Canadian oil and natural gas companies buy all kinds of products from Canadian manufacturers: everything from steel pipes to buses.
David MacLean, divisional vice-president of Canadian Manufacturers and Exporters, explains the impact of this robust supply chain, including how oil sands producers supported 1,100 Ontario companies through purchases of $1.9 billion in 2016/17, while helping nurture made-in-Canada cleantech startups.
Full transcript of podcast:Tonya: Welcome everyone to another edition of Energy Examined, where we talk about the issues facing Canada’s oil and natural gas industry with the energy insiders in the know. I’m your host Tonya Zelinski and today’s very exciting because I have a special guest here with me. You might know him as the vice-president for Alberta and Saskatchewan for the Canadian Manufacturers and Exporters; however, I know him as my fellow Trapper from Father Mercredi High School in Fort McMurray. That’s right, it’s Dave MacLean everybody or David MacLean I should say these days. How are you doing Dave?
David: I’m doing great. It’s great to be here. I’m looking forward to talking about this stuff.
Tonya: Talking about high school or talking about the energy industry?
David: I love talking about high school. I love talking about energy. I love talking about manufacturing. So, it’s great.
Tonya: Oh my God, it’s a trifecta of subjects. Excellent. Okay, well, as a little bit of background, both David and I grew up in Fort McMurray and graduated high school there together. We’ve known each other a very long time. Well really, it’s only been a few years since we graduated high school, so…today, now we are professionals in the energy industry and we can talk professionally about what is going on here today. But, Dave, tell me a little bit about CME and what it is that you do there and what it is that it does.
Tonya: That doesn’t make sense. Let’s rephrase that. Dave, please tell me about the CME and what it is that it does here in Canada?
David: Canadian Manufacturers and Exporters represents manufacturers and exporters across the country. We’ve been around for 150 years. So we’re one of Canada’s oldest business associations and if you look at our membership across the country, it’s the big hitters like Ford Canada, GM Canada –
Tonya: They’re all members of CME.
David: Are all members of CME. Bombardier. So traditional manufacturers that you know about. But also, we’re really strong in petrochemicals and oil and gas. Imperial Oil actually is one of our oldest members. They’ve been members of CME for around 110 years. So we’ve been around for a long time representing manufacturers.
Tonya: I had no idea. So, you’ve got some very big companies there, but you also represent smaller companies as well.
David: Yeah, we’ve got about 2,000 companies in our membership. The vast majority have fewer than 50 employees. So we really do, from an oil and gas perspective, we embody the oil and gas supply chain. We produce the valves. We manufacture the steel. We do cement. We do everything that goes into oil and gas comes through Canadian manufacturers at some point in the supply chain.
Tonya: That seems to me it’s something the public might not recognize as being a part of the oil and natural gas industry – that somebody has to make the parts that make the machines that make the equipment and so forth. Where is your largest group of members?
David: Ontario and Quebec.
Tonya: So, Ontario and Quebec have the largest group of members. Is that also the largest number of companies associated with the oil and natural gas sector- indirectly?
David: Indirectly, no. Alberta is still king. But of all the provinces, Ontario is really where it’s at in terms of the oil and gas supply chain. There’s some 1,100 companies in Ontario that are part of the supply chain. It is big dollars. It’s $1.9 billion in Ontario.
Tonya: From the supply chain?
David: From the oil and gas supply chain alone. And that’s just oil sands. So, it’s a big number in Ontario. It drops off significantly with the other provinces. It goes Alberta, of course, then Ontario and then B.C. as the key players in the supply chain.
Tonya: I mean, it’s not really a surprise to hear B.C. and Alberta in the mix. But, Ontario and even Quebec I think is the most surprising of it because you don’t normally associate those provinces with necessarily oil and natural gas development.
David: That’s right. We have manufacturers in Ontario and Quebec manufacturing buses – coach buses – valves, steel, electronics, you name it. And a lot of it pivots from the mining industry. Quebec and Ontario have very strong mining sectors, always have, so it wasn’t very difficult to pivot and supply to Alberta.
Tonya: From your perspective then , would you say that the energy industry truly does impact the lives of all Canadians, not just Alberta or B.C. or Saskatchewan where we see most of the development?
David: It doesn’t get the credit its due. I mean, I often marvel at the fact that the Canadian dollar is often called the “petro dollar.” Let me know when Bombardier influences the purchasing power of Canadians. The oil and gas sector, depending on how it’s doing, dictates the value of the Canadian dollar. It’s the biggest show in town. For example, just the steel produced in Ontario alone, the steel produced – there’s as much steel going into oil and gas as it is going into automotive parts and building cars. So it’s a significant player. And it doesn’t get the credit it’s due. And everywhere I go in my travels, I try to communicate to people, ‘look, without oil and gas in Canada, we’d be way worse off.’ And people need to understand the importance of it and the importance of getting policy right for it so we can continue to grow the sector.
Tonya: So where do you think that disconnect is? Just out of curiosity who you’ve spoken with and who you work with, where do you think the disconnect exists of the oil sands sector – or just in general oil and natural gas – and the rest of the country? And by that I mean, Ontario and Quebec.
