Rather Than Resist, Companies Should Look To Capitalize On Energy Evolution: Panel

Faced with inherently high carbon emitting oil production in the oilsands, Alberta is already behind the eight ball in a carbon-constrained future, speakers told the Pembina Institute’s recent Alberta Climate Summit in Calgary.

But the shifting paradigm also offers opportunity — one that Alberta’s entrepreneurial nature can help solve, said panel members in a session titled The Energy Evolution is Good Business.

While oil executives on the panel firmly backed Alberta’s carbon tax as one tool to drive new opportunities, the mayor of a small Texas city touted the benefits of going 100 per cent renewable in its electricity supply.

Pat Carlson, the founder and former chief executive officer of Seven Generations Energy Ltd., launched the panel discussion with his assessment of the attitudes of many in the industry toward climate change, putting a positive spin on where that leaves Alberta today — with an opportunity to capitalize on being left behind.

“To me, there is still a debate going on in Calgary about whether climate science is real,” he began. “There are a lot of what we call climate change deniers or people who have accepted climate is changing but aren't convinced yet that it’s anthropogenic causes, and so we are dealing with a situation where we are slow off the mark relative to the rest of the planet, except for a couple of other jurisdictions that have a similar economy,” he said.

“And I think that provides us with some real opportunities to move quickly to capture opportunities ahead of the pack, because I think that even if climate change turns out to be a hoax — which is not where I am at all, don't get me wrong — if it turns out that way the economy has changed anyway. If all of these changes that we have heard about happen, all of those efficiencies occur, this has changed the business world permanently. So there are lots of opportunities in Alberta to catch up to the rest of the world, and with the abilities that we have perhaps even take the lead in some things.”

Carlson, who grew Seven Generations from scratch into a $10 billion enterprise that ranked among Canada's top 10 producers before he stepped down in 2017, has since founded Kiwetinohk Resources Corp. He was selected to receive the Alberta Chamber of Resources’s Resource Leadership Award late last year and was inducted into the Canadian Petroleum Hall of Fame this year.

Similarly, Ian MacGregor, CEO of North West Refining, sees the energy transition in terms of opportunity. “I think the world is like, problem [or] opportunity. I like to look at opportunity. For me, this [transition] is another form of opportunity, the same type of opportunity we have had in Alberta since the beginning.”

He presented his opening remarks in terms of a warning — that Alberta not go down the road of Detroit, a once world-leading automobile manufacturing hub that didn’t see its competition — initially from upstart Japanese manufacturers — coming until it was too late. “The same threat is facing Alberta right now: it’s climate. What are we going to do about it?”

The “four wheels” of Alberta’s looming competition, he said, are: the shale and tight oil and gas flooding onto the market in the U.S.; market access issues; the International Maritime Organization limits on fuel sulphur content coming into force in 2020; and CO2. “We are inherently high CO2 because we start with a very heavy feedstock to make it into something useful,” he said. “There is no avoiding it.”

MacGregor spearheaded the construction of the Sturgeon refinery outside Edmonton, the first refinery built in Canada in decades. North West Refining is a 50 per cent owner of the North West Redwater Partnership, along with Canadian Natural Resources Limited, in the 79,000 bbl/d Sturgeon Refinery. He called the almost $10 billion project, which processes bitumen to refined products such as low sulphur diesel and marine fuel, the most environmentally advanced refinery in the world.

Addressing resistance

Asked how to respond to concerns the transition to low carbon energy risks harming the Alberta economy, MacGregor pointed again to the opportunities that presents. Specifically, he pointed to the Northwest refinery’s plan to capture CO2 emissions and pump them to central Alberta oilfields to squeeze out more crude.

“What we have to do is concentrate on making the lowest embedded CO2-content fuels we can make here, and get them to the rest of the world. The oil that comes out of those [CO2 enhanced oil recovery fields] will be a very low carbon content.”

Its environmental benefits are also substantial, he said. “In terms of its capacity, it’s like taking every car in New York City off the road when we get that [CO2] pipe to full capacity. So we can do those kinds of things here. The opportunities are colossal. We just have to quit worrying about what’s going on and start doing stuff.”

Albertans are generally accepting of such projects, noted MacGregor. “When we were making the applications, we had to consult with 452 landowners along our CO2 pipeline route. We only had two people who didn’t say this was a good idea,” he said.

Carlson pointed to another low-carbon opportunity — using hydro electricity to produce lower-emission intensity oil and gas. In a prior company, he said using nuclear power to produce hydrogen to upgrade bitumen was examined as a means to lower carbon emissions.

