Preparing for low-carbon future is best way to secure future of Alberta oil
Optimists think global oil demand will remain around 100 million barrels per day for another 20 years. Pessimists think the energy transition is accelerating and demand will peak in the early 2030s, then decline quickly after that. Which are you?
Alberta is chock a block with optimists. Premier Jason Kenney is the head cheerleader; for example, exploiting the Russian invasion of the Ukraine to shrilly demand more pipelines and higher exports. No surprise, the Canadian Association of Petroleum Producers sings from the same song sheet. And the provincial media reflects the dominant view. The province’s political culture, including Rachel Notley and the Alberta New Democrats, is solidly optimist.
I am a pessimist. Let me explain why.
In the column, How the 1920s help us understand the energy transition of the 2020s, I explained how the current global energy transition looks very much like the last one. First, new energy technologies entered the market but adoption was very slow because they were expensive and risky. Then, technologies improved and sales grew over 20 to 30 years until they became competitive and began pushing old technologies out of the market during a very disruptive decade. That was followed by another 20 to 30 years of moderate growth as the new technologies came to dominate the market.
A century ago, the new technology was the internal combustion engine, fuelled by petroleum, and the disruptive decade was the 1920s. Today, there is a plethora of new technologies and the 2020s is the disruptive decade. The ones that matter to Alberta are transforming the power sector (wind, solar, storage, enable technologies like artificial intelligence, and many more) and transportation (electric vehicles, hydrogen, batteries, autonomy, and many more).
Far too many Albertans don’t understand – or won’t accept – how the pace of change has accelerated in power and transportation. For example, last year alone global automakers invested $270 billion to retool for electric, according to BloombergNEF. The flood of capital into clean energy has become a tsunami (watch interview with BloombergNEF below).
This is a good news, bad news scenario for Alberta.
The good news is that the 2020s will be the last great oil boom (watch my interview with Wood Mackenzie below). Inadequate global investment in oil exploration and production will keep prices high and producers will be rolling in cash. Unfortunately, workers won’t benefit like they have in the past because management is adopting digital technology to trim head counts and payroll. Alberta can expect to lose another 50,000 oil and gas jobs over the next decade.
Wood Mackenzie, whose client roster includes most major oil companies, recommends that companies use the windfall to shore up balance sheets and invest in low-carbon business models. With the exception of oil sands giant Suncor, the Alberta oil patch is ignoring that sage advice.
To be fair, the Alberta government and some of the more forward thinking CEOs are beginning to grapple with the issue. The bad news is that Alberta is starting way back in the pack. And what its leaders think is a progressive approach to the energy transition is in reality a decade or two behind regions like Europe and China (watch my interview with the Business Council of Alberta below).
What to do?
Alberta basically has the 2020s to devise an energy transition strategy and start implementing it. After 2030, pivoting to post-combustion (using hydrocarbons to make materials instead of burning them) and investing in the new electric, low-carbon fuel (hydrogen, for example) economy will become increasingly difficult.
Every month, the window closes a little more. Within a decade it will be mostly shut. Unless the optimists have an epiphany and change course, Alberta could fail to navigate the energy transition, which would be bad news for workers and businesses.
But Alberta doesn’t have to follow that road to ruin. Its leaders can make better choices now and set up Alberta to be even more prosperous than it was pre-transition. Will they? Their performance to date suggests they won’t.
And that’s one more reason why I’m a pessimist.