Canada’s new energy era
Can we add real value to our resource base? writes Andrew Leach.
Canada has a long history of competitiveness in manufacturing: economic growth underpinned by cheap electricity and a productive labour force. Today, this narrative is being turned upside-down as a new story of growth emerges.
In the decades to come, our manufacturing and processing skills will determine the value of our energy resources and our role in global energy markets. We are entering a new era of manufacturing energy and the key question is not whether we should have more manufacturing and less resource production, but whether we can add real value to our resource base with low-cost manufacturing and processing. If not, we will strand significant resource wealth.
The era of manufacturing energy in Canada will likely be defined initially by the success (or lack thereof) of two hydrocarbon industries: oilsands and liquefied natural gas. Both of these industries differ substantially from the traditional resource industry — much of the capital deployed in each case looks more like manufacturing than drilling for oil.
Canada’s oilsands resource is immense: two trillion barrels, of which 10-15 per cent is classified as recoverable. Transforming this resource into usable commodities requires substantial inputs of capital, labour, and energy. While oilsands production is increasing, processing costs and the costs of new facilities have increased dramatically and, despite a doubling of oil prices, production is below what was forecast for today a decade ago. The wealth we extract from the oilsands resource will be determined by our ability to cheaply manufacture usable energy from it. Furthermore, the environmental pressures on oilsands will only wane with more productive use of energy and water.
As with oilsands, the value of our natural gas resources will be based on producers’ ability to sell to global markets. This will only occur via cost-effective liquefaction facilities, which add to the value brought by natural gas processing and liquids extraction businesses. As with oilsands, there is much more to the supply chain than the rip-and-ship label applied to resource exports by
Canada’s history has seen us rely on cheap energy and a skilled labour force.
some critics — it’s a manufacturing business as much as anything else.
While I am framing this argument principally in terms of hydrocarbons, the logic extends to the production and installation of renewable energy components, to renewable fuels and energy storage, and even to the automation of energy-using devices. With wind and solar energy, the fuel is free for the taking, renewable, and in practical terms inexhaustible. As with hydrocarbon energy, success in renewables will not come simply to those with the resources, but to those who can most effectively create the means to convert those resources to useful energy.
Canada relied on cheap energy and a skilled labour force to build a manufacturing-based economy. The tables are now turned — Canada is blessed with resources, but getting those resources to market in usable form is going to depend on our ability to manufacture energy. This is not a case to force more processing in Canada — it is quite the opposite. The largest barrier to realizing Canada’s resource promise is the cost of extracting and processing those resources and moving them to world markets. It is hardly a solution to that problem to demand more costly processing.
The wealth we derive from our resources depends on our ability to both extract and to process these resources. The more cost-effectively we are able to do so, the more value Canada will realize from its energy resources in an era of manufacturing energy.