Seeking solutions for oil patch problems
“The layer upon layer of red tape and taxes, and different rules and regulations across multiple jurisdictions, are undermining the industry’s potential and discouraging new investment. We could be doing better.” Jason Langrish is president of the Energy Roundtable
Establishing a new competitive edge for Canada’s oil and gas sector in a rapidly changing North American market has become the industry’s main focus in the face of significantly lower prices and substantially increased production in the United States over the past three years. Finding a solution is clearly a priority as noted in a recent paper by the Canadian Association of Petroleum Producers (CAPP) outlining its recommendations for a competitive policy and regulatory framework for Alberta’s upstream oil and natural gas industry. While the oil and gas industry remains an important part of Alberta’s economy, representing one-third of all economic activity in the province and employing a quarter of all working Albertans, the economic benefits are down substantially since 2014, when the industry employed approximately one in three Albertans and contributed $10-billion in government revenues and 40 per cent of GDP. Part of the problem, says CAPP, is the significant policy and regulatory challenges at both the provincial and federal levels that are impacting the sector’s ability to attract the investment necessary to grow and generate jobs and prosperity.
It points out that there are between 40 and 50 different policy and regulatory initiatives currently underway by provincial and federal governments in Canada that have the potential to adversely impact the industry. By contrast, the U.S. is streamlining and reducing the cost of regulations, and upstream capital expenditures are projected to increase 38 per cent to $120-billion in 2017, while in Canada capital expenditure is expected to be only $44-billion in 2017, a 46 per cent decrease from a peak of $81-billion in 2014. CAPP has also noted that Canadian oil and gas producers are not only competing for market share in the U.S., they are also competing against U.S. supply in Canada. Imports of U.S. natural gas have increased substantially since about 2005. Some of these sources are closer to markets in central Canada, which means western Canadian producers are challenged to compete. U.S. crude oil exports into Canada have also increased sharply. In 2012, Canada imported 67,000 barrels of crude a day from the U.S. The volume had increased to 301,000 barrels a day by 2016. Against this background, CAPP says access to new markets is crucial for the future of Canada’s oil and gas sector. It estimates that each stalled pipeline that would access world markets costs the Canadian economy $30-million to $70-million in foregone economic benefits every day, or between $11-billion and $25-billion annually. Jason Langrish, president of the Energy Roundtable, a private-sector forum launched in 2004 to help define the Canadian energy sector’s role in domestic affairs and international markets, says while Canada’s oil sands and off-shore oil and gas companies have been hit hard by the new normal in the industry, Canada has an abundance of the similar tight oil and gas resources that have boosted U.S. production over the past few years. “That’s the good news,” he says. “The bad news is, we need to get it to market. It doesn’t matter if it’s oil sands, or fracked gas or tight oil, we still need to find a way to get it to the world because we are not going to consume it ourselves.” Regulation and lack of political will in some Canadian jurisdictions remains a big obstacle to broader market access, adds Mr. Langrish. “Take the Trans Mountain pipeline as an example. It’s been formally approved, but the project is now before the court. The B.C. government petitioned to be part of that. In fact, much of the recent provincial election in B.C. was based around the pipeline. So, we’re struggling to secure market access,” he says. While there are some positive signs of progress including the U.S. government’s go-ahead for the Keystone XL pipeline and indications that at least one or two of the planned LNG projects in B.C. will proceed, Mr. Langrish believes that overall Canada is underperforming on oil and gas. “We are forgetting about the things that got us to where we are today, which are the resource economy and the fact that we encourage business formation and entrepreneurialism,” he says. “The layer upon layer of red tape and taxes, and different rules and regulations across multiple jurisdictions, are undermining the industry’s potential and discouraging new investment. We could be doing better.”
BY THE NUMBERS In 2015, Alberta’s upstream oil and natural gas sector in delivered: $2.9-billion in non-renewable resource revenues $185-million in corporate income tax $2.8-billion in personal income tax from direct and indirect employment $1.25-billion in municipal property tax on upstream assets Source: Canadian Association of Petroleum Producers
Big data drives energy sector innovation
“At US$100 a barrel, companies were not incented to find the optimum performance and productivity metrics for their facilities. At US$26 and US$30 a barrel, they had absolutely no choice.” Tim Workman is program director for IBM’s Watson for Natural Resources Innovation Program
Faced with low oil and gas prices and abundant supply in the global market, Canada’s energy sector is being encouraged to adopt innovative technologies to improve operational efficiency and reduce production costs. But a mindset rooted in traditional business practices is an obstacle that some companies struggle to clear, says Tim Workman, Calgary-based program director for IBM’s Watson for Natural Resources Innovation Program, which aims to create innovative solutions and operational optimization services for oil and gas and other natural resource companies. Dr. Workman says Canada is in the middle to lower ranking compared to other countries that are adopting innovative practices to analyze and solve problems and improve bottom line performance. “While we have some incredibly innovative companies, when you look nationally at statistics like labour productivity and the adoption of digital technologies, we seem to be trending lower than other jurisdictions,” he adds. The impediments to embracing new technologies in the oil and gas sector are not necessarily because there are doubts about efficacy or value, but rather challenges centred on adoption. “Part of that challenge is that while many companies are innovative, they have billions of dollars in legacy infrastructure and it’s very difficult to suddenly take a sharp turn and abandon what’s been working for decades and go down a different path,” says Dr. Workman. However, it is vitally important for the survival of both the companies and the sector to make that sharp turn, he adds. “Canada’s economy is predicated on our ability to extract and export resources, and it’s absolutely critical for us to continue doing so in a way that is economically, socially and environmentally sustainable over the coming decades as the world transitions to a low carbon future,” says Dr. Workman. With the price of oil unlikely to rise above US$60 again the foreseeable future, companies must be able to operate sustainably well below that level. “They can do that by improving the way they extract and process the resource and improving productivity and workforce performance, but without compromising safety or environmental obligations and remaining in alignment with communities’ needs,” he adds. Dr. Workman notes that while Canada cannot control the price of oil, it does have influence over the profitability of its companies by controlling costs and improving productivity. “We have some companies in our region that are now almost as profitable, on a percentage basis, as they were at US$80 or US$90 a barrel because they’ve been able to take that much out of their production costs,” he says. While some of the savings have come through direct reductions such as head count, others are the result of tighter operational cost controls, automation, productivity enhancement tools and technology that allows them to change the way they operate. “At US$100 a barrel, companies were not incented to find the optimum performance and productivity metrics for their facilities,” says Dr. Workman. “At US$26 and US$30 a barrel, they had absolutely no choice.”
