For decades there has been tension between energy producers and groups that believe there’s no balance between responsible resource development and environmental concerns. But Canada has consistently shown success in responsible development while also supporting robust environmental standards.
As the calendar turned to 2020, however, the collision between the ambitions of the oil and gas industry and the goals of investors and citizens who are concerned about the effect carbon emissions are having on accelerating climate change became even more pronounced. From pipeline protests to rail blockades, the beginning of this decade has brought with it a heightened sense of awareness of the actions and impact this industry has on people across the country.
In last year’s report, we called for the federal government, with support from provincial governments, to produce a national energy policy with a coherent vision for development that supports both environmental requirements and energy industry objectives. The need for such a policy is now more pressing than ever—as the oil and gas sector faces lower prices, the prospect of a low-growth or no-growth world coupled with tougher international competition and continued infrastructure and regulatory uncertainty at home.
Now is the time to recognize the positive economic impact of energy investments in Canada and the key role the natural resources sector plays in maintaining a high standard of living for many Canadians. As the Business Council of British Columbia points out, “Mining, oil and gas production generates almost twice as much real income per unit of labour input as the next highest value-added industries.”
While it’s essential for industry to help shape a national plan, the sector can’t just wait for it to happen. Instead, Canadian energy companies have the opportunity to proactively address climate issues, take advantage of new opportunities where possible and find ways to create additional value for their communities, employees and shareholders.
Canadian energy companies have the opportunity to proactively address climate issues, take advantage of new opportunities where possible and find ways to create additional value for their communities, employees and shareholders.
Canada has joined more than 60 countries in pledging to try to reduce its net carbon emissions to zero by 2050. Whether the international goal is realistic remains questionable. A study from two British universities in November 2019 reported that only 13 of the world’s largest publicly traded energy companies have made commitments to cut their greenhouse gas (GHG) emissions to net zero.
But the effort creates a high-profile opportunity for Canada’s industry to take a leading role and differentiate itself in a world that’s more aware than ever of where its energy comes from and how it’s produced. We can and must raise our profile by highlighting all the positive achievements we’ve made in producing our energy more efficiently by using new technologies.
Some Canadian companies have already achieved notable reductions through innovation and investment in new technologies, including carbon capture and storage. Natural Resources Canada notes in its Energy Fact Book 2019–2020 that “since 2000, there has been a decoupling between the growth of Canada’s economy and GHG emissions, largely because of technological improvements, regulations, and more efficient practices and equipment.” This has resulted in a 2% reduction in Canada’s GHG emissions between 2000 and 2017, while GDP increased by 40%.
Continuing to cut emissions and enhance efficiencies will help prepare Canadian oil and gas companies to become global players.
Continuing to cut emissions and enhance efficiencies will help prepare Canadian oil and gas companies to become global players. A lot of the work to reach the next level has already been done, as Canadian players have been forced to streamline and innovate to stay competitive in a market that has strongly favoured US shale oil producers. Unlike their Canadian competitors, many of those US companies haven’t optimized operations to the same extent and will be challenged in the new lower price environment, potentially giving Canada’s sector an advantage.
Another potential step toward becoming a global player is for Canadian energy companies to move closer to the consumer. This means adding value by moving beyond production and including some form of intermediary processing to operations. Many in the Canadian sector focus on raw production, but many successful global businesses are built as vertically integrated operations, and this is an opportunity on which to build.
Another area of opportunity that may prove of interest for Canadian organizations is renewables. Depending on their size, some Canadian organizations may be able to leverage some of the skill sets and capabilities they’ve built in their organizations to develop new energy resources—in addition to what they’re already doing. As populations and economies grow, we’re faced with the challenge of keeping up with energy demand at a reasonable price while trying to reduce GHG emissions. Rising demand will continue to be a critical factor in future energy investment decisions, and as many experts agree, we’ll need all forms of energy, including renewables and oil and gas.
Depending on their size, some Canadian organizations may be able to leverage some of the skill sets and capabilities they’ve built in their organizations to develop new energy resources—in addition to what they’re already doing.
With the latest challenges presented by the COVID-19 pandemic, it’s becoming increasingly difficult for some energy organizations to strategize for the long term. But given we’re still on course for an energy transition, there may be some opportunity for organizations with the desire to diversify to start looking for capital to fund those initiatives.
We aren’t saying Canada’s oil and gas companies should pivot away from their core, as some may be unable to do that. What we are saying is there may be opportunities for those companies that have the desire and balance-sheet strength to pursue new capital-intensive energy investments. Companies for which diversification isn’t an option must stay focused on their core business and continue to execute more efficiently, digitally and diversely than any global competitor.
We can expect that federal government support for all industries will come in some form of infrastructure investment, and the adoption of alternative energies will likely be part of the government’s infrastructure agenda. This may present an opportunity for some Canadian energy companies to consider diversification while also leveraging their strength in building out large capital projects. Few industries other than oil and gas have the project-management expertise and long-term investing outlook to do it well.