Build domestic non-combustion market for bitumen, create a new oil/gas regulator, dramatically reform the electricity sector
Naheed Nenshi is the new Alberta NDP leader. The former Calgary mayor’s record vote total, 86% of nearly 63,000 votes cast, suggests many voters are ready for change. But are they ready for the hard work of changing the provincial economy and its energy systems that is required by the breakneck pace of the global energy transition? Here are three ideas Nenshi and the NDP should consider adopting.
Let’s begin with the obvious: the energy policies (there are few climate policies to speak of) of Premier Danielle Smith and her UCP government are predicated on a slow energy transition. She hews to the OPEC view where substantive change doesn’t even begin until well past 2050. Until then, job number one is lowering emissions to make Alberta hydrocarbons more competitive for the Golden Age of Oil and Gas the Premier and the oil and gas industry think is already upon us.
As I’ve argued many times, the International Energy Agency’s (IEA) rapid transition (announced pledges scenario) appears at this point to be the most likely. But let’s not discount the Rocky Mountain Institute’s very rapid scenario, which lands somewhere between the IEA’s APS (announced policy scenario) and net-zero by 2050 modeling.
If either of those scenarios comes to pass, Alberta is in big trouble.
Here’s where Alberta stands: Smith is wrong, the oil and gas industry is wrong, but there isn’t much daylight, at this point, between them and Nenshi, as I suggested in last week’s column.
In fact, there are no big, bold ideas to be found anywhere in Alberta.
Academics like Andrew Leach and Trevor Tombe are preoccupied with critiquing current policies. Mainstream media like the Calgary Herald simply reports on the business of the energy status quo. And the scribbling shills for the oil and gas industry, like Dave Yager and Terry Etam, are busy explaining why hydrocarbons are humanity’s greatest blessing and we should enjoy them forever.
There is very little discussion about how Alberta should respond to the disruption of the oil and gas business model.
NDP partisans won’t like to read this, but the party under Rachel Notley wasn’t much better after its 2019 electoral defeat. Aside from some weak flag waving about renewables and climate change, the NDP retreated to its traditional social policy strengths. Insiders have told me that Notley and her campaign team explicitly rejected focusing on the energy transition during the 2023 election.
Judging by his comments to date, Nenshi won’t do much better. Should he want to, here are three areas desperately in need of attention.
Create a new domestic market for bitumen: advanced materials manufacturing
The Alberta Energy Regulator’s 2024 Energy Outlook forecasts bitumen production to rise to almost four million barrels per day by the early 2030s while conventional light sweet crude will remain between 500,000 and 600,000 barrels per day. Never mind conventional production, the oil sands is, for all intents and purposes, the Alberta oil patch.
Smith and the CEOs are fond of saying that “no credible forecasts” show global oil demand peaking by 2030. In fact, many do: the IEA, S&P Global, BloombergNEF, to name a few. If demand declines in the early part of the next decade, prices will likely fall. Canadian Energy Regulator modeling says that such a scenario will cause significant production declines in the oil sands, perhaps to as low as 1.5 million barrels per day.
If that happens, Alberta will be devastated.
And let’s face it, bitumen should not be turned into fuels anyway. As Dr. Paolo Bomben of Alberta Innovates explains in the interview below, bitumen’s unique molecular structure (like a sheet of hydrogen and carbon atoms instead of a chain) makes it the perfect building block for advanced materials manufacturing.
This should be Alberta’s new mantra: don’t burn it, make stuff instead.
Since the oil and gas industry has no interest in venturing outside its historical box, the pivot to a non-combustion oil sands has to be led by the Alberta government. How convenient, then, that Alberta Innovates, a provincial agency, holds the intellectual property for turning bitumen into products like carbon fibre and asphalt binder. Building an advanced materials manufacturing sector will take time, probably 10 to 20 years, but it can be a significant source of domestic demand for bitumen.
Alberta Innovates modeling shows that turning bitumen into carbon fibre creates over four times more value than refining it. Imagine the jobs that can be created and the investment capital attracted by such a moonshot project.
Perhaps just as important, oil sands producers like CNRL and Imperial will remain viable so they can pay for their unfunded environmental liabilities.
