While the COVID-19 pandemic has accelerated the adoption of new technologies and processes, the energy sector is looking at a future of new, cleaner sources that can sustain global demand.
Yes, we felt the impact as global demand for energy products plummeted as the world went into its first lockdowns in March 2020. Since then we’ve been watching with interest as people and businesses have started to “move”—sparking a return in demand. But the fact remains that Canadian energy hasn’t seen strong capital inflows since the last price crash in 2014.
In that time, US shale emerged as the dominant target for investor capital, prompting a swell in US production. As a result, while other sectors were trying to find a path forward at the start of the pandemic, many Canadian oil and gas companies already had experience in building resilience, resourcefulness and efficiency into their everyday operations. This enabled them to grow within their own cash flows, while still being responsible to their stakeholders and shareholders.
Today, I see that the resilience and accountability we’ve built into our industry is going to set us apart. According to the International Energy Agency (IEA), global energy demand is projected to increase over the next decade as economies around the world return to pre-pandemic levels. With demand for renewables soaring in the next ten years, and oil and gas projections still trending in an upward direction, Canada’s mobile, energy dense, and environmentally conscious resources can help meet that demand.
This year, we’ve already seen dramatic increases in underlying commodity prices for both oil and natural gas. With the recent OPEC+ decision and the move by Saudi Arabia to dramatically cut production through March of this year, there’s now a case for continued bullishness around global benchmarks for oil. And it doesn’t stop there: the dramatic rise in the price of liquified natural gas (LNG) cargo headed for Asia resulting from significant cold weather across China and Japan is another influencer.
Fundamentally, these price shifts have been driven by short-term market changes. However, if we take a longer-term perspective, they could portray a future of volatile pricing where agility and adaptiveness determine success. It won’t just be commodity prices that drive that volatility; changes to how the world prices carbon and the continued transition to renewable sources will create a near-constant need for energy companies to pivot, adapt and adjust to the markets and its ever-changing needs. I believe Canadian energy companies are poised to come out on the winning side, provided we maintain the capital discipline and operational focus that have hardened our industry over the last five years.
So what’s next? What new year’s resolutions does our sector have? As we get ready to launch the next iteration of our annual Energy Visions program, here are a few thoughts for where I think we’ll go over the next year and beyond.
As we look forward, Canada’s oil and gas producers are going to have to rethink some of the core tenets that they have so far taken for granted. To start, we should be prioritizing the optimization of our product over its growth.
As a sector, we can expect to be in a low-cycle operating model for the conceivable future, though the IEA has forecast global demand to slowly recover over the course of this year, with increased demand stemming from emerging economies like China and India, and to continue growing through to the mid-2030s. But along with needing more oil and gas to sustain its growth and recovery from COVID-19, the world needs better, cleaner, more cost-effective energy. I believe Canadian producers can rise to the challenge, and redirect their focus from exploration to optimized production...which is to say we’ll defend our portion of the global production mix by marketing a product that sets the standard for environmental excellence, social responsibility, and diverse and inclusive governance.
Once again Canada is presented with a unique opportunity to export LNG off our western coast as demand continues to increase in many Asian countries due to growing energy needs and the transition away from higher carbon fuels. In 2019 Canada was the fourth largest producer and sixth largest exporter of natural gas in the world but today our export market is focused on the US alone. The LNG Canada project is bound to change that narrative when it comes online, but with projected to grow 14% over 2019 levels by 2030, there is likely room for increased focus on this energy source.
ESG is transforming the Canadian energy market. Canadian and global investors are serious about companies that adhere to strict environmental, social, and governance (ESG) standards and, as we head into 2021, we are better positioned to take advantage of the work that has already been done by our energy companies to provide a leading example.
As the world shifts towards a more ESG-forward perspective, we're becoming better at voicing our value proposition. Canada is recognized as one of only a handful of jurisdictions that imposes mandatory disclosures, regulated emissions protocols, and carbon taxes on excess greenhouse gases. In 2020 the Environmental Performance Index (EPI) ranked Canada highly in overall environmental performance, helping to prove that we’re leading the world in volume as well as values. As demand for energy continues to rise, it’s clear that Canadian producers are the socially responsible choice. From here onwards, a focus on building trust amongst all stakeholders will be a key to future success.