The Case for Reinventing Canada’s Traditional Energy Sector
Lorraine Mitchelmore’s speech delivered at the Business Council of British Columbia’s 4th Annual Chair’s Dinner
Distinguished guests, ladies and gentlemen.
It is wonderful to be here in beautiful British Columbia and to speak to you on behalf of Smart Prosperity to talk about what I think is the most important question facing Canada today. It’s a question about the kind of future we want to have, and what we need to do now to get there.
I don’t know if there is any one in the room today who has recently celebrated, or perhaps is about to celebrate, a milestone birthday? You know it’s a milestone birthday because it usually arrives with an assortment of off-colour cards featuring wrinkled dogs or old ladies in bathing suits and at least one of those “over the hill” balloons. Anyway, the thing about those kinds of birthdays is that they make you stop and think — about where you are in life, what you have achieved, what you want to achieve, who you want to become.
Canada is about to have a birthday like that. 150 years old. It’s an important moment for all of us to think about what we want Canada to be, what we want it to stand for, in the decades ahead. Our Governor General likes to speak of Canada as a Smart and Caring nation. And while it is very Canadian of us to be humble about it, that brand: smart and caring, matters.
Let me give you an example. It’s about tomatoes. You see when the big Heinz Ketchup operation in Leamington, Ontario shut down a few years back that left producers with a lot of tomatoes in the ground and no good way to get them to market (hmm, sounds familiar). One of those producers — Thomas Canning –identified a big demand for canned tomatoes in China, so he developed a product for that market. Only at first his tomatoes weren’t selling. Then he changed something — a key ingredient. Not what was in the can, but what was on it. He added a Canadian Maple leaf, and the products started to fly off the shelves. For Chinese consumers, the greatest selling feature of Canning’s tomatoes was Canada — our brand of quality, our brand of care for our clean water, our clean soil.
This is a brand that Canada must build on. But to truly succeed in the 21st century: we must also evolve. Because in the context of a rapidly changing global environment — being smart, and being caring, also means being something else: innovative.
Smart Prosperity’s vision for Canada is to boost its competitiveness, innovation, and environmental performance on pace with leading nations over the next decade.
This is a critical goal for every sector of Canada’s economy, but it is perhaps most evident and most urgent for our energy sector.
In the context of a rapidly changing global environment, being smart, and being caring, also means being something else: innovative.
What will it take for Canada to be a smart, caring, and ultimately successful global energy leader for the next generation? That is what I want to focus on tonight. And, I’m sure you’re not surprised, but I have some fairly strong opinions on that subject.
The first is that we must not abandon, but must in fact reinvent our traditional energy industry. The second, related to the first, is that we need to bring a nation-wide focus on innovation — both in terms of cost and carbon — to achieve that goal.
Our traditional global energy industry is being reinvented as I speak here today.
It is undeniably true that the future of energy will not look like the past. Malcolm Gladwell (an innovative Canadian who looks at things in new ways) defines a tipping point as that magic moment when a trend crosses a threshold, tips, and spreads like mad. We are seeing those tipping points everywhere in the energy sector:
- With the US’s emergence as a leading producer and now exporter of oil and gas — Canada’s only energy customer has also become our competitor
- Preparing for less dependence on oil, Saudi Arabia is flooding the market with cheap product to keep higher-cost oil in the ground.
3. Since 2000, the IEA has revised its predictions for wind and solar capacity up by 5 and 14 times respectively. It’s consistently revised demand for oil down.
4. Last year, for the first time, the global investment in renewables actually matched that for fossil fuels.
Do these tipping points mean the end of Canada’s traditional oil and gas sector? Or do they offer a tremendous opportunity for Canada? That is up to us. But we would be wise to choose the latter. Here’s why.
With the increase in demand for affordable energy, oil and gas will continue to be an important if not dominant source of global energy for many decades as the world makes the necessary transition to low-carbon sources. And someone is going to supply it.
