Climate change – Will the Contrarian or the Conformist strategy survive?
The essay explores steps taken by the Canadian oil sands company Suncor Energy to address climate change concerns in an environment of churn in terms of politics, oil prices and pipeline approvals. It also questions whether there are other industries that need the same amount of scrutiny as the tar sands has received.
Climate change, despite other ongoing challenges such as the oil downturn, political changes in the US and Canada, pipeline approvals [1], is a concern that remains at the forefront for the Canadian oil sands. With increasing reports linking greenhouse gas (especially carbon dioxide) emissions to climate change [2], companies like Suncor Energy, the largest bitumen producer in the world [3], have no option but to be thoughtful in their positioning on climate change.
The new normal
Suncor Energy has taken the stand of stating that as Canada’s largest energy company, it has a significant role to play in the energy discussion and strategies. The company has embraced carbon taxing and committed to reducing its green house gas (GHG) emissions by 30% by 2030 in accordance with the Paris agreement reached in 2016. Suncor is lowering cost and carbon intensity across its supply chain by improving energy efficiency in existing systems, transitioning to co-generation facilities for less wastage, piloting and testing new technologies to improve oil sands processing and extraction, investing in renewable projects, founding and collaborating at the industry level to share technologies through Canada’s Oil Sands Innovation Alliance (COSIA), investing CAD $200 million in research and technology, and encouraging entrepreneurs to help bring to light converting emissions to useful products [4].
In the long term, the company is monitoring global demand and supply mix, political and economic indicators, climate data and policy trends, and consumer trends in transportation to identify critical shifts and is positioning itself to be able to respond in different scenarios by ensuring the right supply chain/infrastructure is in place.
Furthering the strategy
Suncor energy has responded to the external changing environment by confirming. The steps that the company’s management should also consider taking include:
Digitization
Suncor has been investing on autonomous haul trucks and has already tested a small number in its open-pit mine. Introduction of digitization helps improve productivity, cycle time and throughput while lowering costs and wastage. Since oil sands projects function as manufacturing facilities as production does not rapidly peak or decline for a number of years, Suncor should continue its efforts and aim for a fully automated operational facility.
Educating the masses
The industry and company lack an ability to communicate the progress it has made in embracing reduction in carbon emissions in its supply chain to the society. Often taunted as tar sands, most people don’t know that oil sands only make up 9.3 percent of Canada’s emissions, 0.1 percent of global emissions [5] and yet are under scrutiny more than coal industry for example. Coal industry in the US alone produces 26 times more GHG emissions than Canadian oil sands.
The company needs to do a better job at communicating the successes and work in progress as supply chains do not function in isolation. Perception and reality are often influencers on a company’s operations. This could also help bring attention to other industries that need to catch up and help towards the ultimate goal of being sustainable as a world.
It also needs to start leveraging traditional and social media to reach the masses and share technologies such as ESEIEH which uses radio frequency energy and solvent in wells configured in horizontal pairs much like a Steam assisted gravity drainage (SAGD) operation.
One of the challenges of SAGD is that the reservoir is typically heated to get the bitumen to flow, consuming a significant amount of natural gas, and necessitating large amounts of water treatment for steam production. ESEIEH reduces energy requirements by 75% and hence, GHG emissions [6].
Attracting innovation
Suncor has energy expertise and capital to invest in the future of energy, and bringing in the right people to move it in the right direction is a mandatory investment that needs to be added to the goals to drive innovation in its supply chain.
The question remains whether it is a good strategy from a business perspective?
President Donald Trump announced earlier this year that US will be pulling out of the Paris Climate change agreement as it would undermine the US economy and put US businesses at a disadvantage. US is the only country to reject the climate accord. Of the major fossil fuels, coal is by far the biggest climate change culprit. In 2014, coal accounted for 46 percent of the globe’s carbon dioxide emissions, but was only 29 percent of its energy supply, according to the International Energy Agency [7]. Trump has promised to revive coal by rolling back environmental regulations and moved to repeal Obama-era curbs on carbon emissions from power plants.
Could confirming or non-confirming be hurtful as the world moves towards carbon efficient energy sources?
Do you think that Trump’s contrarian or the Oil sands conformist approach will prevail for businesses and environment?
