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New Year's Resolutions for a Transformative 2021

Like all industries, Canada’s oil and gas sector was blindsided by the global COVID-19 pandemic. But I believe that our industry has shown its resilience. This is largely due to the difficult decisions that have been made since the last price crash, and in respect to the broader energy transition that is underway.

At a glance

  • The Canadian energy sector will continue to move from a growth mindset to an operations mindset that focuses on optimization, efficiency and profitability through digital and operational excellence. We will enhance profitability and investability without necessarily growing production.
  • With Canada’s strong environmental record and strict oversight, our sector could benefit as the US realigns with international regulations and clean energy targets.
  • 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.

Moving from a growth mindset to an operations mindset

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. 

The rise of environment, social, and governance metrics

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.

Establishing a future for Canadian energy

Beyond establishing their reputation as leaders in the ESG landscape, Canadian energy companies have also uncovered opportunities in the wake of the pandemic. This year, many have paused traditional capital projects and have reallocated resources towards digital transformation initiatives that would have otherwise taken years. Others have taken this even further, investing in cleantech innovations ranging from improvements in Canada’s already pioneering carbon capture and storage (CCS) technology to the achievements of Canada’s Oil Sands Innovation Alliance (COSIA) and the ongoing work to reduce the environmental impact of natural gas production as we respond to increased global demand for this critical transition fuel.

To those of us in the industry, this isn’t a surprise. We know that energy companies are among the most enthusiastic investors in Canada’s cleantech space, and Canadian oil and gas is no exception. We’re the top-rated country in the G20 when it comes to clean technology innovation, and we lead the world in green and renewable technologies including battery storage, advanced nuclear, and carbon capture and sequestration.

But today, when we talk about transitioning, it’s not just moving towards new technological innovation and adoption—it’s about helping the entire world move towards cleaner energy to minimize global greenhouse gas emissions and mitigate the risks created by climate change.

We’ve seen some of the world’s biggest producers begin to diversify their portfolios with renewable energy. Here in Alberta, hydrogen power has enormous potential: Canada already generates 8,200 tonnes of “grey” hydrogen per day as a byproduct of reforming natural gas, but that can be converted to more sustainable “blue” hydrogen if carbon dioxide emissions can be captured and stored, or reused in enhanced oil recovery operations. The Western Canadian Sedimentary Basin already provides an abundant supply of low-cost natural gas; with industry and government investment in blue hydrogen, the production of both energy sources could be a game changer for the province’s oil and gas sector. 

When I think about the inspiring initiatives that Canadian Energy companies are embarking on, I’m convinced that there’s virtually no limit to what our energy sector can invent, produce, and provide. In today’s global marketplace, and tomorrow’s, Canada’s energy companies are positioned to not only compete, but to win.

Explore our Energy Visions series

Finding opportunity for Canada in the global energy transition

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New world. New skills: Preparing your workforce for the energy transition

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Energy Visions 2020: What’s ahead for Canada’s oil and gas industry

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Adam Crutchfield

Adam Crutchfield

Partner, National Energy and Alberta Consulting Leader, PwC Canada

Tel: +1 403 509 7397

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Jennifer Melnyk

Partner, Workforce of the Future, PwC Canada

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Jason Bergeron

Jason Bergeron

Partner, Technology Advisory, Digital Energy Lead, PwC Canada

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Clinton Roberts

Clinton Roberts

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Reynold Tetzlaff

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Brendan Hobal

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