Where is the ‘leadership blueprint’ for a 21st century Canadian oil/gas sector?

There is a 3rd way: By 2050, transition from hydrocarbons for combustion to feedstock for materials manufacturing, low-carbon fuels

The Public Policy Forum is hugely influential in Canadian policy circles (membership and board of directors), but its 20th century-style “leadership blueprint” for the future of Canadian oil and gas should not be taken seriously. Instead, Canada should be talking about bold strategies to restructure the industry for the 21st century.

Veteran energy writer Shawn McCarthy touches on the major criticisms of the Forum report in a March 17 review in Corporate Knights magazine. I want to add three concerns to his excellent piece.

The first is the Forum’s straw man argument that there are only two “competing visions” of oil and gas: environmental groups’ demands to reduce production to lower emissions vs. aggressive decarbonization to extend “the natural lifecycle” of the resource.

Few serious Canadians are demanding that hydrocarbons be phased out in short order. Furthermore, energy is provincial jurisdiction and the federal government simply cannot mandate production cuts. In fact, IHS MarkIt forecasts (interview below) oil sands production to rise by 650,000 barrels per day (250,000 barrels per day for conventional production) by 2030.

The “keep it in the ground” movement is hardly the bogeyman the Forum claims.

Also, there are many visions, not just two. For example, economist Jason Dion’s excellent study (interview below) for the Canadian Climate Institute that outlined 60 decarbonization pathways for the Canadian economy, many of them applicable to the hydrocarbon sector.

Frankly, the blueprint hews so closely to the oil and gas industry’s narrative it could have been a CAPP press release. The industry’s biggest lobby group spends plenty of energy and money influencing Canada’s energy conversation. No one is surprised the blueprint was written for the Forum by McCarthy Tetrault, the huge law firm with deep connections to oil and gas.

My second concern is that post-combustion options are given short shrift. Yes, the blueprint mentions “advanced materials such as carbon fibres” and hydrogen, but only in passing. Based on research at Alberta Innovates’ Bitumen Beyond Combustion program, post-combustion should the first priority, not the last.

The provincial innovation agency is only two to three years from a commercial process for spinning bitumen into cheap, plentiful carbon fibre. Scientists say they will soon solve the remaining technical issues. Zoltek, a major American maker of carbon fibre for the auto industry, says that manufacturing plants would be built as close as possible to the feedstock, likely in Alberta.

Alberta Innovates calculates that using bitumen to make carbon fibre would add $179 of value to a barrel of bitumen. Out of every million barrels, 470,000 can be used for bitumen beyond combustion.

Materials are the 21st century economy, liquid fuels the 20th century. Unfortunately, the Forum and its blueprint are mired in the past.

My third concern is the blueprint’s assumption that global oil demand will shrink but not disappear, so that as long as “Canada remains fully committed to its emissions targets, the way forward is to produce the ‘best barrels’ available in the diminishing but not disappearing marketplace.”

Can Canadian oil compete in a shrinking marketplace? We don’t know. No economist has modelled Canadian oil’s competitiveness as global consumption declines. Dr. Chris Bataille, one of Canada’s top modellers, explains why this is important.

The Forum takes it for granted that if demand drops below the current 100 million barrels per day by 2050, as per the IEA’s net-zero scenario, that Canada can compete. The blueprint provides no evidence to support that assumption.

What happens if Canada spends a king’s ransom on carbon capture and storage (the oil sands alone is asking for $50 billion) only to find that Canadian oil is uncompetitive at 90 million barrels per day a decade from now?

Without modelling that is made public so that it can be checked by economists like Dr. Bataille, the blueprint’s assumptions are worthless.

Slow walking change, an old industry tactic (see interview below)

The blueprint is really a defence of the status quo.

Its objective is to buttress the industry’s narrative that the Canadian oil and gas sector can survive in a low-carbon future without altering its fundamental structure. Its goal is not to stimulate change but to slow change. And, it goes without saying, convince governments to pick up as much of the cost as possible.

This matters.

Oil and gas is no longer a big employment generator. It has already shed 45,000 jobs since 2014. Experts forecast another 50,000 will be lost by 2040 because companies are adopting labour-replacing digital technologies (see interview below).

Should taxpayers spend billions propping up a sunset industry that doesn’t create jobs for Canadians? The blueprint conveniently doesn’t address that question.

At a time when Canadians should be discussing all the energy options on the table, the Forum is trying to restrict Canada’s conversation. One can already hear its influence in federal environment minister Steven Guilbeault’s pledge that Ottawa will not cut oil and gas production as the means to reduce emissions.

There are other visions for the oil and gas sector.

Energi Media, for example, has proposed  (here, here, and here) a third way: a complete transition over the next 20 to 30 years from producing hydrocarbons as feedstock for high-carbon liquid fuels like gasoline and diesel to producing feedstock for materials manufacturing (e.g. carbon fibre, plastics) and low-carbon fuels like hydrogen.

The irony is that this third way could set up oil and gas to be sustainable into the next century, whereas the Forum’s blueprint would accept the phaseout of the industry (likely mid-century) as global demand for hydrocarbon fuels wanes. The industry and its boosters are so captured by short-term thinking that they don’t recognize their own self-interest.

And let’s not forget who owns the oil and gas resource: Canadians via their provincial governments. Unlike the United States, where individuals own three-quarters of the hydrocarbon-producing mineral rights, in Canada the Crown owns the resource. Perhaps the time has come to manage oil and gas resources for the benefit of the owners instead of primarily the lessors (industry).

At the very least, the national conversation about the future of oil and gas needs to be much broader than the narrow oil and gas-dictated prescription offered by the Public Policy Forum.

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