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Made In Canada: A better oil and natural gas for tomorrow

The world sees Canada as an innovative, sustainable producer of oil and natural gas and wants more. What are we going to do about it?

Sometimes it requires traveling outside our borders to learn how others see us as a country. It’s true when we put a Canadian flag on our backpack and share stories about Canada with those we meet. And it’s true when we travel abroad to talk trade with leaders in other countries.

Certainly, that was Tim McMillan’s experience when he traveled in June to China as part of a Canadian trade mission led by Natural Resources Minister Jim Carr. McMillan, CAPP’s president and CEO, joined a delegation of more than 50 government, business and Indigenous leaders that met with Chinese officials to pursue exploratory trade discussions.

Canada’s Minister of Natural Resources Jim Carr says Canada and China are “perfect partners” given China’s growing energy needs and Canada’s abundant resources. Photo: AP Photo/Andy Wong

During the five-day visit, McMillan and others exchanged ideas and received feedback about Canada’s prospects as a future oil and natural gas supplier to China from executives who head up some of China’s largest national energy companies, including Sinopec Corp. and the China National Petroleum Corporation. These talks confirm that Chinese officials continue to keenly watch what Canada has to offer.

“There’s a lot of interest in our resources. China is a growing economy that recognizes its increasing need for energy—hydrocarbons specifically--over the medium- and long-term,” McMillan says.

Prosperity, Population and the Need for Petroleum

Already the Asian giant is the world’s largest energy consumer, devouring 11.5 million barrels of crude a day. To feed this appetite, it relies on imports for two-thirds of its supply, and this dependence is expected to intensify. Similarly, natural gas use is on the rise, at six per cent of energy demand and rapidly growing. Importantly, China’s leaders plan to cap coal-fired electricity generation at 1,100 gigawatts (about 55 per cent of the country’s total power capacity) by 2020, and nearly double the use of cleaner-burning natural gas to help make up the gap. China is currently the world’s third largest importer of liquefied natural gas (LNG).

In a country that continues to increase in population, and with a growing middle class, more—not less— reliable, inexpensive energy will be needed. And that means more oil and natural gas for the foreseeable future. Where will this energy come from?

As those on the trade mission explained: The answer should be Canada.

In a keynote speech in Beijing during the trade mission, Minister Carr told Chinese officials and investors that Canada and China are “perfect partners.”

“We see tremendous potential…For example, at the moment, China only receives about two percent of our oil exports and none of our natural gas. We’re looking to change that,” he said, referring to government approvals for Kinder Morgan’s Trans Mountain pipeline expansion and a number of proposed LNG projects on British Columbia’s West Coast.

Canada has large reserves of oil and natural gas—a vast resource bounty that can help meet the energy needs of places like China—as well as India, which could see its consumption of oil and natural gas increase by 120 per cent and 234 per cent respectively by 2040, according to a 2017 forecast by the International Energy Agency (IEA). Overall, the IEA predicts global demand for oil and natural gas to increase by 10 and 45 per cent respectively—even as countries move to adopt policies to lower carbon emissions in accordance with the Paris Agreement.

As well, increasing global focus on lower-carbon, sustainably produced energy could put Canada, with its strong environmental policies and its drive to innovate lower-carbon production of fossil fuels, in a position to become a preferred supplier to markets everywhere.

A Better Oil and Natural Gas

Terry Abel, CAPP’s executive vice-president, says Canada is recognized for its track record of environmental performance—and commitments toward further improvement. This includes a plan to meet a targeted 40 per cent reduction in methane emissions from the oil and natural gas sector by 2025.

Energy companies across the country are working together to create more energy with less impact. This includes the adoption of practices that emphasize energy efficiency and sustainable development, and a strong focus on collaborative research and innovation. For example, since 2012, Canada’s Oil Sands Innovation Alliance (COSIA)—a unique collaboration of oil sands companies—has invested $1.33 billion to create hundreds of innovations, aimed at everything from cutting emissions to eliminating tailings ponds and speeding up land reclamation.

