At a time when Canadian inter-provincial relations regarding oil and natural gas are fractious, the proposition for a national brand for energy that includes oil and natural gas might seem pie-in-the-sky. Indeed, the views of certain provincial governments – Alberta, B.C. and Quebec in particular – are deeply divided on Canada’s energy future. While one province needs and advocates increased exploration, production and national integration, others vehemently oppose it. Nonetheless, a Canadian brand for energy including oil and natural gas is exactly what the Petroleum Services Association of Canada (PSAC) is calling for.
“First, it would help us get access to and grow the international markets,” explains Scott Van Vliet, current chair of PSAC. Van Vliet is also the founder and CEO of Environmental Refuelling Systems Inc. (ERS), a Calgary-based fuel management company focused on large, remote projects. “We also know that resource development and environmental leadership are inseparable; so how do we produce this responsible, safe and sustainable product and then in turn support the innovation, growth and jobs in – particularly – the middle class, from coast to coast to coast?”
Growth is, understandably, what PSAC wants and needs, given the last two-and-a-half years of downturn. The latest oil-price drop and resultant recession hurt the petroleum service sector as it did the producers it serves. For example, PSAC’s membership – approximately 200 companies from across Canada ranging from pressure pumpers to manufacturers to water haulers – dropped by 25 per cent as a result of budget constraints, mergers and acquisitions, and insolvencies.
“There has been a lot of carnage,” Van Vliet admits of the sector which employs approximately 640,000 blue-collar workers across Canada. “And a lot of consolidation. I don’t think the damage is completely done. There are still companies treading a fine line, even though things are improving now.”
For many of the surviving companies, including his own, Van Vliet says the latest downturn was an opportunity to course-correct. “It forces everybody to become really efficient,” he reflects. “You have to break your business down to the core and assess every piece because there’s no room left to support the waste or inefficiency which you can sometimes get away with when times are really good.”
For its part, ERS went from 130 to 65 employees at the bottom of the market. “We had to rethink and redefine who we were and find new markets for our product and services,” Van Vliet explains. “It’s been an absolute complete overhaul from front to back.
“The bad side of [the downturn] is that there isn’t margin right now in the sector to replace equipment that needs to be replaced,” he continues. “There isn’t near the R&D budget that is needed to continue to innovate, create new technology, new processes, intellectual property – all that stuff tends to get put on hold in a difficult economic climate. We definitely see some stagnation in the industry.”
Depressed prices – exacerbated by steep discounts for western Canadian crude – hamper investment by producers, which in turn negatively impacts the service sector. “It’s a dramatic chain reaction,” says Van Vliet.
“And a lot of that is due to market access,” he laments. “We’ve got one market – the U.S. – and they can dictate to us the price we’re going to get for our product. There’s no competition and it’s a huge issue.”
Worldwide demand, he adds, continues to rise every single year. “The consuming nations of the world desperately need natural resources to solve some of their energy, poverty and pollution issues,” he explains. “China and India are both great examples of that – they want desperately to have access to our natural resources, and are willing to spend billions of dollars investing in the sector if they knew that those resources could actually reach their market. And right now they cannot.”
The first priority, Van Vliet says, is to get our commodities offshore to world markets. “Once we can demonstrate that Canada is able to get infrastructure projects complete and access to world markets, I think that the investment will come back in spades into the oilpatch.”
Market access issues aside, Van Vliet is confident in the commodity cycle and believes prices will eventually rise. “We’re on that long, slow climb out of the ditch,” he says. “We’re going to see supplies tighten up and a shortage of product because we haven’t been reinvesting worldwide in exploration to the levels that we need to maintain our supplies.”
He argues that relations between producers and the service sector would benefit from an overhaul. “So that when commodity prices drop, you don’t see contracts torn up and thrown out the windows and service companies left to fend for themselves after securing long-term contracts. And conversely, when markets go through the roof, you don’t see the service companies gouging and taking advantage of the opportunity because the industry is short services.”
