Back in 2015, I started asking a simple question: is Alberta ready? Whenever I talked to politicians or entrepreneurs or thought leaders, I asked that same simple question. I asked that question for one reason: History told me that Alberta’s politicians didn’t understand that the rest of the world was preparing themselves for a decarbonized world, a world without oil, natural gas and oil. History told me that Alberta’s economy would be hit by a sudden economic shock starting in 2025 or 2030 and Alberta’s politicians were not preparing themselves for this simple reality.
For those who may not be aware of what I am speaking about, please be patient with me while I explain. Since the 1890s, Humanity has made huge technological leaps. The horseless carriage starts to come together in “fits-and-sparks” because of experimentation in much of the Western World. Names like Diesel, Benz, Nicolaus, Ford and the Dodge come to the fore. Their contributions though are merely symbols of the dozens of inventors in Canada, the US, Germany, the UK and countless other places that contribute to the history f=of the automobile. More importantly, this is not the only story of that time.
By the 1910s, a number of brilliant people put their stamp on our modern world. I can mention names like the Wright Brothers, Thomas Edison, Alexander Graham Bell, Albert Einstein and Lord Ernest Rutherford of New Zealand. Yet, these are just a few of the people who set into motion the world that we now live in. They started revolutions which created our modern nuclear, electrical, transportation and telecommunication industries. Industries we now take for granted.
This notion of new technology displacing old is the recurring theme of the 19th, 20th and 21st centuries. Just think about the plane. After the first powered flight in 1903, Air Mail became a thing before World War I. By 1918, airplanes were found in combat. After 1945, airplanes were beginning to be used by business people. By the 1950s, air carriers had even started to displace trains as a common form of transportation. From steam powered boats, to the train, the car, the computer or the internet; history has shown us that one new form of technology can displace another. This has usually happened within 20 to 40 years from their outset and Alberta’s politicians should have learned that lesson.
In the case of transportation that change has always been driven by changing public priorities. In the 1910s, cities wanted to encourage cars because cleaning up chattel manure in urban environments was breaking municipal budgets. Yes, cities were responsible for cleaning up the waste of horses, donkeys, mules and the like; and cities like New York, Toronto, Montreal and Vancouver were looking for solutions. Public Investments in transit were a part of the solution; and encouraging non-manure emitting transportation was the other.
As such, we shouldn’t forget that the Clinton Administration pushed for the development of electric and hybrid cars in the 1990s. It was because of that Administration that Honda and Toyota developed their hybrids. It was because of that Administration that GM developed the EV1 – GM’s first electric car – at the same time. It has been more than 20 years since that push and the same problem – Climate Change – is at hand. One should not be surprised that decarbonization is coming and it is crazy that Alberta is not ready for this change.
Now some might say that I am crazy to say that the end of Oil is coming and Alberta should be ready by 2030 for this change; so let me provide the evidence. Alberta’s largest export is oil and Alberta’s economy, our economy, is dependent on building the infrastructure to recover it. However, many Oil Industry players and their watchers, analysts, have indicated that they see a world where Oil Need has peaked. Some are even beginning to change their business model. If Bloomberg and IndustryWeek.com are to be believed, BP says that we are living through this change and that we should see decreases as early as 2025. Royal Dutch Shell says oil is going to peak as early as 2026 and as late as 2036. Equinor – the large Norwegian Oil Company – says 2026 or 2027.
But they are not the only ones who are talking about the Peak Usage of Oil. McKinsey, a consultancy firm, says that peak oil usage will happen in 2029. While, the founder of Bloomberg New Energy Finance, Michael Liebreich, predicts a peak in 2025 and decline in the 2030s. One would think that with such a predictable timeline that the “Leg” would be acting with a high level of urgency. Premier Kenney would not be wasting his time arguing with the Federal Government or trying to put in place a new coal mining policy for a resource which likely won’t be used. One would think that Rachel Notley – the former Premier and now Opposition Leader – would be doing the same because Alberta’s main industry will be attacked by something more devastating than a few environmentalists. The Market and the policies of Foreign Governments are about to attack Alberta’s main resource in a way that no one has seen since the Oil Crisis of 1973.
