CEOs take an acceptable risk airing their energy views

It was a bold move for the companies – Canadian Natural Resources, Cenovus and MEG Energy – ahead of the October federal election. Ordinarily, sending messages that stray into the political domain would be left to their trade associations. Apart from creating the risk of being painted as partisan, placing an ad like this would have required great care to ensure it didn’t fall out of compliance with strict new pre-election-period advertising rules.

These are no ordinary times, however. On closer analysis it’s not hard to imagine what led to the CEOs’ decision.

Oil is Canada’s elixir of economic life, and the CEOs know that the finance minister knows that. Without oil exports, we’d be just another Argentina, without the nice weather. These CEOs must also be painfully aware that many of Bill Morneau’s colleagues around the cabinet table would prefer to pander to trade skeptics and energy fantasists who are unable, or unwilling, to process the economic information.

Global energy majors grew so impatient with how the Canadian oil sands story was developing that many of them have sold up and left the country entirely. On the positive side, thanks to all the departures, local companies Canadian Natural and Cenovus have been able to make strategic acquisitions on the cheap. The homegrown survivors have endured years of turmoil that included brutal downsizings, regulatory uncertainty, false pipeline hopes, corporate restructuring and leadership changes. That they feel the need to say something about it now shouldn’t be surprising, because even those who benefit a lot from their survival haven’t done much to step up.

While the federal government needs the oil sands just as much as the oil sands need Ottawa, politics being what it is the country is now saddled with legislation like the new B.C. tanker ban and a regulatory process that Albertans like to call the “no-more-pipelines law”, Bill C69.

The CEOs are conscious that although the Trudeau government might find it expedient to be seen as not super enthusiastic about the oil sands, the reality is that the federal government will still try to do what it must to ensure that the country’s main economic engine does not conk out. The latest evidence of this is last week’s approval of Teck Corp.’s Frontier mine in northern Alberta. This news has brought about some cautious optimism, despite the mixed messages from lawmakers.

The CEOs must rightly sense that while there is a lot of excitement in Ottawa today around renewable energy, the boring reality is that traditional energy still drives the bus. This is borne out by the fact that their three companies alone, with a combined market cap of $55 billion, are 1.5 times larger than all the publicly-traded renewables companies in Canada tracked by the S&P/TSX Renewable Energy and Clean Technology Index.

What most people do not know, but should, is that the oil sands are a major driver of innovation, and will continue to be. Canadian Natural’s vice chair has recently been out explaining to the world how the oil sands are no longer high cost or high carbon, and how technology is making the dream of net zero emissions a reality. It would seem like a grandiose mission, were it not for the fact that the company has cut its upstream emissions by 30% in just a decade.

During the federal Liberals’ years in office, significant efforts have been made to create a long-term national economic vision. It’s clear that energy is inescapably at its heart.

The Advisory Council on Economic Growth, led by Dominic Barton, reported out in 2017 with the finding that energy was one of just a few sectors in which Canada has “a strong endowment, untapped potential, and significant global growth prospects.”

The Barton report urged Canada to position itself as a global trading hub by strengthening links to large and fast-growing Asian economies and investing in trade infrastructure.

More recently, the Report from Canada’s Economic Strategy Tables (EST) noted that Canada has the third-largest per-capita natural resource endowment in the world, but to continue to prosper and attract capital it must create an innovative ecosystem that improves our economic and environmental competitiveness. The Resources for the Future table suggested the goal of increasing natural resource exports 40% by 2025, to $350 billion.

Doing any of those things without oil and gas heavily in the mix is simply inconceivable.

The EST has recommended an arm’s length Council of Innovative and Competitive Regulations to push for a regulatory system that is “outcomes-driven, stringent, flexible and predictable—designed to improve health, safety and environmental performance, stimulate innovation, boost sector growth and competitiveness, and reduce the negative cumulative impact of the current regulatory system.”

Notwithstanding such deep and honest work, the CEOs will well understand that many political staffers in Ottawa despise oil and natural gas, labouring under the belief that the future of energy is solar panels. This is often accompanied by either complete ignorance about the oil sands, or dated, prejudiced opinions.

Recent parliamentary hearings on energy legislation brought forward numerous industry experts who sounded the alarm on issues including pipeline constraints, blockages to indigenous economic aspirations, Canada’s threatened competitiveness, and regulatory overreach. As the CEOs will be aware, most of this advice was greeted with shrugs. Legislators proceeded anyway to pass restrictive laws that could make all the economic crystal-balling a big waste of time.

Imagine the frustration of being a Canadian CEO in this context. You’re following the economic and climate policy discussion. You’re aware that Canada is importing a lot of oil ($19.3 billion worth of crude in 2018) from countries that are not required to comply with our incredibly high environmental, social and governance standards. And you’re trying to align your own strategies to those of government.

All of this, only to find that for every encouraging move, there is almost always going to be a kick in the shins (or higher).

Another fact that the CEOs live with daily is that while the federal government has licensed the buildout of oil sands production capacity, the continuing lack of pipelines means that neither their companies nor the nation as a whole will be able to realize the full benefit of Alberta’s resource asset.

I recently dined back east with a couple of friends who are lifelong Liberal partisans. They were sorely offended at my contention that the considerable efforts the government has made to get the Trans Mountain expansion built are but a partial solution to overall takeaway constraints. They honestly believed that TMX alone will solve Canada’s market access crisis. There is just no way to read the production forecasts and come up with this conclusion, yet you cannot tell that to some folks – even influential and politically committed professionals.

While the three CEOs represent companies signed up to be TMX shippers, and no doubt are enthusiastic about the project, they understand all too well the economic loss that all Canadians will suffer because of the Liberals’ decision to forbid crude oil shipments from the north coast of British Columbia. It might be different were Energy East showing signs of revival, Keystone XL not interminably tied up in court, and now activists in Michigan trying to eliminate the existing Canadian pipeline that feeds the nation’s petrochemical hub in Sarnia. As it stands, TMX is on track to be a positive accomplishment for the Liberals, but everyone needs to understand it’s only a start.

In short, what the three CEOs think about investment, trade, environment and innovation, is not significantly different from the establishment mindset in Ottawa on its good days. The problems originate in the fickle realm of politics because some candidates are willing to say and do whatever they think is going to attract votes, regardless of what will allow Canada to achieve its potential. What’s needed here is an honest conversation, even if it’s going to seem awkward because of the intensity of a closely contested campaign.

A good outcome in this federal election season will be one where many, many informed voters across the country make sure candidates know how incredibly important the energy sector is to all Canadians. It will take more than a newspaper ad to accomplish this, which is why everyone who agrees with the CEOs should be prepared to be personal activists for their views.

Stewart Muir is the Executive Director of Vancouver-based Resource Works.