But the winners in that market will be those who can not only produce resources at the lowest cost, but equally importantly, also with the least pollution. That’s the 21st century energy challenge, and Canada has every reason to step up to the plate.
Why? First — think about how much we have to lose if we don’t. Our traditional energy industry has accounted for 25 per cent of Canada’s exports and 10 per cent of our GDP. It has contributed up to $17 billion on average, annually, to federal and provincial government revenues. It employs hundreds of thousands of people. These are all arguments you have heard before.
But here’s something that a lot of people don’t realize. Our traditional energy sector is also the major powerhouse behind Canada’s transition to a new renewable energy economy. Four of the top 10 renewable energy producers in Canada are traditional energy companies. The wealth and skills that we have generated developing the energy industry is now underpinning our ability to develop newer, cleaner forms of energy. We shouldn’t abandon our energy past and present; we should proudly build on our comparative advantage of a leading energy supplier.
And that actually brings me to the next equally important point. The decision to reinvent our energy sector isn’t just about what Canada stands to lose. It is much more about what we stand to gain.
Our traditional energy sector is also the major powerhouse behind Canada’s transition to a new renewable energy economy.
McKinsey and Company suggests that, with the right policy conditions in place, Canada would have a global comparative advantage in sustainable resource development. There is a massive global market for technologies and practices that will shrink the footprint of resource production, increase efficiencies, and lower costs. Stepping up to the world’s energy needs is an engineering challenge — one that Canada is uniquely positioned to tackle.
I have witnessed this this first hand. At Shell, we were able to meaningfully reduce both our costs and our carbon by bringing new thinking to the table.
Innovation is not only about new technology. It’s also about new ways of thinking about existing technology, business process, decision making etc. We recognised that if we were going to compete for capital we had to be both competitive economically and environmentally with other global energy sources. To be cost competitive in the oil sands we had to improve productivity across every part of our business. We broke out of the old E&P mindset and began thinking of ourselves in manufacturing terms. Just one small example, we looked at how Amazon managed its warehouses and said — we will match them as the best in the world in managing our materials inventory. We did — moving from 75% to 95% inventory accuracy in 2 years which resulted in improving productivity of our employees at the front line.
This is just the beginning. How could advanced manufacturing, robotics, data analytics etc play a greater role in making Canada’s energy sector more globally cost competitive?
This is innovation. New technologies — yes. But also new ways of thinking, new ways of collaborating to solve problems that matter.
To give you a second example, on a much larger scale, Shell collaborated with both the federal and provincial governments, to invest in and launch Quest, the first Carbon Capture and Storage facility in the oil sands. Quest will capture over 1 million tonnes of CO2 each year, — as one of only a handful of these projects worldwide — will generate critical knowledge that Canada can share globally. This is equivalent to taking 250,000 cars off the road. The International Energy Agency has stated that CCS has the potential to deliver 17 per cent of the world’s CO2 mitigation by 2050. This project is helping Canada be a global leader in combatting climate change.
This is innovation. New technologies — yes. But also new ways of thinking, new ways of collaborating to solve problems that matter. And there is no problem that matters more than how Canada can produce its resources affordably with less carbon, less pollution and how we get those resources to global market.
Canada has what it takes to be global energy innovator and leader. But the fact is, we are starting from behind.
We rank 22nd among OECD countries for business expenditure on R&D intensity, the second lowest in the G7. We fall short on the BRED metric — that’s the business enterprise research and development measure. It’s a key indicator of our private sector’s commitment to innovation. And other countries — Germany, US, Israel — with consistently successful export economies, all outscore us on that front.
Let me be clear: this isn’t about winning some kind of global ranking contest. There are real costs associated with our innovation shortcomings — especially when it comes to energy. In the past decade we’ve given up $100B by selling our oil to the US at a discount, because we cannot get access to global markets. And we may very well be at risk of missing the boat on LNG. Because we are stuck — not just on the infrastructure and technology side of innovation, but on the collaboration and decision-making side too.
