How could that take shape? As a country that produced 5.1 million barrels of crude oil daily in 2020, Canada is fourth in the world in terms of production. At the same time, Canada ranks third in terms of oil reserves. What’s more, as of 2017, this country held 77 trillion cubic feet (TcF) of proven gas reserves, representing about 1% of all natural gas reserves on the planet. That’s equivalent to 17.5 times Canada’s annual natural gas consumption. This means a whole lot of capacity in a market where the US is actively pursuing new import possibilities with Venezuela and Iran, and the UK is pushing OPEC to increase production. The fact that World Bank Governance Indicators and the Yale Environmental Performance Index rank Canada as the world leader among oil-producing countries on environmental, social and governance (ESG) standards makes this country an even more attractive and viable source of oil and gas imports.
Things are already shifting. The Canadian Government just announced production increases of 300,000 barrels of oil equivalent (boe) per day. Whether that will be enough remains to be seen. Ramping up production and exports even further could simultaneously create jobs, bolster domestic economic growth and generate additional cash flow — building on five years of successful industry cost-cutting — to reinvest in transforming the Canadian sector and national energy grid for the future.
The business case is clear. But time is of the essence. Embracing this direction requires stakeholders — from energy company leadership right through to parliamentary policymakers — to consider critical questions now and align around a path forward quickly:
1. Does Canada have the political and economic will to consider the long-term energy security we can provide to Europe and the US and the ability to get mega projects done?
With 179 billion barrels of oil in reserve, Canada has a lot to offer right now. Even within Canada, energy independence is becoming increasingly top of mind. Some 52% of Québeckers think their province should develop its own oil resources instead of importing the oil consumed locally. That’s up 9% from just one year ago. Let’s dare to ask how we can play a global and national leadership role by broaching growing resource gaps with made-in-Canada energy security solutions. Many observers will say Canada’s inability to build facilities and pipelines caused this country to miss the boat on liquified natural gas. Without clear consensus, similar obstacles could affect future plans.
2. How will OPEC’s response to calls for increased production impact prices and inflationary pressures here and everywhere?
The Bank of Canada is already focused on rising inflation. Time and time again, historical oil price surges precede recessions. Even as Saudi Arabia announces investments to increase production, the train of economic impacts has clearly left the station. Counteracting these ripple effects through homegrown solutions can create new ways of evolving in the face of rising costs across the board.
3. What does today’s geopolitical crisis mean for the energy transition, and will it accelerate as a consequence of the reliance on Russian energy sources?
The energy transition represents bold ambitions that will take shape over time. Before recent sanctions, Canada imported roughly $550 million worth of Russian crude annually. Seizing this tumultuous moment to let go of the reliance on foreign hydrocarbons and think more broadly about new energy supply sources like hydrogen, can help countries like Canada speed up the move toward a clean energy future. Exploring these opportunities can be an essential springboard to reinventing any nation’s energy strategy.
4. Where should the Canadian oil and gas sector’s cash go next, given that large mega projects remain on the backburner?
The cost of producing oil is dramatically lower in Canada than 10 years ago. Players can afford to shift away from paying down debt, increased dividends and buying back shares to focus on transforming decarbonization across the value chain. Whether through new engineering solutions like carbon capture, utilization and storage (CCUS), business models, reduced flaring, electrification or expansions into alternative energy sources like solar, wind or hydrogen capabilities: there are endless ways to abandon the same old, same old and evolve in compelling ways.
Even in the face of surging prices, producers may remain understandably wary of spending aggressively to grow oil production after the pain of the 2020s pandemic-induced oil price collapse. Investors today demand strict capital discipline, while environmental opposition to new fossil fuel projects and the Canadian Government’s plans to cap carbon emissions also deter growth. With that in mind, pairing performance improvement and portfolio investment opportunities through an integrated approach can open up a more successful transformation path than focusing on either priority in isolation.
It’s time to redefine what energy and natural resource companies do, and how. Visionary approaches can help organizations do that successfully while achieving both speed and scale.
5. Can ongoing geopolitical uncertainty elevate the energy agenda in Canada and facilitate greater integration between critical energy infrastructure in North America?
There isn’t just one correct answer to North America’s energy infrastructure challenges. There are many, each waiting to be discovered, discussed and developed. Pipeline pathways or electric grids. Crude or gas. Wind, solar or hydrogen. We know utilities can enable change if net-zero opportunities are captured and supported. We see the possibilities for governments to support energy security and transition through cross-industry and cross-sector support. Still, political agendas and a lack of interprovincial coordination remain prevalent challenges. The last few months have highlighted the need for a more connected approach to energy from east to west and north to south. Renewing those conversations through a forward-looking narrative is essential.
Where do we go from here?
We’re now witnessing a fundamental shift in the energy world, with security becoming the dominant focus in the energy trilemma of security, sustainability and affordability. As Pulitzer Prize-winning author Daniel Yergin wrote several years ago and it’s still true today, “…the starting point for energy security is diversification of supplies – that is, production coming from many sources.”[i] Energy security will be one of the significant critical challenges of foreign policy for Canada and the world in the years ahead.
Canada has long been known as a proactive peacemaker and an active proponent for conflict resolution. Today, we can build on that role to help solve the broader challenges that war and conflict like the crisis in Ukraine can trigger. Retrenching around decarbonization while supporting allies in Europe and beyond is possible. What’s more, prioritizing both in equal measure could redefine the future of oil and gas once and for all. If we don’t address this now, then when?