Imagining the future of Canada's oil and gas industry

Building backward, not building back better, is the risk of shunning innovation in the four-fifths of global energy that comes from fossil fuels.

A recent opinion piece in The Globe and Mail said that “Canada shouldn’t spend to revive a dying dream” – another shot at the country’s largest industry – the natural gas and oil sector.

This time, the more specific target is our Canadian oil sands. Canada has the world’s third-largest oil reserves 168 billion barrels, of which some 162 billion barrels are in oil sands deposits in Alberta.

A refrain has been circulating recently, in a weak attempt to take hold as our country looks at finding the best strategies for strong economic recovery. A narrow view of recovery and a bias against the petroleum sector has resulted in a refrain that advocates abandoning our oil industry and instead, putting money into transitioning to a "green recovery".

This does disservice to the ‘build back better’ program, first defined and then adopted by the United Nations General Assembly in 2015. It framed an approach to post-disaster recovery aimed at increasing the resilience of nations and communities. Build back better is not a new concept, but it’s amazing how activist groups are now using it to frame their own misguided agendas.

What do recovery and resiliency mean in our current context? Sure, everyone likes the sound of green. The way the term is often used, however, is shallow and manipulative. In 2020, it should be okay to confront the honest truth about energy. Government spending is not enough to sustain a resilient recovery for the Canadian economy. We must attract investment and market our competitive advantages. We need to play to our strengths.

Our natural gas and oil sector is one of them. Make no mistake – the industry in Canada is already green with environmental performance that stacks up against the best oil-producing nations in the world. With our vast resources, our highly skilled workforce, and environmental, social and governance standards, Canada is well-positioned to maintain a strong industry while continuing to improve performance. These advancements should be acknowledged and pursued in an effort to supply responsible energy to the rest of the world, lessening the need for oil from countries with lower standards and a higher environmental footprint.

Overall emissions intensity in Canada’s oil sands has decreased by 29 per cent since 2000 and are expected to drop another 23 per cent by 2030. Not only is this a sign of the commitment of industry to do better, but it is a reflection of the incredible technology associated with oil production, which offers the opportunity to grow Canada's clean technology industry from our energy sector.

What a damaging thing it is to suggest decarbonizing oil production is building backward, not building back better. Eighty per cent of the world's energy today is from fossil fuels. No matter how offensive this fact is to some people, the reality is that no progress in emissions reductions can be expected by focusing only on growing the one-fifth of global energy that comes today from hydro, nuclear, biofuels and the small but exciting category of tech-driven renewables like wind and solar.

Recognizing this reality, innovation in the production and extraction of oil and natural gas is the way of the future and offers a path for Canada to help lower global greenhouse gas emissions to fight climate change. While Canadian oil companies are investing in clean technology and environmental protection (on average more than $3 billion each year -- more than almost all other industries combined) to lower emissions, it's a very different story with producers in Saudia Arabia, Myanmar, Russia and Nigeria.

By now, we're seen numerous examples of companies committing the category error of agreeing to cast themselves as something they are not. The most class case is BP's bungled repositioning with the tagline "Beyond Petroleum". Nobody believed because it was never true. The imagined “moral arc” that theoretically drives hydrocarbon firms into totally different businesses rarely proves valid. Anyone who's serious about lowering emissions has to admit that companies striving to answer market demands is the most effective way to bring this about. 

To give some perspective, Canada’s oil sands account for only a fraction (0.15%) of the world’s GHG emissions. Shutting down our industry would have no positive impact on the world’s climate goals, but it will push investment and higher production to those countries that do not share Canada’s high environmental standards; increasing global emissions and enriching other nations.

The piece also suggests that peak oil demand is near due to the slowing of demand for the product. The authors go on to say that COVID -19 has accelerated workplace changes that have and will continue to reduce commuting and business travel.

However, the International Energy Agency says peak oil is years away. Fatih Birol, Executive Director of the IEA recently told Bloomberg, “the coronavirus will only reduce oil demand briefly, with consumption dipping in 2020 to about 91 million barrels a day, before rebounding in 2021 and beyond.”

He went on to say that not all behavioural changes due to COVID-19 are negative for oil use. Yes, people are working more from home now, but when they do travel, they are more likely to be in cars than public transit.

As for the argument that there will be reduced commuting and business travel, there are other factors at play if you look beyond our borders, step out of a narrow view, and see the global picture. “If there’s a strong economic recovery, American business consultants using Zoom will not compensate for 150 million new urban residents in India and Africa travelling, working in factories and buying products transported by trucks,” Birol said.

Demand for oil is only expected to grow. The facts and actual data show that oil demand is recovering robustly, with the lack of aviation travel being the main factor holding it back.

According to the latest IHS Markit report, global oil demand has now recovered to 89 per cent of pre-pandemic levels. Analysts estimate oil demand growth will recover to between 92 per cent and 95 per cent of pre-pandemic levels by the first quarter of 2021.

If Canada wants to build back better, maybe we should look at supporting our largest industry and looking for ways to market our obvious competitive advantages. We are staring opportunity in the face, if we can stop bickering long enough to see it.

The Canadian energy industry has seen it, and has been advocating for market access, often to deaf ears. The IEA has identified the same opportunity, noting in a recent report that strong growth in Asian oil demand is creating major opportunities for oil-producing countries that can boost exports.

Global oil demand is projected to rebound in 2021 and Asia will account for 77 per cent of oil demand growth through 2025. Meanwhile, oil production in the region will decline, and as a result, all major Asian economies will be heavily dependent on oil imports.

Oil sands production in particular is positioned to fill a rapid rise in global demand. Unlike the vast shale fields in the United States that require intensive activity, investment and new wells to bring back the production lost, Canada's oil sands producers can bring their production back quickly without large outlays of capital. This is an opportunity to gain market share while creating jobs for Canadians and generating desperately needed revenues for governments in the form of taxes and royalties.

The oil sands industry is a major economic driver in Canada’s economy. In 2017, the industry alone provided $56 billion, or 2.9 per cent, of the country’s GDP. In that year, the industry created approximately 205,000 direct and indirect jobs across Canada — a truly national industry. For example, in 2016-17 Alberta’s oil sands producers spent $1.89 billion to purchase goods and services from 1,162 suppliers in Ontario alone.

It is difficult… no… impossible to imagine an economic recovery for Canada that attempts to sideline our largest industry and our greatest-value exports. A holistic approach to recovery must include the natural gas and oil industry, in fact, all of our resource industries. Our vast resources are our advantage and our opportunity.

Stewart Muir is a Canadian journalist, historian and advocate for responsible natural resource development. He founded Vancouver-based Resource Works in 2014.

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