Energy Innovation: Oilsands Becoming Leaner and Greener

The author of a recent New York Times article is reveling in his scathing indictment of the Canadian oil sands – describing them as “the world’s […] dirtiest oil reserves,” and it isn’t hard to see why. As one of the largest oil reserves in the world, Canada’s oil sands have an image problem. Open pit mining, tailings ponds, and trucks the size of houses are not very appealing to look at, which makes the oil sands an easy target for the current wave of energy activism. Growing concerns relating to climate change, biodiversity, and marine health have spurred a ferocious appetite for more robust and stringent environment, social, & governance (ESG) standards – and rightly so. Climate change is a paramount concern that needs to be addressed with innovation and collaboration. These evolving standards are providing Canadian producers with the opportunity to adapt to a new world order and be leaders in an industry often criticized for being resistant to change.

Some of Canada’s largest energy producers have responded with extraordinary achievements in greenhouse gas (GHG) reductions. Canadian Natural Resources Limited (CNRL) has invested more than C$3.4 billion since 2009 in research and development to reduce its carbon footprint. Canadian Natural is a leader in carbon capture and sequestration (CCS), removing approximately 2.7 million metric tonnes per year through its Quest, Horizon, and NWR facilities. CNRL is continually making improvements to lower its carbon intensity, and has successfully reduced GHG emissions from its Horizon Oil Sands mine by 27 percent between 2012 – 2018. Furthermore, CNRL has committed to reduce its oil sands GHG emissions intensity by an additional 25 percent through 2025. To achieve these ambitious targets, CNRL is trialing new cutting-edge technologies such as molten carbonate fuel cells (MCFC), solvent enhanced oil recovery, and In-Pit Extraction Processes (IPEP) for tailings ponds.

In response to growing climate change concerns, Canadian producers have stepped up in a big way. The carbon intensity of upstream resource extraction in the oil sands is at an all-time low. GHG emissions for barrels sourced from the Canadian oil sands are increasingly comparable with major energy producers across the globe (See Figure 1.1). The magnitude of this accomplishment is even more impressive when viewed with the lens of a total energy mix. Many of the world’s largest energy companies produce large amounts of natural gas, and light oil which typically have lower emissions than heavy crude. However, despite the recent successes of Canadian producers, challenges remain. As the molecule moves down the supply chain from transportation to refining these processes can contribute significantly to a barrel’s total lifecycle GHG emissions. Unfortunately, this can largely be out of a producer’s control, and for many producers without integrated downstream facilities, the primary focus must be on reducing emissions during extraction.

Figure 1.1 – Source: Peters & Co (2019), Global Integrated E&P Carbon Emissions.

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The industry is rife with innovative collaboration and partnerships. Virtually all oil sands producers (90 percent) are contributing members to the Canadian Oil Sands Innovation Alliance (COSIA). COSIA functions as a research collective that brings companies together to share game changing technologies, intellectual property, and expertise. COSIA was formed to elevate the status quo and challenge its members to pursue operational excellence in the areas of GHG reduction, land reclamation, tailings ponds, and water management. Industry collectives are the new normal in Canadian energy and have extended beyond hydrocarbons to help facilitate the global energy transition. Nearly all of Canada’s top energy producers are among the 456 active members in the Clean Resource Innovation Network (CRIN) – which aims to share resource and expertise to accelerate and commercialize revolutionary energy technologies.

Canadian energy companies are the most active clean tech investors in Canada. According to Natural Resources Canada, the industry accounts for two thirds of the C$2.4 billion spent annually to fund cleantech research and development. New partnerships between energy companies and clean tech investment funds are helping to fuel the growth of energy innovation in Canada. Suncor and Cenovus have partnered with the BC Cleantech CEO Alliance and committed C$100 million to form Evok Innovations – a clean tech fund created to develop technologies aimed at addressing the world’s most pressing environmental and economic challenges. Canadian energy producers have been carefully listening to the concerns of stakeholders calling for greater environmental stewardship. Through innovative partnerships, cutting edge technologies, and capital investment, the industry is setting the template for responsible resource development.    

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Author

Michael Hebert, Viewpoint Research Team

What Does Canada Need to Jump Start Innovation?

Despite having one of the most diverse workforces in the world, Canada was ranked 14th in the 2019 OECD Global Competitiveness Report; dropping two spots from the previous year, and scoring below the United States, Denmark, and Korea. Although we receive strong rankings in macro-economic stability (1st), sound financial system (9th), and labour market (8th), we have lagging performance in innovation (16th) and adoption of technology (35th). What is Canada missing? 

