Oil industry’s biggest enemy? Conservatives

Jason Kenney, industry, Canadian conservatives waiting for an invitation to next oil price party that is never going to come

A tenet of Canadian conservatism is that the oil and gas industry is under attack from a panoply of unsavoury enemies – the Trudeau Liberals, “eco-terrorists,” to name a few – and must be zealously defended. Unfortunately, conservatives have it all wrong: they are the hydrocarbon sector’s greatest enemy.

John Kemp, Reuters energy columnist. Source: Twitter.

Tuesday’s column from Reuters energy analyst John Kemp, titled “Energy transitions, job losses and political reactions,” helps explain why.

He argues that the global economy is indisputably in the midst of an energy transition – from fossil fuels to electricity generated by low-carbon technologies, supplemented by hydrogen – and behind every discussion of this transition, “lies a deeper, often hidden, debate about reallocation of incomes and opportunities.”

“Transitions are never just about cost, convenience and security; they are always about individual lives and communities too,” he writes. “They are inherently political as well as technical.”

That, in a nutshell, describes today’s Alberta, where the debate about the reallocation of incomes for workers and their communities is dominated by conservatives trying to stop or seriously slow the disruption caused by the energy transition.

The numbers tell part of the story.

Oil and gas capital spending peaked in 2014 at $60 billion, but today is just over one-third of that amount. Employment reached its apex in 2013 at 174,000, then fell off a cliff, plummeting to 137,000 before the COVID-19 pandemic, then fell by another 14,000.

Behind the numbers are oil patch workers who have lost their job and now fear they will lose their home, their possessions, and their lifestyle. No wonder talk of energy transitions “arouse strong political, emotional and moral passions,” as Kemp says.

Alberta direct oil and gas employment 2011 to 2020. Source: PetroLMI.

Populist politicians, especially Trumpian ones like Kenney, have tapped into that fear and insecurity for their own political purposes. And conservative populists have a readymade base close at hand, suggests Kemp: “the risks associated with energy transitions are borne disproportionately by older, more experienced workers at mid-career or a little beyond.” Think middle-aged, unemployed petroleum engineers and geologists tramping the +15s of Calgary with their resumes for the past five years or rig workers with a high school education wondering where their next job will come from or the junior oil and gas CEO who can’t make payroll.

Kenney is their voice. They couldn’t name the global forces really affecting them, so they elected the UCP to “fight back” against political villains they could name. “But political sensitivity has rarely been enough to stop an energy or technology transition,” says Kemp, “though it may slow the process by a few years, buying a bit of extra time for a section of the workforce.”

This is the nub of Alberta’s problem.

The province has no influence on the pace or impact of the global energy transition. Nor does Canada. The transformation of the energy system is being driven by technology change and climate policies around the world. As the old industry saying goes, Alberta is a price taker, not a price maker.

In broad terms, there are only two rational responses to a global energy transition: adapt as markets change or lead that change. The irrational response is to double down on the status quo, but this is the approach Kenney and the UCP have chosen. Exhibit A is a Wednesday press conference in which Kenney once again pressed for the resurrection of the 1.1 million barrels per Energy East pipeline, using false claims to make his case, a staple of the conservative populist’s playbook.

Alberta oil and gas and oil sands capital expenditure. Source. Alberta Energy Regulator.

“I, for one, and Alberta’s government have not given up on the dream or a vision of a west-east pipeline system that takes Alberta oil to the Port of St. Johns or the Irving Refinery to displace Saudi oil imports,” he said.

Saudi imports only account for 17.5 per cent of the roughly 600,000 barrels per day Canada imports, according to the Canadian Energy Regulator. About 75 per cent came from the United States, which extracts the light sweet crude used by almost all of the Eastern refineries.

“…in October 2017, the Trudeau government killed Energy East by imposing new regulations on TC Energy that pulled their application,” said Kenney.

Not true. The National Energy Board, an independent agency that doesn’t dance to any prime minister’s tune, included downstream greenhouse gas emissions in the Energy East review because it was emerging best practice for environmental assessments. While it is true that TC Energy cited the change in its withdrawal letter, the Premier is ignoring the effect on the project of President Donald Trump’s decision earlier in 2017 to re-issue the presidential permit for the pipeline company’s controversial Keystone XL. As economists have shown, the company simply chose the better pipeline project.

Kenney’s attempts to resurrect Energy East from the dead are a highly visible symbol of Alberta’s commitment to the past instead of the future.

Energy status quo changing whether Alberta likes it or not

Premier Jason Kenney, left, shaking hands with CPC leader Erin O’Toole. Source: Global News.

Kenney’s comments come only a few days after European supermajor BP released its 2020 energy outlook that suggested global demand for oil may have already peaked. Or, if it hasn’t, it will soon.

“The decline in oil demand is driven by the increasing ‎efficiency and electrification of road transportation,” the company said Monday. In other words, better energy technology.

And technology change is like Star Trek’s The Borg – resistance is futile.

Why, then, are conservatives like Kenney, O’Toole, much of the oil industry’s leadership, and media pundits (Alberta is lousy with them) futilely resisting change?

The answer is simple: while the energy transition was gathering steam, Alberta was partying on a cocktail of strong oil prices and sky-high oil sands investment that only ended in 2015. A wicked hangover – known in Alberta as a “bust” – clouded Alberta’s judgement. Consequently, it didn’t see disruption coming and now it’s caught flat-footed.

Instead of recognizing its mistake, Alberta is resisting the energy transition and Kenney is Resistor-In-Chief.

“Transitions are among the most disruptive of all technology changes,” Kemp writes, adding that they “create big losers as well as winners.”

Alberta is in serious danger of becoming one of the transition’s big losers while the conservative political and industry leadership frets, anxiously waiting by the phone for an invitation to the next party that will never come.

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