Blow up the Alberta Energy Regulator (AER)
In the Unethical Oil investigative series (here, here), still underway, I reported how almost 100 years of oil and gas development has resulted in approximately $300 billion of unfunded environmental liabilities. Inactive wells, processing plants, pipelines, oil sands tailings ponds and facilities – virtually no money has been set aside to pay for the reclamation of these assets.
The assumption has been, since the first Alberta oil and gas regulator was created in 1938, that oil companies would be around – and willing – to pay for reclamation. This assumption has proven to be disastrously wrong. Oil companies have no intention to reclaim any more of their old assets than they are explicitly required to by the AER.
Part of the solution to this horrendous problem is keeping the oil companies from failing so that they can afford to pay to clean up their messes, which is why pivoting to a domestic market for bitumen is attractive.
But make no mistake, there is no solution to any of Alberta’s oil and gas issues without addressing the regulatory problem.
Where to begin?
I’ve reported extensively on this issue, but the Unethical Oil series is a good place to start. At the bottom of this column I will link to other key interviews with subject experts.
But here’s the bottom line: the AER as structured and operated is a captured regulator. That is, it works primarily for the interests of the oil and gas industry rather than the public interest.
The AER cannot be reformed. An NDP government should blow it up, pass the requisite enabling legislation, and create a new organization purpose fit for managing an industry about to be severely disrupted by the energy transition.
Re-engineer the power sector
Oil and gas isn’t the only Alberta industry about to be disrupted. The story of Alberta’s huge head start developing wind and solar projects – now 14% of generation – and Smith’s August, 2023 moratorium that was lifted in March, then modified to be a “soft” moratorium, is well known. The Premier is no fan of renewable energy.
What’s less well known is the emergence of two electricity grid models and how they apply to Alberta.
The first model aims to change the grid as little as possible. Switch from coal to natural gas-fired generation, then in the mid-2030s or thereabouts replace gas with nuclear power plants. Nuclear is a dispatchable, drop-in replacement for thermal generation. The grid remains stable and reliable, with nuclear – preferably small modular reactors (SMRs) – hopefully providing low-cost, clean electricity.
The second model, much favoured in jurisdictions like California, is to rapidly adopt intermittent wind and solar while simultaneously re-engineering the grid. This is much riskier, according to advocates of the first model. But experts like Gerhard Salge, chief technology officer for Hitachi Energy (see interview below), argue that a plethora of new grid technologies can make modern grids more flexible, lower cost, and even more reliable.
Alberta is all in on the first model. But that comes with its own risks.
Distributed energy resources are becoming ever more viable. What if large industrial and commercial users (which make up 75% of Alberta power consumption) decide to generate their own electricity on-site and defect from the grid? Will remaining customers have to pay much larger transmission and distribution fees to make up the lost revenue?
SMRs are in their infancy. What if they fail to realize their promise, as skeptics argue? Will Alberta be stuck with white elephants that are way behind schedule and way over budget? What’s the economic cost of that scenario?
Smith has directed the Alberta Electric System Operator to undertake market reforms. This is the perfect time for Nenshi to tell Albertans which electricity system he prefers. Or are there other choices?
What will Nenshi do?
At the very least, Alberta should be having a fulsome conversation about these impending, and very serious, issues. Instead, there is plenty of evidence that politicians, policymakers, regulators, and industry are stuck in a slow energy transition fantasy.
What a perfect opportunity for the new leader of the NDP. He could put that conversation on the public agenda by using his new soapbox as leader of the Official Opposition. Perhaps he could convene his own panels of experts to provide advice that leads to the NDP drafting a 2027 energy plank for its election platform that doesn’t look like a pale imitation of the UCP.
There are a million things Nenshi could do, including champion the three issues described above, but will he do any of them?
Judging by his leadership campaign website, probably not. He said early on that it wasn’t for a potential leader to tell the political party what its policies should be, then he basically lived up to his intention of saying little about energy and climate.
Well, that was then, this is now.
Alberta is suffering a crisis of leadership (refusing to acknowledge that in a decade or so the global energy transition will likely wreck the provincial economy) and Nenshi is the only leader able to rise to the occasion. His first order of business should be to recognize that Alberta is facing an existential economic crisis and his second is to craft a response. This should be his highest priority, bar none.
The time has come for bold action. The New Democratic Party of Alberta is now his to direct. Will Nenshi rise to the occasion? Albertans need to know.
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