We often forget how quickly technology can move. While, Benz developed his first car in 1885; it was the development of Henry Ford’s Model T and his new innovative manufacturing techniques, in 1913, that helped to reshape the United States. By 1927, a total of just over 15 million Model Ts had been made. Farmers, factory workers, school teachers, and many other Americans changed from horses or trains to cars when they bought Model Ts.
Or take the development of airplanes. The Wright brothers invented and flew the first airplane in 1903. By 1916, airplanes were equipped with specialized guns; they could be used for surveillance and could drop rudimentary bombs. By 1919, the first Atlantic non-stop flight took place. Yup, that was only 16 years.
Then there is the Royal Canadian Navy. While, at the outset of World War Two, Canada had 6 ocean-going ships and a force of 3,500 officers and men (both regular and reserve); by the end of World War II, only six years later, Canada had a navy which rivaled that the Japanese, the French and the Soviet Union.
Or even take the computer. In 1982, when I was about seven, my world was rocked by a computer: the Commodore 64. It has 64 Kilobytes of Ram and 20 Kilobytes of ROM and that was exciting. For back in 1982, 1 KB or 65,536 bytes was our measuring tool. The eight colour pixel screen was a miracle, it was the future. That was until we started measuring files in Gigabytes (GB) and Terabytes (TB). A Gigabyte equals 1,073,741 Kilobytes and 1TB equals 1,000,000,000 KB. My present cell phone holds 3 GB of RAM, 32GB of Rom and 32GB of storage with the option to expand the amount of available storage with a microSD card up to 2 Terabyte (TB) in size. It provides a picture quality which my seven year old self couldn’t have dreamt off and can give me television programming anywhere in the world. Oh and I forgot my phone can take pictures and capture video too. Technology changes quickly and people often forget that.
As a lover of history, it often surprises me how many people don’t remember that technological changes tend to move quickly and ruthlessly and overwrite what has come before. Just think of the car. The contributions of Benz and Ford were not the first or best car designs. They are the ones that simply won out in light of existing infrastructure, taxes and other factors.
In that same vein, I am afraid for my adopted home. For, a variety of forces are on the horizon and many of them will change the nature of our economy. Or put differently, while our society will be dependent on oil for the next 200 years, the value of that same product will diminish terribly. Today, oil has two primary uses. The first use is transportation and the second is as a feed stock for chemical companies. Consequently, artificial textiles, fragrances and many plastics come from oil. However, the amount we use for one is disproportionate.
Now, for this argument, I will be using statistics provided by the US Energy Information Administration (EIA). They will reflect American consumption of Oil and I will just be extrapolating those same numbers to the rest of the World. My reasoning for this is simple: the US is still the largest economy in the world and uses 25% of the world’s resources to do so. Accordingly, from a statistical point of view, the numbers are probably pretty close to the way that the West or Humanity use oil. But I digress.
As I was saying we use oil for transportation and as a feed stock. However, the problem for Alberta is simple: 71% of Oil is used for transportation. Or put differently, 71% of the petroleum used in the US ( and most probably in the world) is used to get people or goods from point “A” to point “B”. If we go one layer down, we can see that that transportation sector has one major component: gasoline. Gasoline is used in cars, motorcycles, light trucks, boats and aviation gasoline is used in airplanes. The Gasoline component makes up 55% of the transportation sector. So, what happens to Alberta when cars double in their efficiency and when the world’s oil needs fall by 20, 30 or 40%?
Some might say that there is no way that the world’s oil demand could fall like that. However, regulations tell us otherwise. Since the 1970s, Western built cars and trucks have used less gas, diesel and petroleum derived distillates. Even with the actions of President Trump and the proceeding legislation, American car efficiency standards – CAFE standards – will likely improve from now until 2030. Under President Obama’s fuels standards by 2030 automotive fleets were expected to reach a higher level of efficiency: 45 mpg. (Trump is freezing Obama’s fuel economy standards. Here’s what that could do, By David Roberts, email@example.com, Vox.com, Updated Aug 2, 2018, 11:20am EDT). While, President Trump has tried to roll back those standards and there is a lot of litigation to go, we do know that by 2030, the standard will be in the mid-30s; while, for context, in 2000, the CAFE standards were about 25 mpg. Consequently, if 71% of oil consumption goes toward transportation and 55% of the transportation sector is made up of people driving cars; what happens to Alberta when cars become much more efficient?
However, that is only the beginning. A number of countries are moving forward with banning internal combustion cars. While China and India have indicated this is a possibility, some countries have already passed laws. By 2030, Norway, Ireland, Israel, Netherlands and France will ban internal combustion cars. By 2040, the United Kingdom, Taiwan and Germany will do the same. Then in 2050, North American gets on the action with California, Connecticut, Maryland, Massachusetts, New York, Oregon, Rhode Island, Vermont and Québec will be following suit.
Now, some might argue that the technology is not there. However, nothing could be further from the truth. In 2018, 31.2% of all cars sold in Norway were electric cars. This is up from 2013 when only 5.5% of all cars sold in Norway were electric cars. (Almost a third of new cars sold in Norway in 2018 were electric, SkyNews.com (UK), January 3rd, 2019) So, if Norway – an Arctic Circle country who is the owner of the 10th largest oil company called StatOil – can do it, most Western Countries can. So what happens to Alberta as more countries move down this path?
For those who think I am arguing that Alberta will no longer produce oil, I disagree. Alberta will continue to export oil for another 200 years. If you don’t believe me look at Appalachia or more specifically West Virginia. West Virginia still produces coal. My concern is that Alberta will suffer through their experience. Every year, fewer miners are needed because of automation and decreasing demand.
