On dinosaurs, family, and the energy sector's future

Oh, and a few words about the origins of the February long weekend....

For all the billions of dollars that Alberta taxpayers have sent to Ottawa over the years, there’s another contribution to confederation that isn’t appreciated as much as it should be: Family Day. That’s because, back in 1990, then-Premier Don Getty created the statutory holiday for Albertans in the wake of his 31-year old son getting busted for trying to deal cocaine to an undercover RCMP officer. (No, really). The rest of the country slowly but surely followed suit — and without the need for an embarrassing scandal. You’re welcome.

But as we pay thanks to the Getty family today, it’s an opportunity to reflect on the broader purpose and role of family in our lives. Yes, most families are supportive and empowering, even if they don’t create a holiday to cover for our misdeeds. But as Tolstoy famously wrote (and wrote, and wrote) in Anna Karenina, that isn’t always the case. Sometimes, families can be the thing that holds us back rather than the force that propels us forward. And nowhere is that more true right now than in the metaphorical family of oil and gas workers in Canada.

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For years now, their industry’s leaders have claimed that it’s the victim of a coordinated campaign of misinformation, one that’s intended to undermine its standing and interests. It has even convinced the Government of Alberta to spend millions of dollars on a War Room and public inquiry, which are theoretically charged with identifying that campaign’s roots and pushing back against its work. But if oil and gas industry insider David Yager’s recent column for CBC Calgary is any indication, the call here is coming from inside the proverbial house. 

In his piece, Yager suggests that oil and gas industry insiders have a better bead on where the energy transition is headed than Canadians who think climate change matters and want to do something about it. “It is the global community, not Canadian policy, that ultimately sets the future for oil and the climate,” he writes. “So the oilpatch watches international data carefully and continuously. It's their job.” 

That’s true. And if they’re watching that international data carefully, what they’ll see is a rapidly shifting landscape — one in which Canada is as much a climate laggard as it is a leader. Over in Europe, for example, there’s all sorts of talk about the creation of a “climate club” and a Carbon Border Adjustment Mechanism, which would effectively tax imports based on the climate policies in their country of origin. In the United States, the Biden administration seems determined to make up for the last four years of climate inaction as quickly as possible. And major corporations there are clearly paying attention, with General Motors announcing the phaseout of fossil-fuel powered vehicles by 2035. 

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Most important, perhaps, is what’s happening in capital markets — where oil and gas companies ultimately have to go if they want to issue debt or sell equity. Blackrock, which steers enormous volumes of institutional capital to publicly-traded companies around the world, announced a major set of new actions in Chairman Larry Fink’s 2021 letter to CEOs. Those include “incorporating climate considerations into our capital markets assumptions; implementing a “heightened-scrutiny model” in our active portfolios as a framework for managing holdings that pose significant climate risk (including flagging holdings for potential exit); launching investment products with explicit temperature alignment goals, including products aligned to a net zero pathway; and using stewardship to ensure that the companies our clients are invested in are both mitigating climate risk and considering the opportunities presented by the net zero transition.”

Yager doesn’t appear to have internalized any of this. After all, he writes that “without significant government intervention or new technological innovations, demand for oil won't change any time soon. And certainly not in time for any of the publicly-stated climate preservation deadlines.” This might have been a defensible statement back in 2011, but it’s demonstrably false in 2021. Those technological innovations are happening all around us right now, whether it’s the rapidly declining cost of the batteries that power electric vehicles (some analysts now expect the up-front price of an EV to reach that of internal combustion engine vehicles by 2023) or the ever-more massive turbine blades that are making wind farms both bigger and less expensive than anyone thought possible. 

When presented with this information, industry boosters generally retreat to the idea that even if demand in North America and Europe has peaked (and it has), the developing world will come to the industry’s rescue. But people in countries like China, India, and Brazil aren’t obligated to follow in our footsteps when it comes to how they grow their economies and the energy they use to do it, as if they’re proceeding through the energy equivalent of the stations of the cross. They can instead skip right past oil and natural gas and go straight to wind, solar, and hydro if the economics and technology allow for it, as they increasingly do. What they want is energy, not petroleum, and while the two may still be coterminous in Alberta that isn’t the case in the rest of the world. 

On some level, it’s understandable why self-described “dinosaurs” like Yager continue to seek out reassurances rather than reality. That explains the popularity of books like “Ethical Oil” and “The Moral Case for Fossil Fuels” in the corporate towers of downtown Calgary, and the stubborn persistence of the long-debunked arguments they contain. Change is never easy, and it’s particularly difficult when it unfolds as quickly as it is right now. Less than a decade ago, after all, the global oil market looked like it was going to be perpetually short on supply — and Canada’s massive stores of bitumen looked like a winning lottery ticket Alberta could spend decades cashing. In a decade from now, we will almost certainly be past the point where demand for oil has peaked and begun its inevitable (and irreversible) decline. Life comes at you fast, as they say.

Yager is right that oil and gas companies have spent the last few years under-investing in their fields compared to when oil prices topped $100 per barrel, and that the impact this has had on supplies is partially responsible for the recent surge in oil prices. And he’s right that the February cold snap has driven natural gas prices up around the western world, as people fire up their furnaces and try not to freeze. Those who think we can turn off the spigots on oil and gas tomorrow are just as wrong as those who think they’ll remain open in perpetuity. There will be plenty of opportunities for Alberta’s oil and gas industry in a decarbonizing global economy, and it should seize as many of them as possible. 

But that can’t happen if the industry continues to pretend this isn’t happening. What it needs right now isn’t dinosaurs who are resigned to their fate but leaders who are willing to evolve. That means incorporating new information into their media diets. It means setting aside comforting narratives and the people who tell them. And it means looking to the future instead of living in the past. Yes, as David Yager pointed out, the Line 5 pipeline’s route “was not a problem for the regulators in 1953.” But it’s not 1953 any more. The sooner the industry starts preparing for the world of 2053, the better off we’ll all be.