- In addition to finding new investment to accelerate the energy transition, we should focus on redeploying the billions of dollars going into the oil and gas sector.
- Small companies will play a key role in enabling the energy transition at a local level since they are more open to innovation and engaging in smaller projects that, combined, have a cumulative effect.
- The energy start-up landscape and entrepreneurial spirit is regenerating the talent in the oil and gas sector and is a major contributing factor to driving the energy transition.
In order to build a circular energy economy, Canada needs to first design out waste and pollution; second, keep products and materials in use; and third, regenerate natural systems. (ref: Ellen MacArthur Foundation)
Since Alberta’s economy is built upon the foundation of oil and gas, what role do you think this sector can play in Canada’s diversified energy future?
While a lot of people want to move directly into the future with energy diversification strategies or new regulations, I see oil and gas as a bridge. It is the essential foundation that Alberta is built on and the primary driver of our economy. It employs hundreds of thousands of people and contributes millions of dollars to charities and social programs. The sector also does a tremendous amount of environmental work. I believe it is naïve to think that we can just throw all of that away overnight. The oil and gas industry is going to need to be the foundation of creating and supporting the future of Canada’s energy industry. Its organizational models are designed to execute large, multi-stakeholder, science and engineering based capital projects. It could also provide the capital for the transition. If we can redeploy portions of the billions of dollars going into the oil and gas industry in an intelligent way, we can accelerate the energy transition. In addition to finding new investment, we should try to use the investment that we already have.
“If we can redeploy portions of the billions of dollars going into the oil and gas industry in an intelligent way, we can accelerate the energy transition.”
However, oil and gas investors tend to accept a higher risk profile overall but demand higher returns over shorter periods. For renewable projects, their payout periods are closer to 10, 15 and even 20 years, so there is a bit of a gap between capital investment in oil and gas and renewables.
What different positions and opportunities do you see for small and large energy companies in the energy transition? Is the situation quite polarized?
There is certainly a divide between large and small energy companies but I am not sure if it is based on a desire to participate in the energy future. It is based more on the company’s ability to survive in the short-term. If a company is doing well, it is likely willing to invest in the future. On the other hand, if a company is struggling to survive, it does not have the luxury of thinking about the long-term.
“It’s a lot easier for innovators in renewables to work with smaller companies because they are willing to consider different revenue streams and take a small chance to get a small return.”
In fact, it is a lot easier for innovators in renewables to work with smaller companies because they are willing to consider different revenue streams and take a small chance to get a small return. The small energy companies are going to enable more of the energy transition locally because they are willing to undertake smaller projects that are cumulatively going to add up to a shift. On the other hand, large companies are predominantly interested in major offshore windfarms and other high-return projects.
How are Canadian entrepreneurs and start-ups transforming the energy sector?
Innovation and entrepreneurship have founded and allowed Canada’s oil and gas sector to thrive. Canada’s Oil Sands Innovation Alliance (COSIA) and Oil Sands Leadership Initiative (OSLI) are good examples of major-scale innovator systems. They have been great for developing innovations at scale but the start-up landscape is changing the game for rapid innovation. The start-up landscape is not only providing great energy innovation but also regenerating the people of the oil and gas industry. Many innovators are former oil and gas employees who are finding ways to use their former and existing skillsets to create something new.
What’s really interesting is that many individuals I have met in this line of work are not just looking for paychecks, they’re looking for something more. They’ve spent years, if not decades, behind a desk working for someone else and have this burning desire to build something for themselves. I think they feel as though the industry really let them down, and rather than wait for the next boom, they’re taking a risk and trying something new. In some ways, this movement is re-building people and renewing their passions. Some are logical moves from staff engineer to consulting engineer. Others are bigger leaps: engineer to bathroom art designer, oilsands boilermaker to solar training advocate, staff geologist to lithium explorationist, etc.
“The start-up landscape is not only providing great energy innovation but also regenerating the people of the oil and gas industry.”
People have come up with incredible innovations that are designed on different assumptions about the future. They’re built by back-casting from a desired future, rather than projecting from today’s reality. ReGenerate was intended to be just that; “How can we create value from what’s being left behind?” It assumes a positive future outcome, and asks how we can make that true based on where we are today.
According to your annual report, “As of September 2017, 335 [Albertan oil and gas] companies have more liabilities than assets.” In your view, what proportion of these liabilities can be reclaimed and how can Alberta go about building a circular oil and gas industry?
I would be very surprised if even 10% of the production sites owned by the 335 companies were reclaimed. Some of those companies might only have one or two wells while others may have thousands of wells. The other piece of this is that the liability numbers come from the Alberta Energy Regulator (AER) and are under-calculated by about three times. The system is founded on the old wells getting cleaned up with the money from the new wells. So, if there is no money from new wells, the old wells do not get cleaned up. Going forward, it is a very scary picture because of how many companies are right on that edge. If you regulate this too hard or enforce too hard, the companies will just go bankrupt and we will really be stuck. So, the government needs to find a delicate balance between not pushing too hard and holding companies accountable.
“If land used for oil and gas development is not going to be reclaimed, it could turn into a community solar farm or other community asset.”
So, how does Alberta go about building a circular oil and gas industry? The Ellen MacArthur Foundation is the leader in circular economy thinking and it outlines three principles for a circular economy. The first is to design out waste and pollution, the second is to keep products and materials in use and the third is to regenerate natural systems. Waste is a huge issue; as soon as equipment or infrastructure is too expensive to deal with, it is considered waste. However, it does not mean that it is not useful; it just does not perform the function it used to. There are a few companies that are trying to resell equipment. For example, Fuelled is a kind of Kijiji for oil and gas equipment. ReGenerate Alberta has focused on keeping materials and products in use. Imagine if a company could book not only oil reserves but also future sources of energy and resources. In this scenario, an oil and gas company could have geothermal reserves or lithium reserves booked to a wellbore and sell it to a geothermal or lithium exploration company. In essence, it extends the valuable life of that well.
The piece we have focused on most is land repurposing. The reclamation guidelines mandate companies put the land back to original land use capability. There are currently no timelines related to that, and so the sites are piling up. We thought these sites could be put back to good use. If land used for oil and gas development is not going to be reclaimed, it could turn into a community solar farm or other community asset. ReGenerate Alberta has focused a lot of its energy on community engagement and stakeholder management to make such an arrangement possible.
How do you envision Canada’s energy mix in 2050?
By 2050, there will have been a huge global shift in energy production from fossil fuels to renewables. Moreover, energy generation will be much more decentralized than our current energy systems. So people will be using the energy they generate closer to home.
Given that, there will be a reduction in demand for Alberta’s and Canada’s natural resources, so we may start using more of our own natural resources rather than exporting them. That being said, Canada’s electricity supply is largely hydropower, which I do not see changing. Hopefully, coal generation will be obsolete by then and I think that natural gas and renewables will fill its void.
“The environmental movement led us to develop new renewable technologies, which are now being funded well enough that they are cost competitive.”
One projection I’ve seen, indicates a shift in renewable growth from 2% to 12% in Canada. I think we might be able to reach an even higher mark than that by 2050. The technology costs are coming down and efficiencies are going up.
A lot of these transitions are going to be financially driven and not just environmentally driven. The environmental movement led us to develop new renewable technologies, which are now being funded well enough that they are going to be cost competitive.