He adds that the next five to 10 years will be driven by the ability of companies to adopt new technologies – such as those being developed by IBM – to allow them to transform the way they operate. For example, IBM’s focus in the natural resources sectors is on performance productivity and safety. It works with operational lines of business to assess how it can leverage information technology, mobile technologies and big data analytics to drive improvements in the operational execution of work. Dr. Workman says IBM’s big databased service innovations include improving worker safety by understanding everything from fatigue, behavioural patterns and alignment of work to skills and qualifications, and helping companies improve production by optimizing steam and well injection and moving from time-based cycles to predictive maintenance cycles based on condition. “The massive amounts of data that are collected every day through sensors on mechanical systems helps us find ways to optimize performance from extraction of the resource to sale of the finished product,” he says.
Canada’s nuclear technology: A platform for prosperity and energy security
Canadians soon will learn more about Canada’s “clean tech” plans and Ontario’s newest Long-Term Energy Plan. Both levels of government appear to be captivated by new emerging technologies like energy storage, distributed energy resources and microgrids. Their promoters present them as the best way of further electrifying and decarbonizing our economy while ensuring long-term, reliable, affordable energy. Yet, one tried and true technology offers more environmental, social and economic benefits – nuclear energy. For over 50 years, nuclear energy has delivered safe, reliable, affordable electricity virtually free of greenhouse gas (GHG) and smog-causing emissions. Today, it underpins the electricity systems of New Brunswick and Ontario. For the last seven years, Ontario’s nuclear fleet provided 58 per cent of our electricity. Including Ontario’s hydropower, over 75 per cent of our electricity comes from lowcarbon generation – forming one of the world’s lowest carbon electricity system footprints. Annually, Ontario’s nuclear fleet avoids 45 million tonnes of GHG emissions – at a national carbon price of $10 per tonne, that’s a value of $450-million a year.
Numerous independent analyses show that Ontario’s nuclear asset investments: contribute billions of dollars to our economy; sustain and create tens of thousands of high-value jobs; support innovative R&D like cancer-fighting medical isotopes; and represent one of Canada’s few high-technology exports. While Ontario has committed to refurbishing its publicly owned reactors and extending the operation of the Pickering Nuclear Station by four years, other stakeholders are opposed. Some want increased imports of hydropower from Quebec, ignoring the high cost and flow of dollars and jobs out of Ontario. In reality, Ontario’s reactors help Quebec meet its electricity demands, refill their reservoirs and offer insurance for fluctuating annual precipitation levels impacted by climate change. Others see emerging technologies like energy storage – stores off peak power for peak use, backs up intermittent wind and solar generation, and enables microgrids and more distributed energy – as a practical alternative. Proponents say Ontario’s and Canada’s economic prosperity depends upon participating in the evolving global marketplace. However, consumers deserve to know the risks. Several critical questions remain unanswered. Who will manage and pay for the toxic wastes from tens of thousands of depleted batteries and used solar panels? By comparison, Canada’s nuclear industry has a highly regulated, world-leading, well-funded nuclear waste management program. And if these new technologies don’t deliver, will Ontario be forced to import more U.S. shale gas and increase its dependence on carbon-emitting natural gas generation? Advocates for these new technologies – multinational companies, technology developers, financiers and prosumers – want a share of the electricity sector’s solid revenue streams. But consumers don’t know the ultimate costs and benefits and how they will be shared. Will more “localized” investments mean different electricity rates across the province? What about public and worker safety? The resulting rate hikes and unrealized employment associated with Ontario’s recent Green Energy Act validates the importance of strategically choosing and supporting the right plans. Also important is the recognition that China and the U.S. already hold many of these technology patents. China’s dominance of the solar panel market is a good example. U.S. Department of Energy analyses indicate that nuclear energy and renewable technologies can be integrated to create a hybrid electricity system that provides clean power and addresses climate change. Besides providing base load power, some CANDU reactors are already operated to follow changing demand, and U.S. research shows new reactors s and small modular ones will have this capability. Canada’s and Ontario’s economic prosperity depends on securing longterm, reliable, affordable energy while systematically reducing GHG emissions and creating jobs and economic growth. Nuclear has been a safe, 24/7, low-carbon workhorse delivering all of the above. Continuing support from our federal and provincial governments for nuclear power’s foundational role is essential for securing these benefits in the future.