COVID-19 is an opportunity to rethink the future of Canadian oil and gas. What really needs to be in Round 2 of federal support

Canadians own natural resources like oil and gas and it’s time to start thinking like owners, including coming up with a new vision for the hydrocarbon sector

Are we “returning to normal” after the COVID-19 pandemic? Should we? These are two questions Canadians should ask about the oil and gas industry as governments prepare to re-open economies. Here’s another one: Is it time to envision a new future for Canadian hydrocarbons?

In March, Energi Media published The Energi Declaration: An Optimistic, Moderate Vision of Canada’s Energy Future. There are 12 principles to guide policymakers through the turbulent disruption that is already part of the energy transition and climate change. An accompanying narrative provides evidence for the principles.

Today, Energi Media is publishing an addendum to the Declaration: The Energi vision for Canadian oil and gas: Preparing for a post-combustion future. We argue that the national hydrocarbons sector headquartered in Alberta must begin the transition from producing oil and gas for fuel markets to producing for materials manufacturing and clean fuels. Furthermore, manufacturing should occur in Canada.

The case for changing the focus to materials is particularly relevant as the Canadian government considers further support for the oil and gas industry. Should it prop up the status quo, with its long list of problems and existential threats, or invest in a future where Canada may enjoy significant competitive advantages?

Assume for a moment that the best answer is investing in a pivot to materials manufacturing. Should the process be led by industry, government, or perhaps civil society groups (like environmentalists)? What role could ordinary citizens play?

The argument against industry leadership

Oil and gas leadership the world over tends to be conservative, stodgy, and resistant to change. The reason for that is rooted in the engineering-oriented culture of these companies.

Engineers innovate really well inside the box and the Canadian variety is as good as any. If you ask them to innovate outside the box, that innovation better be “de-risked,” as engineers like to say, because catastrophic failure can carry enormous consequences. Be forewarned, however, that if you ask engineers to change the box entirely, one risks giving them a stroke.

This isn’t what engineers – and the lawyers and finance experts who make up most executive teams – are trained to do.

Which is why Canadians shouldn’t expect executives steeped in oil and gas engineering culture to lead the discussion about the future of the Canadian oil and gas industry.

Unlike the United States where mineral rights are privately owned, in Canada, the people own the natural resources. And, as Alberta Premier Peter Lougheed used to say, we should start acting like owners.

What does it mean to act like an owner?

Owners are keepers of the vision. What do Canadians want to do with their resources? How should the country respond to external changes like the energy transition? Questions like these are the purview of owners.

Industry gets to exploit the resource for profit within the regulatory framework established by the owners. Once they know the rules, oil and gas executives have the certainty to make plans to do what they do best.

A plan is like having a flat tire and figuring out how to fix it to get back on the road and resume your trip. As an aside, the industry has had plenty of flat tires lately and hasn’t done a very good job of patching them.

A vision is about building a new road to a new destination. Oil and gas executives are obsessed with fixing their flats and have no time or patience to talk about possible new destinations and how to build new roads to get there.

Therefore, if necessary, Canadians need to have that conversation without them.

What conversation should Canadians have about the future of hydrocarbons?

This is the essential question Energi Media has tried to answer with the Hydrocarbon Post-combustion Vision. There are two basic questions and they’re addressed in both the Declaration and the Vision.

One, should Canada get more value from its resources? Ask this question of industry and the answer will concern profits. Owners have different priorities – good-paying jobs, revenue to support public services, saving into a rainy day fund, and so on. As owners, Canadians should also consider whether the current approach leaves benefits on the table. Why shouldn’t oil and gas owners maximize their returns?

Two, is there much of a future for using Canadian hydrocarbons for fuels? Canada isn’t the low-cost producer in global markets. Even small decreases in consumption or increases in supply can tank prices. Given the uncertainty created by COVID-19, the energy transition, and climate change, shouldn’t prudent owners prepare for the worst-case scenario?

The Post-combustion Vision suggests that oil companies must earn the social licence from Canadians to continue producing for declining future fuel markets. Lowering greenhouse gas emissions to net-zero by 2030 or 2040 and improving environmental performance – rather than the current strategy of greenwashing the status quo – are the minimum standards industry should be asked to achieve.

What can Canada do in the short-term?

While we owners of the resource are having a discussion about a vision for the future, the Canadian government should do more of what it’s already doing: investing in research, development, and commercialization of materials and clean fuels from oil and gas.

The expected Round 2 of federal financial support for the industry is a perfect time to expand innovation funding. More money should be poured into processes to turn high-carbon bitumen in carbon fibre; backfill the Alberta government’s cancelled $2 billion bitumen partial upgrading program; expand funding to commercialize at scale the extraction of lithium from oil and gas produced water; get serious about a “blue hydrogen” (made from natural gas with emissions sequestered underground) economy for industry and long-haul trucking; and helping oilfield technology and manufacturing companies find new markets.

The bill for supporting “future-fit hydrocarbons” will be billions of dollars, but isn’t investing in a sustainable industry and better environmental performance a better use of taxpayer money than supporting the status quo?

The Energi Declaration and the Hydrocarbon Vision are meant to stimulate discussion of a new energy future. Your feedback is welcome.

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