Another industry-led group, the Petroleum Technology Alliance Canada (PTAC) has also made significant investments into environmental innovation. This includes funding projects that can help our industry develop technologies that enable cost-effective petroleum production within a low-carbon economy.

“I don’t think anybody expects to see major breakthroughs in environmental technology out of Russia or Saudi Arabia or some of the African nations, but they do expect that out of Canada.”

Terry Abel, CAPP Executive Vice-President

Some of the technologies being developed through groups like COSIA and PTAC include: processes that reduce the amount steam (and, therefore, energy) needed for underground bitumen recovery; algae that gobble up carbon dioxide emitted from industrial smokestacks; vent gas capture units that redirect natural gas normally emitted into the atmosphere to be used instead as fuel for compressor engines; and satellites that can identify CO2 and methane emission hotspots from space.

“There are few countries out there that you hear about having to deal with increasingly stringent environmental standards and who are developing innovative, new technologies to be able to continue to produce oil and gas responsibly. I don’t think anybody expects to see major breakthroughs in environmental technology out of Russia or Saudi Arabia or some of the African nations, but they can rely on Canada, and we’re proving that’s something we do well,” Abel says.

In Canada, we’re proud to produce a better kind of oil and natural gas—a kind that is produced safer, cleaner and more responsibly. And increasingly we know this—not just because industry experts say it’s so—but because others outside our borders are telling us.

What the World Thinks About Canada

In the 2017 Global Energy Pulse, a first-of-its-kind global survey conducted by Ipsos Public Affairs in April, Canada was the top choice for where people would like to see oil and natural gas imported from, based on responses from more than 22,000 respondents from 32 countries around the world.

While most would prefer to use energy made in their own country, Canada was the number one place people would import oil and natural gas from if they had to, topping a list of 11 oil and natural gas producing countries. As well, nearly one in every two respondents in China and India agreed that our industry is inventing and using leading-edge technologies to minimize environmental impacts.

Darrell Bricker is CEO of Ipsos Public Affairs which conducted a survey on global perceptions of oil and natural gas.

“People around the world are looking for countries that produce oil and gas in a responsible way. And that’s something that Canada champions.”

Darrell Bricker, CEO of Ipsos Public Affairs

“People around the world are looking for countries that produce oil and gas in a responsible way. And that’s something that Canada champions,” says Darrell Bricker, CEO of Ipsos Public Affairs.

“There are certain things that stand out when it comes to how Canadian oil and gas is produced—how the industry takes advantage of new technologies, how it’s careful when it comes to the environment, and how it deals with workers and Indigenous communities. These are all great messages for the world to hear.”

According to Laura Dawson, director of the Canada Institute at the Wilson Center in Washington, D.C., the Canadian brand is especially attractive in markets like China and Asia.

“If you go to China and ask them what they know about Canada, it’s not very much. But what they do know is that Canada is a strong exporter of raw materials and raw commodities. The Canadian reputation is well established,” Dawson says.

And while the concept of brand hasn’t historically meant much in the world of commodities, this reality could be changing. In a post Paris-accord world, countries will be paying more attention to GHG emissions and other environmental performance indicators of the countries where oil and natural gas products are being imported from.

Why We Need to Take Action, Now

Positive global perception toward Canadian oil and natural gas is welcome news, especially at a time when Canada’s traditional market for energy exports in the U.S. is changing. U.S. domestic production growth since 2008 has blossomed, resulting in the addition of 4.4 million barrels per day of oil and nearly 21 billion cubic feet per day of natural gas to its total output. At the same time, the U.S. is essentially Canada’s only customer for oil and natural gas exports, importing nearly 99 per cent of our nation’s total oil exports and 100 percent of our natural gas exports. Canada’s largest energy customer has quickly also become its largest energy competitor. There’s a real danger the U.S. could begin crowding Canadian producers out of traditional North American markets, lending urgency to Canada’s need to find new markets for its resources.

This state of affairs, coupled with rising global demand, means that Canada’s oil and natural gas industry has both a tremendous opportunity and a timely imperative to diversify its export markets. Success accessing new markets would reduce Canada’s dependence on a volatile North American market, net higher international prices for our products, and generate secure prosperity for generations of Canadians. But the question is, can we deliver?

