigation takes a back seat to economic concerns.
  • Fossil fuels remain the primary source of affordable energy and dominate the global energy mix.
  • The price of oil recovers from current levels but fluctuates widely with rapid shifts in demand and supply.
  • Slower economic growth and technological progress limit the proliferation of electric and other alternative fuel vehicles; energy mix does not change significantly.
  • Slower economic growth limits growth in energy, oil and refined product demand.
  • No existing assets are stranded.
  • Long life assets able to deliver free cash flow through commodity price volatility, enabling Suncor to maintain competitive returns to shareholders.
  • Integrated model helps smooth oil price cycles.
  • Growth projects rigorously tested to ensure ability to deliver returns in volatile oil price environment.
  • Financial strength is leveraged to consolidate assets at the bottom of the cycle.

* We used three scenarios defined by IHS Markit as the basis for the development of the Suncor scenarios. The IHS Markit Autonomy, Rivalry and Vertigo scenarios have been modified to fit our unique circumstances/needs.

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