So why is Canada not living up to its innovation potential and its ability to capture these new opportunities? It’s not because we don’t have good ideas. We’re a hotbed for good ideas. And it’s not because we don’t have the talent. We have one of the most skilled and educated work forces in the world. One key insight is that while Canada is great at start-ups, we often fall into the innovation “valley of death.” We invent the idea; other countries commercialize it.
So what needs to change? First and foremost: our mindset. We need to think bigger and we need to start thinking together through collaboration. We need to stop thinking about innovation in an inward fragmented, province-by-province, sector-by-sector way. Instead, we need to act like trisector athletes — business, government, and institutions — coming together on a national-scale. Together, we need to drive a focused innovation agenda that channels our strengths so that we can own the podium in a new energy era.
When we do this, we succeed.
Together, we need to drive a focused innovation agenda that channels our strengths so that we can own the podium in a new energy era.
Closer to the sector, look at Alberta’s climate policy as a good example. We had government, the oil and gas sector, and civil society all together saying, we need a stronger price signal on carbon that is world leading. We need that market signal to drive innovation and fund innovation so we can lower emissions, while delivering clean technology to market.
Look at the Canadia’s Oil Sands Innovation Alliance (COSIA) — 14 companies all sharing their technologies for the sole purpose of solving the clean energy challenge, funding major competitions like the Xprize to get the best brains in the world on the case. So far, this XPrize challenge has had the most applications ever.
Look at Evok Innovations — a partnership between Canada’s oil and gas leaders and B.C’s clean tech sector, working together to solve the greatest economic and environmental obstacles our time.
These micro-ecosystems exist across Canada. Our challenge now is getting them to scale. Canada has demonstrated an ability to develop startups into SME’s however has failed to globalize or scale them up with international operations at $B scale. For example, while global trade in clean tech doubled from 2005–2014, Canada’s share of that global market fell by 41% . We cannot let this happen because it is not only critical to the success of our traditional industries but important growth vehicle for Canada’s new economy.
Achieving this will take nothing less than a deliberate, nation-wide focus . Canada needs to commit to this challenge like the US committed to put a man on the moon. We need all of our oars pulling us in that direction. And we need to do it with a sense of urgency as we are in a global race and the world will not wait for Canada.
And I think we will do it.
New ways of thinking in Canada are already underway.
A few weeks ago Minister Bains announced the development of a new national innovation agenda — a whole-of-government effort to make innovation, in his words, as central to our country as the railways, the social reforms, the trade agreements, and environmental protections that are the hallmarks of Canada’s success.
As business leaders, we need to do more than applaud that intention. We need to engage publicly on these national issues. Governments will need support and they will need our individual and collective knowledge. They will need to hear from us that innovation — particularly in our energy sector — is central to that national agenda. There is a role for every person in this room to speak out on this issue. And that is particularly true of those in the clean tech world. Our leaders need to hear about the huge opportunity you see in helping reinvent our traditional energy sector. We are in this together.
As business leaders, we need to do more than applaud that intention. We need to engage publicly on these national issues.
Smart Prosperity is ready to do its part. This initiative is about being smart, thoughtful and strategic in positioning Canada to continue to punch above its weight globally. Our generation has a responsibility to set up a better Canada for the next generation. This fall Smart Prosperity will release robust new research and clear recommendations about how Canada can accelerate clean innovation and technology across the country. About how new ways of thinking and collaboration can bring more clean and affordable energy to Canadians and to the world.
I want to thank all of you for giving me this great forum to share my thoughts with you, and I look forward to hearing yours.
I’m going to leave you now with a quote from one of the most famous innovators of the 21st century — do you want to guess who? Right — Steve Jobs. He said “Innovation is what distinguishes a leader from a follower.”
Canada has earned its place in the world in the past as an energy leader. But to continue to lead, the industry cannot do it alone. It’s up to all of us to advance the innovation required for Canada to become the global energy leader in the 21st century.
Thank you.