David: That’s the big question. I actually don’t know the answer. Partly it’s geography, the fact that oil and gas is confined to Western Canada, the idea that it’s not part of the Canadian traditional business culture, whereas manufacturing in Ontario and Quebec certainly is. And it doesn’t have the narrative, the positive vibe of the agriculture and food processing sectors, which is actually a real – food processing is a bright spot in Canadian manufacturing. But yeah, it’s distant, it feels temporary to people, I think, and there have been some really good times in Alberta over the years and Western Canada because of the sector, and I think some people have trouble sympathizing with an industry that has had some great success.
Tonya: That makes sense. Alberta has had a lot of success when it comes to its industry, but in the past few years, we have had some issues and some struggles. Among one of the biggest obstacles, or so it was perceived, was Bill C-69. Now that is an issue that I know that CME as well as Canadian Association of Petroleum Producers and a variety of other industry groups all had some varying degree of issue with Bill C-69. But, it’s been passed. It’s been passed by the House of Commons and I’m curious, what was CME’s perspective on Bill C-69 and maybe looking forward?
David: C-69 was one of the biggest fights that we’ve been involved in as an association. I would say NAFTA and USMCA was our biggest issue for the last 18 months, C-69 was very close. I testified before the Senate, we participated in events where we were just trying to raise awareness that this is a serious issue for manufacturers, not just because of the importance of the resource sectors, but the importance for the manufacturing supply chain, so that includes traditional mining and oil and gas and everything else – but also economic infrastructure, right? Airports, rail lines, sea ports all fall under C-69, and our view was that C-69 would make it next to impossible for more controversial projects to proceed. So, we were perfectly in line with CAPP and other associations, and never in my career, which is getting long now, have I ever seen –
Tonya: Dave, we’ve only been out of high school for a few years. Let’s not inflate this, okay?
David: I have never seen a coordinated industry effort to change and amend legislation as we saw on C-69, people walking around with three-column documents with hundreds of amendments, trying to rewrite legislation that started out to be disastrous. It did get better. It’s passed. We think it could work, but it’s going to be very tough. And I feel sorry for folks in Quebec and Ontario. Quebec has their Plan Nord mining project that they’ve been trying to get off the ground for 20 years. Ontario has a Ring of Fire development, which has huge potential. Will C-69 make those projects impossible to develop? Maybe. Hopefully not. We need a good regulatory structure.
Tonya: Well, it seems now that it is in place, and we have to look forward into the future. I’m curious, how do you see that future for your members?
David: CME members and manufacturers will continue to be great suppliers for oil and gas. I look at it from the big picture. We did notice during the boom times that local manufacturing, local procurement – and by local, I mean Canadian – started to lose market share to foreign competition. And that’s a challenge of just, things were very busy, there was huge spends, and manufacturing has a challenge. We need to get our costs down as oil and gas looks to get their costs down. But we think the answer is growing the national supply chains. So legislation like C-69 makes it that much more important for us to get that supply chain really strong and really efficient, because the future of oil and gas is going to be low cost and efficient, and that’s where we come in.
Tonya: Did you find any of your members had to – they lost some market share, but did you find that they had to look elsewhere, maybe in the United States and bid on contracts there? Depending on what, of course, there business was?
David: Yes. One of the really interesting things that I’ve noticed in the downturn here in Alberta is that companies that were positioned for – see the decline in drilling activity really hurts, 600 rigs in February to 200 or whatever the case was, it dropped by two thirds, and it doesn’t look like it’s going to turn around anytime soon. So, a lot of very successful Alberta manufacturers have really done a good job pivoting to international markets and the United States. Companies like Stream Flo or Packers Plus and others are more export driven and they’ve really succeeded. So we’ve seen as a whole, the manufacturing sector in Alberta really bounce back since the bottom of the downturn, and we’re almost to where we were at when things were really rolling, so things have grown organically. Of course, oil sands, too, with their maintenance and turnaround capital expenditures are very significant, so it’s kind of the gift that keeps on giving for manufacturers.
Tonya: So, we’re on the rise again, but do you think that we’ll ever reach that level that we were at in, say, in 2014? Or, are your members thinking ahead where they don’t want to find themselves in the position they have been since 2014?
David: It feels like manufacturers have, like most people, have settled on the idea that the new normal is kind of a low-cost environment, that the big capital spends are a thing of the past. But, you and I both know that that can change. It’s a fool’s game to try to predict, right? Who knows where we’re at in terms of global demand for oil and gas in five or six years? And whether big mines or large in situ projects are really viable, right? But we do know that there are large in situ projects scheduled and they’re going through regulatory approval processes, so we’re really optimistic that it will just keep going at a steady or more predictable pace.
Tonya: It’s a very different environment today than it was, as you mentioned, growing up – a two oil sands town, which makes also for a unique perspective in that, we grew up in that environment. School tours were of oil sands mines. And had I known, I would have kept every sample of bitumen I ever got on one of these tours and sold them all in 2014. But that’s not where we are today, a more measured approach. And so you’re finding your members are taking that measured approach. Are we seeing any new members come along in this very, you know, it’s a slow incline. Do you have new members?
