The Decibel - Preparing for the decline of oil and gas in Canada

Episode Date: July 5, 2023

Canada, alongside much of the world, has plans to become net-zero by 2050. And one of their main action-items is to move away from fossil fuels. But does Canada have an economic plan for when the oil and gas sector declines?The Globe’s energy reporter Emma Graney tells us about why Canada is falling behind, and how this may impact our economy if we don’t start making these changes now.Questions? Comments? Ideas? Email us at [e-mail]

We know that Canada, and the rest of the world, has to move away from fossil fuels to reduce the effects of climate change. Usually, we hear about this as an environmental issue, but this is also a big economic problem. A report came out last week from the think tank the International Institute for Sustainable Development. It says that Canada isn't transitioning away from oil and gas fast enough, and as a result, our economy could take a big hit. Emma Graney is the Globe's energy reporter. She's here to tell us why Canada is falling behind and what it might cost us if we don't start making these changes now. I'm Mainika Raman-Wilms, and this is The Decibel from The Globe and Mail.

Emma, thank you so much for joining me again. It's lovely to be here. So I think we hear a lot about Canada's dependence on oil and gas, but just how dependent are we? We are extremely dependent on oil and gas. So globally, as a country, we're the fourth largest producer of crude oil and the fifth largest producer of natural gas. So basically, between oil and gas, they've averaged about 5% of the Canadian economy since the year 2000. But that's actually kind of increased lately. So in terms of direct GDP contribution in 2021, it was just over 7% at 7.2%. And it hits 9.2% when you count indirect economic impact as well. But it's far

higher, as you might expect, in Alberta and Newfoundland and Labrador. So here in Alberta, we're looking kind of upwards of 20%, 25% for Newfoundland and Labrador. So it is really a huge economic driver for Canada and for different provinces as well. Yeah. And so let's talk about this new report that is out from this think tank. The report says that Canada is not prepared to turn away from fossil fuels. So what does that mean exactly, Emma? How is Canada not prepared? Well, basically, the idea behind this report, it's called Setting the Pacey Economic Case for Managing the Decline in Oil and Natural Gas Production in Canada, short, catchy, pithy title. Now, at the heart of this report, it's saying that we just are not ready

to deal with the fact that oil and gas globally are going to see a reduced demand, basically, for oil and gas as different countries around the world. I net zero greenhouse gas emissions to kind of, you know, avoid the worst of climate change. It's really looking at, okay, what are the impacts going to be on jobs, on workers, and on communities? And what it's saying is at its heart, well, different governments are not accepting the fact that the world is changing. Now, I'm paraphrasing it. It does not say this is bluntly in the report,

but I did talk to one of the co-authors and, you know, he said, hopefully this can be a way for governments to kind of pull their heads out the sand and realize that things are changing. They're changing rapidly and we need to come up with economic policies to deal with that. And even the governments that are accepting the fact things are changing, they're moving at far too slow a rate to actually get things done and change things at a pace that we need to change them in order to reflect the global change. So let's actually look at some of the details here, Emma. What does the report say that Canada is not doing that, that we should be doing. Right. So, I mean, it says about the global demand for oil going into terminal decline by the end of the decade. And yes, that is very dramatic language. But what it's saying is basically is that it means producers are really vulnerable to the loss of markets and low and volatile prices. So, you know, it means that captive purchases of Canadian heavy crude are ultimately going to be impacted.

And Canada is not doing enough to deal with that potential shortfall and not diversifying its own industry in order to be able to deal with less oil and gas specifically. It also talks about we're not doing enough to really push alternative fuel production. We're not getting projects for hydrogen off the ground fast enough. We're not doing enough to kind of embrace different opportunities that the green transition will present for Canada. You know, even though there is a lot of renewables being built, particularly here in Alberta. There's not enough being done to really get us into any kind of global market when it comes to alternative fuels. And it's kind of like if you think about if you have a kid and you think, OK, one day they're going to want to go to college. Right. So you start paying into a college fund, you start getting prepared. I mean, your kid's not going to university in four years time, right? This is a long-term

plan and that's at the very heart of this. We need long-term plans and long-term preparation. I will say this report takes a very different tack than a lot of the other forecasts or scenarios or predictions or whatever you want to call them. Like this report from the IISD, it really focuses on the most dramatic end of the spectrum, the really fast phase out of decline for demand for fossil fuels. But what they're saying here is that we're just not ready for it and not only are we not accepting it, that economic argument, but it therefore makes Canadian producers, therefore workers, therefore communities, therefore entire economies, really vulnerable

to low and volatile prices as there is a global shift. And I think that's what's really interesting about not just this report, but every kind of forecast around oil and gas, because it's famously difficult to get this stuff right. I mean, yeah, we're trying to make predictions for the future, essentially, right on what demand is going to be in a few years down the road. Yeah. And I mean, look what happened over the last few years. So since kind of early 2020, you know, we had COVID come and completely decimate demand for oil and gas. No one was going anywhere, you know. And then we had a price war between Russia and Saudi Arabia. We had prices of oil actually going negative. And that was just in 2020. That was about three

