Canadian energy and Alberta: Change on a global scale
By ATB Financial 19 February 2020 6 min read
Alberta has always been known for its trail-blazing spirit. In a province renowned for its abundant resources, we have world-class expertise across the energy spectrum. With Canada being one of the most highly regulated and socially responsible energy producing countries in the world, constant innovation and measured risk-taking have been the keystones for previous success. As continued disruption is predicted to carry on well into the new decade, never have bold ideas and strong partnerships been more important.
While a shift in the energy industry has been underway for decades, technological advances and heightened climate change sensitivities make the need for a full spectrum of solutions more acute.
Partnerships, conversations and collaborations will drive increased transformation across the energy sector, despite the current expectation of restricted capital spending given continued regulatory and political fluctuations that continue to limit our access to export markets.
“The energy conversation in Alberta, Canada, and the world needs to be balanced so we can work on all kinds of solutions – it’s not just about one type of energy, it’s about energy in general,” says Tim Gillespie, Executive Vice President of ATB Corporate Financial Services. “I am for more solutions. Everyone has a role to play, with solutions that work for their particular environment.”
An integrated shift in approach
“The ideas are out there to move in the right direction, particularly when we’re looking at energy efficiency and moving to a sustainable economy, whether it be carbon-specific technologies or technologies that enable us to go away from carbon,” continues Gillespie.
“It’s not about skirting around the topic of climate change and energy disruption,” Gillespie adds. “It's about facing it - facing it together and as an industry. Both on the renewables side as well as on the oil and gas side.”
As Alberta transitions away from coal fired generation, the Province now relies more heavily on natural gas to meet its electricity demand. According to The Alberta Electric System Operator (AESO) (on February 11, 2020), natural gas accounts for more than 50% of Alberta’s net electricity generation, with hydro, wind, solar and biomass contributing an additional 10%. At the national level, Natural Resources Canada estimates that non-hydro renewables generate approximately 7% of Canada’s electricity mix, with a further 60% coming from hydro-electric.
A market perspective
Many of the companies Mac Van Wielingen, founder and chair of Viewpoint Group, as well as partner of ARC Financial Corporation, works with are struggling to accommodate the new energy reality into their strategies and governance. He notes a lack of clarity over the role of the clean energy industry as the shift away from carbon-intense power is changing the energy sector and the companies within it.
"The critical component is that the oil and gas industry recognizes what the market wants, what the public wants, and what investors want: they want low costs and high returns. But they also want the highest possible levels of environmental, social, and governance standards and performance. What's extraordinary is that Canada has that. We can offer that. We're as good as it gets in the world."
Van Wielingen believes the energy industry would be well served to change the way it sees itself and think more holistically to succeed in today’s environment. This means speaking to the whole spectrum of the energy landscape - all points of the industry, from production through to the end user.
Changing the Canadian Energy Narrative
Telling the story, however, has been a challenge for the Canadian energy industry. This is evidenced by a lack of energy literacy in Canada – and abroad - among consumers and investors, notes Deborah Yedlin, Chancellor of the University of Calgary and media commentator. Incentives for change come from the investor community, she says.
“Investors around the globe are increasingly looking at their investments through an environmental, social and governance standards lens,” Yedlin says. She adds “It’s a very different sector than it was five years ago as it has adopted new technologies and processes to decrease its environmental footprint.Yet there are some in industry – and the public - who are challenged by a forward looking approach and just want things to go back to the way things were; that everything will be better with higher prices and market access. What's important to communicate is that the industry understands the world is changing and they're ready and willing to retrain people, partner with post-secondary institutions and invest in innovation. By taking this approach, everyone will be better off.”
Face the direction of travel
Michael Liebreich, with Bloomberg New Energy Finance, agrees the more facts that are available, the better the discourse around energy. “I think if we have good information, we will solve these problems more rapidly. Information lubricates trends in the right direction to universal energy access, cleaner energy, cleaner mobility.”
The key to survival is to be part of the disruption – face the direction of travel, Liebreich says. Success breeds success, with one positive change supporting the other. That’s where a strong relationship with your financial partner can play a role, helping provide the sophisticated tools, in-depth expertise and both strategic and financial support you need pioneer innovation within your organization. And while oil and gas will continue to play a strong role in the energy world, companies need to understand the trends and work with them. “To address that, you've got to face the direction of travel and not some mythical past or some model of an industry that would have worked 10, 15, 20 years ago,” Liebreich adds.
The Canadian advantage
Oil and gas systems, from production to refining to transporting, have been stigmatized in financial circles as well as the public, with banks to investment houses pulling out of carbon-intense energy projects. That’s where Canada’s energy security – on top of its high environmental standards – comes in, says Peter Tertzakian, Chief Energy Specialist and Managing Director of ARC Financial Corporation.
Following drone attacks on Saudi Arabian oil production sites in the fall of 2019, the conversation around energy security increased. Canada’s energy supplies are safe, stable and less vulnerable to risk than many other producing countries, Tertzakian notes, and should be priced accordingly.
“The momentum behind companies to innovate is based on two things: reducing costs to be more competitive and to make a better product – a lower-carbon barrel of oil,” he says. “If we have a permanence of what we would call a ‘geopolitical risk premium’ stapled into every barrel of oil, and that is surprise revenue, what do you do with that? I think companies could think about continuing their innovation, driving costs down.”
Innovative technologies are already helping Canadian producers diversify their energy mix, such as technology to extract hydrogen from natural gas while it’s still underground. The challenge is getting the investment community to understand how it works. Disruptive technologies pull up the learning curve, he says. “The leading technologies begins to emerge, they get financing, which gives others momentum.”
With innovation comes opportunity
However, technology can be a double-edged sword; by using fracking technology a different way, North America now has a market awash with natural gas. Technology unlocked the oil from Alberta oil sands, but at a high cost. Energy has become more available, cheaper and cleaner, so people are using it more and emissions are rising.
Despite a challenging environment, ARC Financial’s Van Wielingen is confident about the world energy scene. “I am optimistic about clean energy, about innovations – and that’s the root of my optimism: innovation. But we need to speed up innovation, and that’s where investment comes in. Innovation can be a very high-risk investment. And so, you really need a diversified portfolio of innovative ideas.”
Disruption is an opportunity in the right hands, made sustainable through articulated innovation, dedicated team members and on-going support from investors and financial services providers who truly understand the energy sector.
Comments from experts in the energy industry throughout the article were captured through audio interviews at the 2019 Energy Disruptors Conference.