Suncor’s energy transition plan leaves rest of oil/gas industry in the dust

Other Canadian oil companies are riding Suncor’s coattails

Two years ago, Suncor CEO Mark Little wrote that the oil sands could finance Canada’s transition to clean energy. His company is following through on that promise, but most of his competitors are not. Alberta-based oil companies generally invest in lowering their emissions, under pressure from investors and policymakers, not in low-carbon business models. That’s simply not good enough in 2022.

Earlier this week, Suncor announced a strategic pivot from wind and solar energy (the company owns 8 wind farms and is developing 3 solar farms) to focus on hydrogen and renewable fuels. Richard Masson of the School of Public Policy at the University of Calgary says Canada’s biggest integrated oil and gas company is re-allocating capital from a low-margin industry with plenty of competitors to emerging clean energy tech sectors where returns are potentially much higher.

“It makes sense to re-deploy that capital in an area where they have a core technical capability and try to advance those technologies,” he said in the interview above, noting that Suncor has the expertise, experience, and capital to help scale-up new energy technologies.

Suncor’s strategy is a home-grown wrinkle on the approach used by European super majors. Shell and BP, for example, invested heavily in off-shore wind farms, EV charging infrastructure, and other electrical utility-type businesses. Investors have been skeptical of the skimpy profit margins for these businesses compared to the historical beefy returns from oil and gas (listen to my Energi Talks interview with Arij van Berkel, head of the energy team at Lux Research).

That reality may have been on Little’s mind when he noted that the revamped renewables strategy would “use our strengths, competitive advantages and resources to drive shareholder returns and value over the long term.” A quick perusal of Suncor’s latest investor presentation makes clear that maximum earnings for shareholders is top of the company’s agenda. The same is true of the other oil sands companies.

What is different for the other big oil sands producers (CNRL, Cenovus, Imperial Oil) is that their energy transition strategy stops at decarbonization. Most of their research budgets and technology development efforts are almost exclusively aimed at reducing greenhouse gas emissions.

On the one hand, this is perfectly reasonable given Ottawa’s recently announced Emissions Reduction Plan, which features a 42 per cent cut in oil and gas GHGs by 2030. On the other hand, Suncor has been investing in clean energy start ups, wind and solar projects, and new technologies for 20 years, while the other producers have not.

Let’s admit a truth the oil and gas sector tries to tap dance around: decarbonization isn’t the same as transitioning to clean energy like wind, solar, and hydrogen. The one is risk-proofing a 20th century industry, protecting the status quo, while the other is investing in the 21st century energy system.

Little was wrong when he argued two years ago that “the Canadian energy industry is up to the challenge and best positioned to invest in and lead energy transformation.” Suncor is up to the challenge. It is the only company that has consistently invested in energy transition businesses or has a plan to do so in the future.

The rest of the sector is riding Suncor’s coattails. Time for the other companies to step up and explain to investors and policymakers how they plan to surf the transition away from oil that is likely to start around 2030.

They could do worse than emulate Suncor.

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