Rick Perry’s ‘new energy realism’ sounds a lot like CAPP’s ‘4-point vision’

New Energy Realism: minimal regulation, technical innovation, reliance upon market forces and capital investment

Rick Perry gave a fascinating speech at CERAWeek Wednesday. Canadians should pay attention for two reasons. One, the Canadian industry’s recently released “vision” was reflected in the US Energy Secretary’s  comments, leaving no doubt about where the Canadian Association of Petroleum Producers is getting its inspiration. Two, Donald Trump intends to loose the American energy industry to compete head-to-head with China for dominance of a rapidly evolving global energy system.

President Donald Trump. Photo: Time Inc.

President Trump likes to talk about “Energy Dominance,” which appears to be his doctrine (apparently every American president has to have one).

Perry added a new wrinkle to energy dominance, “new energy realism.” What does that mean, exactly?

“We don’t have to choose between growing our economy and caring for our environment. By embracing innovation over regulation, we can benefit both. And THAT is the heart of our New Energy Realism,” he said.

“[Trump] has cut taxes and reduced regulations by historic numbers, putting Washington squarely on the side of innovators and investors.”

The model for “new energy realism”? Why, Texas of course, where Perry was governor from 2000 to 2015.

I’ve interviewed enough Texas energy economists, regulators, and industry representatives over the years to say with some confidence that relying on minimal regulation and market forces is the Texas model. A “real conservative” approach to the energy business, is how Texans might describe it.

And it works pretty well for Texas.

Having the largest refinery capacity in the world, easy access to deep water ports, and abundant supplies of light sweet crude in huge shale basins certainly helps. Not to mention Houston, the epicentre of the biggest oil and gas “cluster” on the planet.

But Texans are also fierce competitors and innovators. As Perry noted, many of the “the major breakthroughs in hydraulic fracturing and horizontal drilling” that are the backbone of the shale revolution came from Texas.

And when Saudi Arabia and OPEC tanked global oil prices in late 2014 in an attempt to put American shale drillers in their place, Texas-based companies led the way with innovative new technologies and processes that have enabled the US to thrive in the new “lower for longer” price environment.

The International Energy Agency predicts that by 2030 the United States will be producing 15 million b/d of crude oil, liquefied natural gas exports will grow rapidly, and petrochemicals will expand thanks to billions in new investment.

Trump, Perry, and the Texas-based leadership of the American oil and gas industry believe oil and gas will fuel the global energy system for many decades to come and they have every intention of being the dominant player in that marketplace.

“The US becomes the undisputed leader for oil and gas production for decades, which represents a major upheaval for international market dynamics,” Dr. Fatih Birol, IEA executive director, said in Nov.

Not surprisingly, CAPP wants a little bit of what the Americans are smoking.

As I explained in a column last week, CAPP’s new “vision” is just a list of complaints – some of them, like more pipelines and market access quite legitimate, some less so – not really a vision for the future of the Canadian oil and gas sector at all.

But that list is informed by what Canadian oil and gas executives see happening south of the border. There they see a President and Administration giving industry everything it wants and more, while Canadian producers take huge price discounts because of a constrained transport system and the prospects of fixing that problem seem dimmer with every Vancouver protest against the Trans Mountain Expansion pipeline project.

Throw in carbon taxes, greenhouse gas emission regulations, recently raised taxes, loss of an important federal tax incentive, and the federal government’s plan to revise pipeline assessments so that indigenous and eco-activist opponents have more input and influence, and no wonder industry is quietly throwing its support behind UCP leader Jason Kenney, who has promised to do for Alberta companies what Trump is doing for the Americans.

But Canada is not the United States and Alberta is not Texas.

Consider just these three differences: 1) growth in Canadian oil production will come entirely from high carbon-intensity oil sands crude; 2) Alberta, the source of that growth, is land locked and building pipelines to tidewater is far more politically challenging than it is in the US; 3) the Canadian government is committed to a national carbon tax, meeting Paris Climate Accord targets, and aggressively lowering GHG emissions.

Canada needs a made-in-Canada solution, but part of that solution must include a true vision about Canada – and Alberta’s – place in the global energy system.

Are we just another cog in the giant American energy machine, as we have been for decades?

Or can Canada emerge as a supplier of low-carbon heavy crude oil and natural gas in the form of LNG – and perhaps petrochemicals, given recent Alberta government announcements – that strategically target global markets where we have competitive advantages and at the same time contribute to de-carbonizing the existing energy system?

CAPP has promised six more “economic reports” that will flesh out its so-called vision for the national oil and gas industry.

Canadians will wait to see if those reports are just a reworked Trumpian “new energy realism” like the first document or if industry leadership actually has a plan that will help prepare Canada for a new energy future.

Vision or business as usual?

Part 2 of this column will look at the other theme of Perry’s speech: the growing rivalry between the United States and China over the emerging clean energy economy. The two economic giants have very different strategies and Canada must navigate its way between them.

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