To start, we could look to the country who has lead on innovation and start-up culture, earning themselves the title of “Start-Up Nation” - Israel. Though there are many different factors that may contribute to its success in innovation, one large factor is Israel’s government initiatives focusing on developing knowledge, supporting research and development, and prioritizing the creation and long-term survivability of start-up businesses. In the past, government initiatives were created to subsidize research and development projects, and to bolster venture capital interest through tax incentives and matching investments, hoping to share and mitigate the risk to investors. This fostered collaboration between not only academic institutions and private organizations, but also across local and global organizations. However, it should be noted that these initiatives are not without flaws, as the policies have been geared to high-tech industries, and consequently “other sectors seem to have been left out.” 

These initiatives paved the way for the creation of the Israel Innovation Authority, an independent publicly funded agency, which provides support and incentives to entrepreneurs across different divisions like technological infrastructure, international collaboration, and societal challenges. The reverse innovation model is used, whereby organizations are encouraged to pitch real issues to entrepreneurs, and these entrepreneurs come to solutions by “understanding the challenge first, and then working backwards…[t]his promotes the formation of joint ventures (sometimes between competing firms) to address them.”  

Overall, the takeaway is that government-led initiatives signaled confidence to investors and laid the groundwork for a venture capital friendly environment that both corporations and research institutions were able to participate in. For Canada to break through as a powerhouse in innovation and remain competitive on a global scale, we need thoughtful government-led initiatives that promote innovation across industries.

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Author

Viewpoint Research Team

Why Do Businesses Fail, And How Not To Be a Victim

Around 20 percent of small businesses fail within their first year, with roughly 50 percent failing by the end of their fifth year. What makes these statistics interesting is that despite shifting economic factors, business failure rates remain relatively consistent. After surveying 101 failed startup businesses, a recent analysis revealed that 42 percent reported that the main reason for their failure was a lack of marketability. Businesses fail when they are not solving a marketable problem, or, “not solving a large enough problem that could be universally served with a scalable solution.” But what causes this so called lack of marketability? 
 
A business’s marketability is directly tied to its adaptability - its willingness to alter its models and operations in order to keep up in today’s rapidly changing and unpredictable global environment. Marketability also relates to the way in which a business balances its forces of exploration and exploitation, with exploration referring to the search for knowledge and innovation, and exploitation referring to capitalizing and expanding upon these new ideas found through the exploration process. Too much exploration can lead to a business becoming obsolete, while too much exploitation can result in a business falling behind the technological curve and losing its competitiveness.  
 
A good example of too much exploitation can be seen in the downfall of Sears due to its refusal to innovate and change its business model, ultimately leading to the end of Sears. At its peak in 1965, Sears was worth $92.1 billion in today’s money. That same year, its sales were 1 percent of the entire U.S. economy, with two-thirds of Americans shopping there in any given quarter and half the nation’s households owning a Sears credit card. Now, more than 50 years later, Sears has been fighting a losing battle against insolvency and erasure. Despite having the skills and resources necessary to adapt to the world of e-commerce, Sears lacked the foresight to anticipate and the willingness to adapt. This behaviour is often attributed to the “success trap”, in which companies stop exploring once they have reached a certain level of success, turning to exploitation - “becoming less innovative as they become more competent.” 
 
In contrast, successful businesses are those that strike a balance between exploration and exploitation, adapting to market changes by adjusting their balance accordingly. This balance can be seen in the incredible story of Viciki Hollub, the first female CEO of a major international oil company, and how she managed to turn around a company that had lost $1 billion in 2016 to a profit of $4.1 billion in 2018. Despite intense pressure from shareholders, Hollub’s company, Occidental Petroleum (Oxy), beat out Chevron to acquire Anardarko Petroleum for $38 billion. In addition to the dramatic Anardarko deal, Hollub has also proven herself committed to exploration, pledging to make Oxy carbon neutral through carbon capture technology. While Oxy’s investment in a carbon-neutral future may seem at odds with its recent deal, the balance between exploitation and exploration that Hollub has struck will serve the company’s marketability well in the long-term. By investing in exploration as well as exploitation, under Hollub’s leadership, Oxy is securing a social license and, “regaining society’s trust to operate with the approval of employees, shareholders, and the broader public”. 

Ultimately, the companies that succeed in 2020s will be those that prioritize learning and innovation: “Companies don’t fail because of changes in the environment, they fail because their leaders are either unwilling or incapable of dealing with said change.” 

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Author

Viewpoint Research Team