TheFutureEconomy.ca: One could argue that the premise for the conversation about energy innovation started in Paris last year with the energy transition. The World Energy Council recently stated that we are beyond the tipping point of a grand energy transition. Do you agree with that assertion and is the industry positioned to manage this very challenging situation?
Jean-Michel Gires: Nothing started in Paris, it was just an evolution. In my career, we went through two oil shocks back in the 1970s. We had to recover from those oil shocks to a counter shock. We started to have the conversation about sustainability in Rio in 1992, we had the debate about the Kyoto Protocol back in 1998, and we had huge debates in Europe 15, 10 and 5 years ago about what sustainability was going to mean. We had huge expectations in front of Copenhagen, which failed because we could not agree on what was the best way to progress. And Paris was only a step where, after such a big failure, maybe we could find a way to reengage most of the players. Paris has been a success because of that.
However, you cannot forget that the fundamentals for a lot of what we are discussing is that our population has grown, and it looks like the nature of growth is changing in developed countries. As for the growth that is expected in emerging countries, they will not experience the same boom as we did before. Instead, growth will be redistributed in a different manner. That will provide us with big inflection points.
The energy sector has been transforming itself as well. We now have many forms of energy we can rely on: wood, coal, nuclear, oil and gas. Over the past 10 years it has started to look as if coal is being increasingly discarded and that it is not too far from having peaked. Nuclear is stalled for many reasons, and major accidents like Fukujima did not help. As a consequence, confidence in nuclear energy is being challenged in the developed world and we have not seen a renaissance. At the same time, natural gas has been reinventing itself through shale gas and what used to be a debate about how much gas is available today. Today there are many resources to work with. Even renewables have been progressing. I would not say that they have become mainstream, but they are starting to become a business reality. Solar and wind are still small and dependent on public and corporate support, but they are definitely growing as a business.
“You need to be smart about carbon capture and explore whether there are meaningful uses for CO2 before deciding to passively store it for the long term.”
The tipping point will occur only if you have practical solutions for what you want to deliver. But there are many reasons for which there is a desire to change to renewables, and there is no single plan on how to achieve that, a consensus about how to balance growth with sustainability, a view on the situation of developed versus emerging countries, or a determination on how much climate change weighs on the issue. There is a lot of ongoing discussion and we still do not have a practical solution that will allow for a major decline in CO2 or GHG emissions within a short timeframe and be economic and acceptable for everyone. A solution will have to respect the developed countries’ agendas, as well as the expectations of emerging countries with respect to their growth and improved lifestyle objectives. Innovation has not yet been able to deliver those practical solutions we are after. For that reason, I believe that a tipping point would only be reached when we are able to deliver what we expect from innovation, which is better solutions.
Is the oil and gas industry prepared for such transition?
Oil and gas is facing various issues. Oil and gas in Alberta is all about unconventional resources; namely heavy oil, if not tight oil or shale gas. We have been very successful in developing new avenues, new access to resources, and major projects; and crude oil production from oil sands will close off at probably 3 million barrels a day by 2020. But it has been done in conditions that were not completely satisfactory for most of the stakeholders that were looking for developments with a specific environmental impact. With options such as tight oil and shale gas being developed and progressing, heavy oil resources are at significant risk of being marginalized because they are still expensive in comparison and shareholders do not want to invest in areas when there are other options. Can you reinvent yourself and develop such resource more economically and in a smarter basis? Absolutely. You can find a way if you are astute enough, but innovation has a key role to play in that process.
“Innovation will be necessary because currently available technologies do not yet represent practical solutions that can be used in multiple large projects.”
In Paris, many countries committed to stay within the official target of 2%, and ideally even a 1.5% increase in global temperature. What are the quick wins and what are the technologies where we can accelerate our improvements in that area?
The general intention is there, but the practical means to execute that are not. You could say we need to put a price on carbon and offer financing, but what is the price and who is going to finance what? We cannot come to an agreement on the practical ways to do it. There has been a lot of debate in Europe, and there currently is a lot of uncertainty in the United States as to whether climate change will disappear from the agenda or be promoted further in the next 4 years. There nevertheless are many ways in which we can progress.
Energy efficiency is one area in which we can easily progress. Energy used to be abundant and affordable, and being an energy society we took advantage of that. We could stop wasting energy by looking for energy efficiencies. Huge economic wins could be attained this way. Another area in oil and gas where we can look for improvements is flaring and venting, which we are not doing very efficiently. If you add a carbon tax or a regulatory target around flaring and venting, that could generate a huge incentive to look for innovations that will achieve efficiencies.
Aside from looking at trying to improve what you are already doing, I would look at the medium term and evolve how we produce energy. We have heavy and tight oil that does not flow naturally in the same way conventional oil does. We have to inject water or gas and apply a significant amount of energy for it to flow. For that reason, there is a debate on how to deliver that energy more efficiently. With SAGD, using steam, if we were to re-think the way in which we deliver steam to the reservoir in an improved manner we could deliver significant improvements in the production process and capture value that is still available.
“The industry has to recognize the importance of innovation in addressing the different challenges it faces.”
Another example would be bitumen, which is impossible to transport and sell. The industry is calling for dilution, but it is a very expensive and risky process that requires huge quantities of condensates. The condensates have to be imported to Northern Alberta, stored, and mixed with the bitumen, with which we are transporting 50% in additional volumes through our pipelines. That generates economic penalties, demand for additional pipeline capacity, significant risks with respect to losing money, and the added steps are not very efficient. The difficulties in obtaining a social license to add additional pipeline capacity is an additional constraint and a point of debate. We could therefore look into finding more efficient processes than those that the industry is currently using.