David: Yeah, we have new members all the time. And a lot of them are coming in the clean energy space. A member we just brought on in recent months is a company called Great Excavations. They specialize in floating excavator equipment to work specifically on caribou habitat reclamation work. You need stuff that floats in the muskeg. But yeah, there’s always new members. And there’s a lot of optimism right now that I hadn’t seen a couple years ago.
Tonya: It sounds like something like that – that you were just mentioning the floating excavation – that seems like something that is applicable to other industries as well. So, do you find that you have members that really have a crossover? It’s not just oil and natural gas that they’re working in, that their tech, their specialties, their manufacturing is applicable to other industries across the gamut?
David: Absolutely. The expertise we have in Alberta is second to none in the world. You build an excavator that can work in muskeg in the North, it also has a great application in tailings ponds. And where are tailings ponds? Well, in every province. Every province has massive mining operations, no exception. Every province has tailings ponds, so we develop a product that’s better than the rest and you have a huge future ahead of you. There’s a lot of great innovation stories in Alberta manufacturing and we’re just now at our peak, right? When you think about the manufacturing sector, I mentioned before how manufacturers here don’t see themselves as manufacturers often because there was nothing here prior to 1940. And a common story that I hear when I go out to meet members is, ‘how did you start? Well, we started as a blacksmith shop.’ Lethbridge Ironworks, for example.
Tonya: Really? CME started as a blacksmith shop?
David: Our member companies. A lot of the steel manufacturers, fab shops, started initially as blacksmiths in the ‘20s, ‘30s, ‘40s and ‘50s.
Tonya: That’s really interesting.
David: And they’ve evolved over time. So we’ve got now second, third generation family ownership of a lot of these companies. They’ve developed into much larger operations. And now global investment firms see them as good prospects for acquisition. That’s the trend right now is for manufacturers in Alberta to be bought out by larger investment houses.
Tonya: Is that – you said that’s the trend. But are we seeing that happen a lot more in Alberta at the very least?
Tonya: Are these companies from other countries or are they just larger companies within Canada?
David: They come from all over the place and in Saskatchewan as well. So, Standard Machine was purchased, a major manufacturer in Saskatoon. It does oil and gas equipment. They were bought out by a multinational called Timken. And that’s happening throughout the sector. Waiward Steel in Edmonton, a major supplier of structural steel to oil and gas, a few years back was bought out by an investment house.
Tonya: So, there’s still interest here on what’s going on. And I’m assuming they haven’t strayed away from providing any of those materials to oil and gas.
David: On yeah, it continues. So now it’s shifted more towards the maintenance and turnarounds side. But it’s still a great place to be. Alberta is a great place to be if you’re in that business. There’s a steady homegrown market for your products that can’t be beat anywhere else.
Tonya: Are you seeing that same trend occur in other provinces as well?
David: Well, in terms of manufacturers maturing and then being acquired by larger companies, yeah, that’s a global trend. But it’s particularly here in Alberta because of the life-cycle of the companies so they’re second-generation. So you might have the family-owned company hands it down to the next generation, they take it to the next level and then it becomes an acquisition target.
Tonya: Okay. So, now you’ve got some things going on within CME, some projects coming up. Is there anything you want to share with us?
David: Yeah, absolutely. So, we’re going to look more closely, we want to continue to raise awareness about the importance of oil and gas for manufacturers across the country. So, we’re going to do some digging into the data. We last did it in 2014, so we know things have changed since then. So, we want to update the oil and gas supply chain study. We want to find out where the money’s going, who’s getting it. Some of it’s going to be anecdotal. There’s a bit of a challenge in doing this kind of work because we rely on Statistics Canada data, but we want to make sure that we provide Canadians with a clear picture of where that spend goes and who’s benefitting. It’s a tough one to do and we’re hoping to roll that out this fall.
Tonya: Do you think there will be some surprising numbers in there for people?
David: I think so. There was a study, I think it was CD Howe did a study on the TMX, the Trans Mountain Pipeline and if it’s approved, what are the spinoff benefits across the country? The numbers are staggering for one pipe, you know, one pipeline expansion. So, the numbers for oil and gas across the country are huge.
Tonya: So, if you could leave our listeners with one thing to be aware of when it comes to CME and the impact, perhaps, other industries have on your members, what would that be?
David: It would be that the Canadian manufacturing sector across the country is connected, deeply connected, with oil and gas development in Canada. And that we all share in the benefits of good policy and a good, strong oil and gas sector. And, folks may not be aware of just how important oil and gas is to the Canadian economy.
Tonya: Well Dave, thank you for coming here today. Will you come back and visit me when your study is done and maybe we could talk about some of those numbers?
David: I would love to. Thanks for having me.
Tonya: It’s just like a high school reunion. I’m so excited you were here. Thank you so much David for joining me and thank you everyone for listening to Energy Examined. And we will talk to you next time. Take care.