In terms of Market Players, one can just see that many large end users of oil by-products are doing one of two things: reducing their use of virgin plastic or finding radically new ways of turning existing plastic into new feed stock. Take Brightmark Energy. It is a San Francisco-based company which is experimenting with a process called Pyrolysis. If you are like me and haven’t heard the term before pyrolysis is a chemical process where one can convert plastics into high-quality oil. Chemical recycling is an attractive way to address the explosive growth of plastic waste and disposal problems. Brightmark is new to this and they have just opened a new facility in Ashley, Indiana. They are not the only firm who is doing this but they are a leader in this field. If they can become profitable at doing this, imagine what would happen to companies like Suncor and Husky who have a number of high cost, high GHG emitting Oil Sands projects. Recycled Oil will likely displace freshly drilled or mined stuff.
Now, if you thought a company like Brightmark should be the only concern for Alberta’s political class, one would be wrong. Depending on the “Western Country” something like 20-25% of our oil consumption goes to making consumer goods. When milk, beverages, food and other items come into our homes, they are wrapped in plastic. When we receive packages from an on-line order from Amazon or Ikea or other firms, they might be packed in styrofoam. Many of the consumer products that we packaged with plastic which is made from oil. In past years, companies like Procter and Gamble, Unilever, Coca-Cola, Nestlé, Johnson & Johnson and Estée Lauder and L’Oréal have become large indirect oil purchasers. Or put differently, consumer companies who purchase the plastic bottles, bags, boxes, containers and the like to ensure that their products would get to their consumers are changing their behaviour.
All of the aforementioned companies are all making a commitment to reduce their virgin plastic use by either 2025 or 2030. All of them are promising that within the decade, 75-100% of their consumer packaging will be either compostable, recyclable, refillable, reusable, recycled or recoverable.
So imagine this. Companies like Brightmark will be producing more synthetic oil: oil that could be used to make gasoline, diesel, plastic or other commercial and industrial products. While at the same time, over the next 15 years, some of the largest consumers of oil will either reduce or stop consuming oil. Economics tells us when one has a commodity market more supply and less demand will do only one thing: drop the existing price of a commodity. Companies like Suncor and Husky who are high cost producers will have trouble in this new environment. However, I have not gotten to the bad news yet.
The majority of the world’s Oil is used to transport “stuff”, “things” or people from location “A” to location “B”. More than 50% is used as gasoline, petrol or diesel by motorcycles, cars, trucks and small motorboats and light planes; while about 20% is used by large airliners and large ocean going vessels. The bad news is simple: by 2035, two thirds of the G7 will be well into phasing out internal combustion cars; and by 2040, two thirds of the G20 would have done the same. To remind everyone 2035 is less than fifteen years away. Given that Canada, the European Union, Japan and Korea have stated their wish to have Net Zero GHG producing economies by 2050 and China wants to get there by 2060, one can surmise that new greener technology is on the horizon. All of this cannot be good for Alberta’s main export product: oil.
So now, we are in 2021. We have all lived through a pandemic. On April 25, 2021, WTI was just over $62/USD, while Brent Crude price was just over $66/USD. Today, March 21st, they are $63.58 and $66.44 respectively. Or put differently, Oil is not likely to be Alberta’s Saviour. The last boom has likely busted. One does not need to be an oil analyst to see this.
This is not September of 2008 or the first quarter of 2014. We are all living in a new world where World’s various oil prices are not likely going to hit triple digits again. If we were to travel into the past we can see this. In 2015, in the waning days of the Prentice Government, the price of oil dropped. It dropped as Premier Notley started to act and would only recover mid way through her term. On April 26, 2016, the WTI was $46.74 and I am sure the Alberta NDP hoped for higher prices. On April 29, 2019, WTI would hit $63.50; and on April 30, 2019, Jason Kenney would become Premier. Not much has changed since 2015. For the last 6 years, we have not seen a return of $100 USD barrel of Oil. Furthermore, the actions of Norway, France, the European Union, China and US – just to name a few – indicate that we shall never see it again.
Accordingly, here we are waiting for an Alberta Government which might recognize that we are in trouble. Here we are waiting for an Alberta Government to change their policies to align with the reality of the situation. Here we are waiting for a government who will not be ideological but one who will be practical and pragmatic. We are waiting for a government which will put the best interests of
Alberta residents before itself, one that will witness the world as it is and make changes. We are waiting for a Government who will act in the best interest of the majority, while recognizing the need to protect the minority. We are looking for a Government like that of Rutherford, Sifton or Lougheed; a government which will embrace the future while not forgetting the lessons or the promises of the past. Here we wait as I ask the question: are the politicians of Alberta ready to lead?