When looking for a quick win, in the medium and long term we can always reinvent the key processes in production mechanisms. Whereas in the future we can look more closely at other ways to efficiently bring energy to the reservoir and extract what you want to extract.
Carbon capture and storage projects such as the Boundary Dam and Quest projects that Canada pioneered and that are considered innovative at an international level. Is that not quick win?
Unfortunately, it is not a quick win. I have been working on that for the last 15 years and we had huge expectations to significantly reduce the cost of such a solution. Although we had promises from entrepreneurs and large engineering companies, at more than $100 per abated ton we have not yet been able to drastically reduce the cost of capturing carbon to turn it attractive.
Most of the processes we know today for carbon capture, including the ones that have been implemented in Saskatchewan or in Alberta, are not up to the task because they are too expensive and there is no way you can replicate that in a large scale. That is why I have been trying to support some new ventures, but you need to be smart about carbon capture and explore whether there are meaningful uses for CO2 before deciding to passively store it for the long term. Carbon capture and storage has been a major dream of the oil and gas and coal power industries, but it has not yet been delivered.
“Innovation is not only about applying science to bring improvements, it is about connecting scientific opportunities to market needs.”
We need much better processes, especially on the carbon capture side, so that we can kill the cost by a factor of 2 or 3 versus what it is today. Until we are there, we have no solution that can replicate that in a sustainable manner. It has relied too much on public money and there is no way those key processes can reduce their cost. We should not be promoting them with billions of dollars if we know they cannot be replicated.
Carbon capture and storage or carbon capture and reuse are still part of the agenda and we have to determine how to significantly reduce the cost of capture. Another area that is growing is that of uses for captured CO2. Innovation will be necessary because currently available technologies do not yet represent practical solutions that can be used in multiple large projects.
Do the technologies that are being developed meet current and future demand, and how do we match investors with those ideas and companies?
That is the new challenge I am pursuing following my corporate career. We have many technologies that are potentially available, a lot of ideas, and talent, but it is not easy to connect that with an industry that has such a complicated structure as that of the oil and gas industry. There are many reasons for that and it may be difficult to validate all necessary steps in order to have a proven technology that the industry can use. There are also cultural aspects where people that are promoting an idea have difficulties to interact with the structured corporate environment that exists in the industry. I experienced that myself, where I have always been very passionate and interested about breakthrough innovation, but found that it was difficult to advance that in major companies such as Total. R&D initiatives, pilot programmes, and collaboration are in place but limited in their impact. There are many initiatives to accelerate continuous innovation, but we lack the real game-changers that come through breakthrough innovation. Continuous innovation may provide you with 2% growth per year, but the real change will come through breakthrough innovation and how to achieve that is not as obvious.
Another challenge lies with the fact that although there are many creative and intelligent people developing technologies in labs, they do not necessary know the oil and gas industry or they do not see it as an attractive target since it does not necessarily look like it has a promising future. To engage the industry, entrepreneurs need to have access to information as well as new technical, engineering and financial resources, and they way to do that is unclear. The industry itself has made little progress in trying to rethink how to deliver a better engagement process with that community, and that is precisely where I am trying to build bridges between the two sides.
In terms of how to improve that, the industry has to recognize the importance of innovation in addressing the different challenges it faces. Innovation in Canada or Alberta is still a low priority. Many people are talking about it but few understand what it really is about or the difference between innovation and R&D. Innovation is not only about applying science to bring improvements, it is about connecting scientific opportunities to market needs.
There are many options coming from labs, from technologies that have been proven in other industries, from new concepts and implementation methods, but all have to be connected. To do that, you need an improved engagement process to identify the opportunities where a technology has a good chance, and to perform the de-risking process you need access to technology resources and labs, financing, as well as business models and IP. Better access to resources and improved ways to engage with industry is what is necessary. We are progressing in that direction and are currently more advanced than we were 3 years ago, but we need to accelerate that process.
In terms of the government, it announced innovation as part of the new federal government’s agenda. But we have yet to see it and it is far from our current reality. The government must start to engage and to hold conversations with entrepreneurs to ask them what is needed. Much more can be done and we have interesting examples from around the world.
Canada has a lot to offer. We have great people, great labs, a great immigrant community, and a lot of them are in the innovation ecosystem. In spite of the debate around immigration, we need fresh blood as a key resource, and this can be done through immigration.
Finance is also important. Entrepreneurs have no compensation and while they may have limited capability to engage in a pilot, the steps forward after that are unclear as energy is an area where venture capital does not like to play. The industry’s cycles are too long, projects are capital intense, the engagement process is not well defined, and the path to success is unclear. For those reasons, venture capital finds the industry too complicated versus IT, biotechnology, and even clean tech. More public and private money needs to come into the game, but for that we need to find the correct mechanism. Private equity has demonstrated interest to reconnect with the industry, and we recognize it as an investor class that has reasonable expectations. Personally, I am currently testing various models for financing, including a hybrid model consisting of a private-public partnership, but we are still looking for the ideal formula that will attract both sources of funding into a format they are comfortable with. Better models may be proposed, but we will eventually need a financing model that can be replicated and accessed by more people.
Timing is also important. Even if funding is available, if the process to obtain it is too bureaucratic and time consuming, it can become difficult to access. ADDC would be an example of a great mechanism, but it is unable to free any funding in less than a year due to its bureaucratic process. ADDC has realized that and is trying to improve its process to deliver funding in a more meaningful and faster way.
Ultimately, it is important to engage with the innovation ecosystem and the people who are trying to navigate through it. It is an environment I have been involved in for the past 3 years, and one that is completely unknown by the corporate world I came from, by 100% of the politicians I meet, and ignored by the media. Only when we start to pay more attention to it, that is when we will be able to elevate the debate on how to help and support innovation.