Alberta needs a Plan B

Oil finally has a competitor (electricity)

Alberta already has a Plan A. It’s called the Emissions Reduction and Energy Development Plan. To understand how risky it is, you need to understand OPEC’s “Oil and Gas Forever” worldview, which is the basis for how the Alberta government thinks about the energy future.

OPEC’s recently released World Oil Outlook 2050 forecasts mid-century oil demand at 120 million barrels per day, up from 103 million barrels currently. You read that correctly. Just as the global energy transition grabs another gear, perhaps two, the cartel is doubling down on the status quo. 

OPEC forecast comes with OPEC narrative

“OPEC does not believe that energy sources are locked in a zero-sum game,” Secretary General Haitham Al Ghais wrote in July, “nor can the history of energy be reduced to a succession of energy replacement events.”

In other words, the energy future will look much like the past. 

After 1945, the rapidly industrializing world couldn’t get enough energy and primary energy demand skyrocketed, led by fossil fuels. Hydro and nuclear also grew rapidly, but were added to fossil fuels. Diversification, not displacement.

OPEC thinks history will repeat itself. This time, the rapid growth of energy consumption will be led by emerging middle income economies in the Global South. An expanding middle class in India and Brazil and Indonesia want the same lifestyle as the North. The new voracious appetite for consumer goods will ensure that wind and solar are absorbed into the energy mix and do not displace hydrocarbons in the 21st century.

Premier Danielle Smith and the oil and gas industry share OPEC’s view. 

That’s all Smith talked about during the World Petroleum Congress in Calgary a year ago. She pilloried the International Energy Agency for predicting peak oil demand by 2030, calling it a “political activist organization.” Recently, she has mused about doubling Alberta’s oil output to eight million barrels per day. Every second day it seems she is in the media excoriating Prime Minister Justin Trudeau for supposedly holding up West Coast LNG expansion.

For Smith and OPEC, oil and gas are entering a golden age of expansion, not staring down the barrel of demand destruction.

During her World Petroleum Congress press conference, I asked her if Alberta had a Plan B, just in case the IEA turned out to be right. Smith’s long-winded politician’s non-answer made it clear there is no Plan B. 

Alberta all in on “Oil and Gas Forever”

Smith’s gamble is unacceptable. At least, it should be. Peak oil and gas demand by 2030, followed by decline, low prices, and oil company failure, is a huge gamble for Albertans. If she’s wrong, a lot of workers won’t be able to pay their mortgages in the not too distant future.

An Alberta Plan B isn’t a nice-to-have, it’s a need-to-have. The existential threat to the Alberta oil and gas industry, one of the largest in the world, is too great to be fantasized away. 

Or, as is more likely, simply misunderstood.

This energy transition is different. It is technology-led, not commodity-led. Solar, wind, and batteries on the supply side, electric vehicles, batteries, heat pumps, and electric industrial processes on the demand side. And all of that technology is manufactured in a factory, most of them in China.

Manufacturing technology that creates energy is fundamentally different from extracting oil and gas. More like electronics manufacturing. For example, the calculator that cost my parents $75 for my Grade 8 math class is now an app on my phone and costs me nothing. In a pinch I can ask Google to do the calculation. 

A similar process is at work for clean energy. Wind and solar often bid into wholesale electricity markets at zero cost. China automakers churn out EVs as low as $5,000. Battery prices have fallen off a cliff, enabling even more renewable power generation and lowering the cost of EVs. Perhaps most importantly, clean energy costs are forecast to continue falling for years. 

Which is why Haitham Al Ghais is wrong. Make no mistake, electricity is an existential threat to oil. Oil’s customers, the automotive industry, have chosen its competitor, electricity, to fuel their vehicles. 

In fact, electric transportation is the “disruptive innovation” for the oil and gas business model. And that’s bad news for Alberta.

“…the list of leading companies that failed when confronted with disruptive changes in technology and market structure is a long one,” wrote Harvard Business School professor Clayton H. Christensen wrote in his 1997 classic, The Innovator’s Dilemma.

Hard to imagine Suncor or Imperial Oil declaring bankruptcy, but once a business model has been disrupted, failure often follows in short order (e.g. BlockBuster). Failure on that scale would be catastrophic for Alberta.

Hence the need for a Plan B.

During her press conference, Smith said that if demand for Alberta oil and gas dries up, “we’ll make stuff out of it.” I’m paraphrasing, but it was a throwaway comment. Not meant to be taken seriously. Nor should we take it seriously. It takes 10 to 20 years to build new industries, scale up new companies. The time to begin is now, not when the golden goose begins its death rattle.

Alberta desperately needs a new energy plan. But who will step forward to draft it? That’s the awkward question for which there appears to be no answer.