“That would mean that the net fuel that you get [from bitumen] is partly nuclear energy. It’s very similar to what British Columbia is asking LNG exporters that want to operate in British Columbia to do. They are asking them to use hydropower for transmission and compression of the natural gas, so the end product becomes a hybrid between natural gas and, in their case, hydropower.

“That’s just one examples of what could be done. I think there needs to be a shift from raw bitumen without sequestration up the chain toward natural gas and natural gas to LNG. LNG can replace coal in China and that’s an overall benefit for the planet, so one of the biggest things that Canada can do as a business opportunity for Canadians is to produce LNG, provided it’s done in a kind of way that the British Columbia government is mandating.”

Growing the economy with renewables

Dale Ross, mayor of Georgetown, Texas, described himself as both a conservative Republican and as the mayor of the largest city in the U.S. that is powered 100 per cent with wind and solar. The transition to renewables, he said, was the result of good economics, over and above environmental concerns, he pointed out.

“First and foremost it was a business decision. We didn't plan on being 100 per cent renewable when we undertook the decision-making process, but that is where the facts led us. At the time we didn't really consider too much the environmental impact, but what we have learned going through this process and being 100 per cent renewable is, if you win the economic argument, you win the environmental argument.”

He said there was initial resistance by some doubters when the renewables direction was set, but they came on board when they saw their utility bills decrease.

“There were some simple goals. One, we wanted to mitigate volatility in pricing in the short term. We wanted a long-term strategy that mitigated governmental and regulatory risk, because the more regulation that you have on the energy source, generally the costs go up.”

The facts were that wind and solar resources, which are abundant in Texas, were cheaper and less volatile than the alternatives, he said. And pursuing them bolstered the economy. In addition to a 97-turbine wind farm, the city sources power from a massive 1.7 million panel solar farm covering 1,250 acres.

“What we determined is these side benefits, economic development, is huge. The last four years we have been the first, second, fourth and now sixth fastest growing city in the United States for cities between 50,000 and 100,000.”

Still, the environmental benefits play an important role in the city’s renewable transition, he said. “With respect to climate change, I'm not arguing with people: it’s real. The latest poll says 60 per cent of Republicans in the U.S. believe it’s real. It’s just that, now they are arguing over what’s causing it,” Ross said.

Regardless, there is no time to delay dealing with it, he said. “We can't wait one more day to come up with solutions. Every day that we delay is a day that we will never get back. It’s real, we created the issue, and we can fix it.”

Defying stereotype

Against the stereotype of oil executives, those on the panel endorsed Alberta’s carbon tax in its current form as an effective tool in encouraging the low carbon transition, a measure at risk of abolition if next spring’s election brings to power an opposition party pledging its elimination.

“I actually as a right-leaning person am in favour of a carbon tax, absolutely, provided that it is revenue neutral,” Carlson said. “That environment [created by a carbon tax] is important. Personally, I am an entrepreneur, a free market capitalist, and I believe the free market will solve problems when it’s given a clear mandate to do that. Given a clear path, people will figure out how to do things better to make more money.”

The most important thing governments can do is to provide policy certainty and a vision where they want to go and how they want the industry to respond, he added. “And then to provide some regulations which we can expect to have some comfort will stay in place for some time, because quite often these type of installations, like a refinery, take a long time to pay out. For those kind of investments we need to have some financial certainty.”

Ideally, Carlson said he would like to see an Alberta transition strategy “that everybody can buy into and that we'll get behind as a province, and that the political parties will say, ‘we are not going to change that when we get elected next time.’ I think we have to tell our governments and our politicians and candidates for office that there has to be some consistency here.”

“Small continuous improvements make the biggest difference,” added MacGregor. “For those things we need a steady signal that says it’s going to be more expensive to continue to do this [emitting carbon] in the future, and you have to control around whatever that increase is. If you keep with it, people will innovate and solve problems and they will solve them in a slow, continuous, relentless manner. We live in arguably the most entrepreneurial place in the world. If you send a clear signal, all of a sudden all kinds of magical stuff starts happening really quick.”

His company’s CO2 pipeline, costing nearly $1 billion, is the type of infrastructure that is assisted by a price on carbon, he noted. “So the carbon tax is good and it’s about the right amount right now, so don't disturb it. It’s large enough to make people change their behaviour and it’s small enough not to wipe them out.”