Though the sector is far from this reality, it’s a vision Van Vliet and PSAC advocate. It is also in line with PSAC’s call to create a Canadian brand for energy. “As a nation, as an industry, as a government, we need to have resource development. We are a resource-based economy, and we have got to get our resources to market; it doesn’t matter which resource you’re talking about. That means we must have access to the free market.”
To maintain standards of Canadian living – including universal health care, education and infrastructure – government tax revenues from resource development are unquestionably necessary. “It’s an absolute must if we want to maintain ourselves as a developed, First World nation. Anything less won’t do.”
For Canada’s indigenous communities also, energy development presents ample opportunity. “The resource sector is the single-largest employer of high-paying indigenous jobs,” Van Vliet explains. “We work hand-in-hand with indigenous communities across the country. It’s a huge part of our business. I wouldn’t say we are perfect at it by any stretch of the imagination, but there’s a huge willingness to grow and learn and build those relationships and try and help communities prosper and benefit from resource development and extraction.”
While he’s optimistic that in time, market forces will prevail, Van Vliet recognizes the many headwinds facing Canada’s oil and gas industry. Foremost among these are regulatory and legislative burdens. For example, he highlights the approval process for infrastructure projects such as pipelines and climate change policies including methane reduction regulations as particularly troublesome. Another key issue for PSAC members is the lack of harmonization of regulations across the western provinces.
“These impact costs and competitiveness and ultimately capital investment by our customers, the E&P companies,” Van Vliet explains. “It makes us uncompetitive to other jurisdictions and as a result, we’re seeing a tremendous carbon leakage right now.”
This carbon leakage includes the import, into Canada, of over 750,000 bbls/day of oil from foreign sources with lower standards of health, safety and environmental protection and with higher GHG intensity. It also includes the export of capital, equipment and manpower to other producing jurisdictions, including the Middle East, Venezuela, Algeria and the U.S. For example, approximately 60 per cent of PSAC’s roughly 200 members work internationally as well as within Canada. “I’ve talked to a number of companies that are operating in those kinds of jurisdictions with capital from Canada – it just makes me shake my head,” Van Vliet laments. “How could their ROI be better than in Canada, where we pride ourselves as being one of the best in the world?”
In addition to regulatory and legislative burdens, Van Vliet highlights the opposition, quite vocal in some jurisdictions, to resource development in Canada. “Many of the naysayers have hidden alternative agendas, disguising themselves as environmentally-concerned,” he decries. “Environmental concerns are all of our concerns, and there isn’t anybody that’s operating in Canada who doesn’t have respect for the environment.”
He references the work of Vancouver’s Vivian Krause, who has investigated organizations such as Leadnow, their funding and mandates, and testified before a Senate committee on her findings. “She has found that in excess of $800 million has come in from largely producing nations to stop our resource development,” Van Vliet says.
Reasonability, he believes, will prevail, and he sees the conversation turning within Canada. “There’s a very loud vocal minority that are controlling the agenda,” he says. “But the majority of Canadians are for resource development and access to markets. They just want to know that it’s done safely, that we have a robust regulatory system in place, and that we’re not polluting and making problems as we go.”
He’s also encouraged by the federal government’s public support. “When we met with Prime Minister Trudeau shortly after he got into office he clearly understood that one of the roles of a prime minister is to help ensure that our natural resources get to market,” Van Vliet says. “I think he understands it and I’m glad to see Minister Carr and others stepping up in the fight with B.C.”
A Canadian brand for energy that includes oil and gas, PSAC believes, will be integral to Canada’s future energy security. “We know that our responsibly-developed oil and natural gas, if gone to the world markets, will have a net reduction of global GHG emissions, while generating wealth and opportunity for all Canadians,” Van Vliet enthuses. “There are so many reasons why we think promoting a Canadian brand of energy has a lot of value, both at home and abroad.”
Despite the headwinds, Van Vliet sees a brighter future ahead, for PSAC, for Canada’s energy sector and for the country as a whole – the alternative is unacceptable. “There are people out there trying to turn Canada into a Third World country,” he says with conviction. “I cowboyed for many years – lived with no electricity, no natural gas, and I can do it again. But there are a lot of people in this country who would not fare well without our energy resources, including oil and natural gas. We’ve got to stand up and fight!”