years ago. Then we had a war in Ukraine and then that completely changed the energy picture again. So predicting this stuff, forecasting this stuff is so very, very difficult. So, yeah, like those examples that you mentioned, right, we can we can see how volatile the energy market really can be. I wonder, Emma, how how vulnerable is Canada to all of that volatility? Canada is extremely vulnerable because, again, oil and gas is a global product. It's not really differentiated between different countries where you get this stuff from. So if there is indeed a global shift in demand and it does plummet, then yeah, Canada does stand to have its economy at risk here. I will say last year actually was incredibly high demand for oil and gas. And that's kind of what the Alberta government particularly points to and says, you know, all the credible forecasts are saying we're going to need oil and gas for decades to come. And of

course, it does change if we go into those net zero scenarios, just by virtue of the fact that net zero is going to change the complete energy mix. And I wonder, like, so that would be Canada is, or other oil and gas companies around the world must be subject to the same kind of volatility, though, right? Like everybody would be vulnerable to this kind of shift in the market. Yeah, absolutely. And in fact, Alberta Premier Danielle Smith, she was on CBC last week and said, you know what, Canada needs to stop being so defeatist. And it needs to stop taking the fact that we're going to be the first ones out of oil and gas, and instead aim at being the last ones standing. And that's what the Alberta government is intent

on doing here. And it's a really, it's an interesting tactic. And you know what, they've said this for quite some time, like, we're going to be the last ones to produce barrels of oil because the oil sands will just keep producing and the oil sands is aiming at getting to net zero production by 2050, right? In addition, the Prime Minister is already ready to introduce a de facto production cap on our oil and gas sector that if implemented, if implemented, will result in tens of thousands of jobs lost, tens of billions in lost investment, damage our province's fiscal position and bring economic hardship to Albertans. Now, I've made myself... So their argument is, well, we're going to be lowest carbon barrels of oil. Therefore, we are going to be the last ones giving oil to the global market. But OK, so if there's still going to be a demand for oil and gas, then, I mean, doesn't it maybe make sense to focus on production still, like Daniel Smith said,

right, and be the last one standing? Like people are still going to need oil and gas. Yeah, absolutely. I think, fair enough, make your argument there. When it comes to the current picture for oil and gas, so I mean, fossil fuels in the global energy mix, they're a really, really high part of it. They're a massive part of it. They have been for decades.

I think like 80% is kind of fossil fuels in the share there. So we're talking about a massive, massive chunk of the global energy use is oil and gas. But the point is, in this report, we're not prepared for a world in which there is less demand for it. So we're banking on more investment, we're banking on job creation, we're banking on increased revenues, when in fact, those are more likely going to fall. Because even though you still have a demand for something, doesn't mean that that demand is growing, right? At the end of the day, oil companies want to make money for their shareholders. I mean, that's why they exist. They don't exist out of the goodness of their day, oil companies want to make money for their shareholders. I mean, that's why they exist. They don't exist out of the goodness of their hearts to, you know, get to net zero emissions by 2050.

It's an economic argument, right? So they're going to make the most economically minded investment choices for their companies. We'll be back in a moment. So let's let's talk about this economic argument then that that this report talks about, too, because I think we know the environmental arguments for changing energy sources. We talk about that a lot. But this report does focus on the economic impact. So what are they talking about here in this report? So what they're saying is basically, we're going to see such a huge demand that we're going to see tons and tons and tons of jobs, like thousands of jobs being shed from the economy. And we don't have a way to plug that. We don't have a way to plug the billions of dollars that we see from revenues from oil and gas, from, you know, taxes that people pay who are workers in the industry.

We don't have anything to plug that gap. I mean, here in Alberta, I've lived here for a while now. And that notion of diversifying economies, that has been around since I've been here. I mean, I used to live in Saskatchewan. The same thing happened there when I lived in Saskatchewan and covered politics. And, you know, that was kind of eight, 10 years ago. Even when I lived in Saskatchewan and covered politics. And, you know, that was kind of eight, ten years ago. Even when I lived in Newfoundland and Labrador, how do you diversify the economy? Because you can't just put all your eggs in one basket, so to speak, economically.

Because when you do that, you really risk your economy. And Alberta makes the point, hey, we are diversifying. We're looking at hydrogen strategies to, you know, start a hydrogen economy. We're looking at carbon capture and applying that. We're looking at hydrogen strategies to start a hydrogen economy. We're looking at carbon capture and applying that. We're looking at critical minerals. We're looking at kind of lithium extraction and that kind of thing. But the co-authors say that's not enough and there needs to be much more and more realistic conversations happening around diversification and what we do next.