In large part, it’s up to us as Canadians, and begins with the building of critical new infrastructure projects like pipelines and LNG facilities that can make oil and gas exports to Asia and other markets a reality.

Laura Dawson is the director of the Canada Institute at the Wilson Center in Washington D.C. She says Canada has a good reputation abroad but needs the infrastructure to access foreign markets.

“Canada’s reputation as a relatively clean, ethical producer of petroleum does make a difference to foreign buyers. But until we can get oil to tidewater, it’s all in the realm of the hypothetical.”

Laura Dawson, Director of the Canada Institute

“Canada’s reputation as a relatively clean, ethical producer of petroleum does make a difference to foreign buyers. But until we can get oil to tidewater, it’s all in the realm of the hypothetical,” Dawson says.

This blunt assessment is consistent with comments McMillan heard during the recent trade mission to China.

“There’s strong interest and good understanding of the Canadian oil and natural gas sector among Chinese investors. But there’s also frustration that investments that have been made in the past that should now be fueling their growing economy have been slow to manifest. In particular, there’s frustration that the ability to connect the resource to the customer —to China—has been slowed by Canada’s inability to get export infrastructure projects across the finish line,” he says.

“Even though we win over almost every other country when we’re compared to other suppliers—and we’re preferred by far--we lose on our ability to execute. That so far has stifled us as a country in our ambitions to access new global markets.”

In July, these ambitions were dealt a significant blow when Malaysian giant PETRONAS and its joint venture partners canceled the Pacific NorthWest LNG project on the West Coast. And most recently, in early October, TransCanada announced it will no longer pursue the proposed Energy East pipeline. The proposed pipeline would have carried more than one million barrels of Western Canadian oil a day to New Brunswick and Quebec to be refined or exported to overseas markets such as Europe and India.

Two Images of Canada

In the wake of these setbacks, McMillan worries that Canada’s inability to deliver on proposed infrastructure projects is undermining its credibility as a future player in China and other potential export markets. Rising cumulative costs associated with taxes and increasingly complex regulatory requirements, coupled with lengthy delays and uncertainty over the country’s regulatory review process, are becoming tangible impediments to investors and producers who might otherwise help push Canada’s energy export agenda forward.

“The reality today is we have two images: one is working in our favor and one is very much working against us. In the first instance, the world thinks of us as a great nation of producers that has very high standards. But our second reputation is increasingly of a country that can’t get projects done. There are investors who worry that if you invest in Canada, that investment could be stranded because you won’t be able to get the resources to market. The situation is not in balance.”

“The world thinks of us as a great nation of producers that has very high standards. But our second reputation is increasingly of a country that can’t get projects done.”

Tim McMillan, President and CEO of the Canadian Association of Petroleum Producers

To set this picture right, McMillan says it’s urgent to follow through on projects like the Trans Mountain pipeline expansion, which would carry an additional 590,000 barrels a day of Canadian crude to the B.C. coast for shipment to Asia, primarily China, as early as late 2019. The project has regulatory approval from the federal government, but currently faces a legal challenge in B.C. from Indigenous, environmental and other groups.

As the clock ticks away on projects like Trans Mountain, McMillan cautions that Canada cannot afford to prolong delays for remaining infrastructure projects still being proposed or under review—not when other countries like Australia, Russia, the U.S. and the Gulf States are already jockeying to supply China and other growing oil and natural gas markets.

“It’s to Canada’s peril to assume a wait-and-see approach on infrastructure projects. As a country, we have an opportunity to be a global energy supplier of choice, serving up responsibly produced oil and natural gas to meet world energy demand. But that only matters if we can be a global supplier of choice.”

In this article, Context speaks with:
  • Tim McMillan
    Tim McMillan CAPP President and CEO
  • Terry Abel
    Terry Abel Executive Vice-President, Canadian Association of Petroleum Producers
  • Laura Dawson
    Laura Dawson Director, Canada Institute
  • Darryl Bricker, CEO Ipsos Global Affairs
    Darrell Bricker CEO, Ipsos Public Affairs