Today, capital doesn’t go into West Virginia because its main industry is one which is declining. However, it had not always been this way. Appalachian coal used to power American Ships – before and after the Civil War. It powered subways, rail ways and electrical grids. Yet, today, there are fewer and fewer markets that accept West Virginia coal because less and less firms and industries use coal. Coal has been displaced and Alberta should not wait for that to happen to us.
West Virginia had chances to change. Coals’ long death started in the 1890 when the newly formed country called Italy started experimenting with oil in its ships. By the 1920s, most of the worlds’ navies had switched to Oil. In fact, the last American coal-fired ship to be commissioned – the USS Texas in 1914 – was finally converted to burn oil in 1925. By the 1950s, the last commercial ships were converted to burning oil; while railways converted sometime thereafter. It is only today that society is dealing with the last and hardest issue: moving away from coal to create electricity. Accordingly, West Virginia is now looking towards a future with little hope. However, for Alberta, this tells us something: that if society’s conversation away from coal has taken 120 years – and is still undone – it is easy to see that our society will produce oil into the future. The only problem, though, will be that Alberta will not see lots of new capital coming into our Oil Industry. Thus, there will be a lot less new capital coming into the province.
Alberta could wait; however, technology – which will displace our industry – is coming to market today and I don’t have to point to Tesla to illustrate the change. Volkswagen – the last defender of diesel – has already announced that they will spend 50 billion USD by 2023 to move toward electric cars and away from the internal combustion engine. Ford in 2017 began making the shift and is scheduled to spend $4.5 billion USD. Meanwhile, Volvo has already stated that by 2019, they will no longer be designing new internal combustion cars. Therefore, Telsa is no longer the only company looking to become an electric only car company. So again I ask, what happens to Alberta?
This same trend is being replicated throughout the transportation industry. In 2017, 12% of transportation oil consumption was taken up by jet planes. Yet, because of carbon emission rules and airline companies goals, Boeing, Airbus, Embaer and Bombadier have developed a new series of planes – like the Boeing 787 and Airbus A350 – which were all designed with one thing in mind: using less jet fuel. Furthermore, even more radically, engineers are working on integrating technology from the world’s first solar plane into commercial airplanes.
The problem for Alberta is simple. Our economy has been funded for over 40 years by one thing: the search for new oil. Very shortly, the Western World will realize that we will not need to find new sources of oil. In Alberta’s case, this will present a problem; because, from discovery to refinement, in the past, Alberta companies have had to hire people and spend money to build infrastructure to turn bitumen into a viable product. The simple problem for Alberta will be the problem that West Virginia has experienced for 100 years: new stores of the raw commodity will not have to be found. Engineers will not have to find new ways of getting existing commodity out of the ground because there will be enough. New Geologists will not have to be trained because nothing will have to be found. New Capital Investments will not need to be made because existing deposits will be enough; and to make matters worse, increased automation will mean that less labour in general will be needed. Alberta for over 40 years has moved forward because of the building of new mines or the development of new deposits. Accordingly, my concern is not that Alberta will stop producing oil but that the world will stop spending money on a product it already has enough of.
If you think I am crazy, let’s go a bit further into the rabbit hole. Remember, in 2017, that the EIA said that 71% of our Oil use is for transportation. As I began this piece, I noted that Oil is also a feed stock. 24% of oil is used in the industrial sector. As the EIA says, “in the industrial sector, the petrochemical industry uses petroleum as a raw material (a feedstock) to make products such as plastics, polyurethane, solvents, and hundreds of other intermediate and end-user good.”
Well, chemical companies are reducing the need for new oil by reusing existing plastic or finding non-oil feed stock. If you doubt its prevalence, let me document it. Since 1993, Adidas, Patagonia and Nike are among a few companies that use recycled bottles in some or all of their products; while Coca-Cola PlantBottle uses up to 30% recycle material. Consequently, we can see that the world is on a long term trend to use less oil. While, I have not talked about the increased electrification of long haul trucks and trains, one can see that more than 96% of the oil consumption of the transportation sector of Western Economies is under attack. If 71% of Western Countries oil consumption comes from that sector, shouldn’t Alberta be franticly trying to diversify? Our competitors like Norway, Saudi Arabia and the United Arab Emirates are.
The world is changing in a big way and it is evident. In Europe and Southern Ontario, solar panels are going up where they never used to be. In the Caribbean – where 87% of the electric grids are powered by the burning of oil – there is a move to use the solar, wind, hydro, geothermal, and biomass resources they own. So Jamaica and Barbados – who almost entirely use oil to power their grids – are putting in concrete policy tools to hit their goal of 20-30% renewable use by 2030.
With all this being said, let me be clear: I love my adopted province. However, the trends could not be clearer. The house I grew up in, in Toronto, will likely be powered by renewables in ten years. That house is about a hundred years old. So, this will not be the first change that it will see. That house was once heated by coal and then by oil. I know it was headed by oil because I remember the oil drum being removed. The removal happened a long time after our furnace was converted to natural gas, but it happened. The story of my childhood home is not too different from the story of our railways, of ships and of so much more in this world. We are on a long term trend to move from a world of coal to a world of oil to a world of renewables. The problem for Alberta though is difficult: will we wait as West Virginia has or will be change agents?
Alberta didn’t wait when it came to coal. We left it in the ground and started to drill for oil. With that example in mind, I believe that we should work with the oil industry we have and accept the coming change. We should build pipelines and railways and infrastructure to assist the industries we have. We should support the extraction of oil until it becomes uneconomical. However, we should also recognize that a change is coming and that we can’t stop it. We, as Albertans, have to shake off the time when oil was strategically important and allowed militaries and commerce and everything else to exist. As Lougheed did, we have to come to terms with our past. We need to find a new economic driver(s) and understand that oil will be like wheat, or barley or canola: just a raw resource.