And it can get missed sometimes because it gets politicised, right? I'm sure that all of your listeners are plenty aware of the fact that Alberta tends to look at any change, most changes from the federal government, particularly around oil and gas, as an attack on our province and an attack on our workers. And that's how it's framed because that's a winning political argument. And the idea is, OK, let's move beyond the politics of this and look at the economic arguments of this. So the report acknowledges that we're not moving fast enough here to transition. But what is the federal government actually doing to make the shift away from oil

and gas? Because it is doing something. So let's talk about that. Yes, of course. I mean, the federal government right now, it has a whole bunch of net zero targets. I mean, that's one very tangible example of what we're looking at. So basically reducing greenhouse gas emissions. I guess when we're talking about tangible actions, one of the big things that has recently happened is a sustainable jobs plan. That was a couple of weeks ago when the federal government kind of put that on the table. That's part of like the just transition, right? That's kind of the overarching term that the government often uses. Oh, we can't use that term anymore. Oh, they hate it out here in Alberta.

Oh, say just transition, then spit on the ground, basically. So it got changed to sustainable jobs plan from just transition. But yes, you are correct that's exactly what it started off being being called um but uh there was a bit of a kickback to it because that language was often used by environmentalists so it didn't really uh get a lot of play in terms of industry groups particularly around oil and gas but this sustainable jobs plan just transition if you want to call it that, it really kind of just sets requirements that Ottawa present a plan every five years, starting in 2025, for aligning the workforce with the push towards net zero emissions. So that's in terms of creating jobs and helping workers and communities adjust to the shift that will happen when one moves towards

net zero. But it's a plan for a plan. The federal government, it just hasn't said where or when or how jobs are going to materialise, you know, and it doesn't set a job creation goal. It doesn't set phase out targets. It just doesn't really give firm timelines, You know, like a lot of Canada's labor force is going to be disrupted by the shift, by the kind of green transition. I'm putting that in air quotes, not that you can see it at home when you're listening to this, but in some way by 2032, 15% of Canada's labor force is apparently going to be disrupted. And so those kinds of things, those kinds of shifts, those kinds of plan for a plan for a plan for maybe doing something, that's what they're saying is happening too slowly. Yes, there's an acknowledgement that things will change, but where are your goals?

Where are your targets? Where are your actual tangible changes that you are doing and why are you taking so long to do it? That's what the heart of this report is. Yeah. I mean, it sounds like in order to get stuff done, we would need those kind of tangible goals, right? Let's go back to talking about Alberta, Emma, because, of course, we know that Alberta is the heart of oil and gas in Canada, and you're there yourself. So how is the province thinking about its transition to other sources of energy? Yeah, it's interesting because for a long time under the United Conservative Party government, there was really a rejection of talk of net zero.

I mean, in the oil sands, so we're talking about oil and gas companies here, which is, of course, separate from government. There has been a long acknowledgement of the fact that they need to reduce their emissions. Now, there is a goal among producers. It's called the Pathways Alliance, whereby oil sands producers have kind of come together and formed a merry bunch and they want to bring their production emissions down to net zero by 2050. That is their goal. And that's a big goal, obviously. So that's the companies, right? And that's the acknowledgement. Scads of oil and gas companies have net zero goals, actually. The government, however, is a slightly different

beast here. Only recently has there been an acknowledgement about net zero and this idea of, yeah, we'll get to a carbon neutral economy is what they like to call it by 2050. But there are no kind of mid-range targets. There's no hard plans on how exactly that's going to happen. It's more just an acknowledgement of reducing emissions in the province. We've talked a lot about Alberta, but I also want to quickly ask you about how other provinces are thinking about this, like Newfoundland and Labrador, for example, because they have a huge offshore oil sector as well. How is that province thinking about this? Yeah, they do. And it's

interesting because, you know, Newfoundland, Labrador and Alberta are very different politically when they're talking about like party alignment. know they've got a liberal provincial government over there and it's worked really closely with the feds in terms of emissions reduction it's had a net zero 2050 goal in place for quite some time what's interesting as well about newfoundland and labrador is that they are really looking to diversify like hardcore diversification into a very tangible example there is hydrogen production so countries around the world are kind of looking at it as a potential way to reduce emissions because it doesn't have emissions when you burn it and they want to use their wind resources if you've been to atlantic canada you know it is damn windy out there they want to use that in order to

drive wind production of of hydrogen so they're really eyeing the green transition as oh wait this is actually a huge opportunity where we can do something that we haven't done before whether or not that will actually come together is to say i mean some of this stuff is very pie in the sky but there are some real projects really happening and at final investment decisions coming up very, very soon out there, you know. Yeah. And just lastly, Emma, if we can look at the big picture of all of this. Yeah. I mean, what does it all say about where we are, where Canada is in addressing our climate goals? It seems when you're reading a report like this, that the argument is Canada's talking a big game

here but really not doing much about it there are some tangible goals there and you know what yeah there are goals in terms of emissions reduction there are definitive things about we need to hit this number by such and such a date and even though Canada does have these goals in order to try and get to net zero, and you know what, a lot of countries have them, there's a lot of reliance on as yet to come technology. The heart of this report is basically get prepared, do more to plug the gaps, and then hopefully put Canada on a better footing in order to face a different global energy reality. Emma, thank you so much.

Always great to talk to you. Yeah, great to chat with you as well. Thanks for having me. That's it for today. I'm Mainika Raman-Wilms. Michal Stein helped produce this episode. Our summer producer is Nagin Nia. Our producers are Madeline White,

Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrian Chung is our senior producer, and Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.