Word count: 793
Sources:
[1] Suncor and the Future of Oil Sands. Hbrorg. 2017. Available at: https://hbr.org/product/Suncor-and-the-Future-of-/an/716065-PDF-ENG. Accessed November 15, 2017.
[2] Hernandez D. U.S. Climate Report Says Human Activity Will Determine Pace of Climate Change. WSJ. 2017. Available at: https://www.wsj.com/articles/u-s-climate-report-says-human-activity-will-determine-pace-of-climate-change-1509749436. Accessed November 15, 2017.
[3] About Us – Suncor Energy. Suncorcom. 2017. Available at: http://www.suncor.com/about-us. Accessed November 15, 2017.
[4] GHG Goal – Sustainability –Suncor. Suncorcom. 2017. Available at: http://www.suncor.com/sustainability/ghg-goal. Accessed November 15, 2017.
[5] Natural Resources Canada. Nrcangcca. 2017. Available at: https://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/pdf/oilsands-sablesbitumineux/15-0513%20Oil%20Sands%20-%20GHG%20Emissions_us_e.pdf. Accessed November 15, 2017.
[6] Technology Development | 2016 Sustainability | Suncor. Suncor’s 2016 Report on Sustainability. 2017. Available at: http://sustainability.suncor.com/2016/en/vision/technology-development.aspx#expand-556. Accessed November 15, 2017.
[7] US and them: America, the elephant in room at climate talks. WSJ. 2017. Available at: https://www.wsj.com/articles/APdce488c4cf59493ab7a9bcb813b3afdc. Accessed November 15, 2017.
Cover image: Miningcom. 2017. Available at: http://www.mining.com/wp-content/uploads/2016/09/canada-oks-three-new-oil-sands-projects.jpg. Accessed November 15, 2017.
My optimistic view in this topic is that Trump’s and other contrarian’s position will fade away very rapidly in the coming years. Inevitably, contrarians will hit a wall with climate change and I hope that it will be in the near future. In the meanwhile I also hope that companies with high greenhouse emissions not become conformists and relax their processes and standards, otherwise they will be also hitting a bigger wall on new regulations to try to overcome the damage they would have been created instead.
Its was very interesting to learn how the ESEIEH technology enabled the company to reduce energy requirements by 75%. This is a great example of how new standards can really push companies to invest on innovation and achieve great improvements. Contrary to governments that will be in the office for only 4 years (sometimes even less) those technologies are assets that the companies will keep with them and, on the long run, will definitely become a significant competitive advantage.
For that reason, I believe that companies that fail to recognize how important a sustainable operation is and continue to operate under old standards (conformists) will ultimately be held accountable by its customers, competitors, or even its own community. Lack of governmental support is likely to slow down the progress, but I do not believe that it will be enough to deter it. A signal of that trend is that despite Donald Trump’s efforts to revive the coal industry, the coal’s industry long-term growth and hiring prospects remain weak [1].
[1] http://www.independent.co.uk/news/world/americas/donald-trump-us-coal-industry-bleak-future-hiring-growth-prospects-energy-environment-rick-perry-epa-a8051886.html
I personally believe that economics will trump Trump’s stance on the Paris Climate Accord. Natural gas continues to be a more economic source of energy and also benefits from a lower levelized cost of energy. Power generation companies are switching more to natural gas for this reason, so despite Trump’s actions we will likely see continued declines in energy production from coal.
One question I have for you on the statistics you provided is how they measure on a per energy production basis. While I think assessing statistics of CO2 generation holistically is important, I think we also have to look at it on a basis of how much energy is created from that CO2. As you stated, the coal industry in the US produces 26 times more GHG emissions than Canadian oil sands, but how much energy do each of those sources generate. When you normalize these based on a per energy unit basis, you get a more realistic comparison of true emissions characteristics. That being said, I have no doubt that petroleum products, including oil sands, likely produce less emissions on a per energy unit basis than coal; but I would be interested to see the numbers (if you can find them).
All-in-all, I’m glad to see that companies like Suncor are taking their charge to lower emissions seriously, and are applying new innovations to do so! Thanks for sharing!
Extremely interesting read on how oil companies themselves are responding to climate change. As others wrote, I am a little curious about the motivations–I am willing to concede that motivations may include humanitarian, climate reasons, but I suspect there is a deeper business proposition buried in this data somewhere.
On that note, I would be extremely interested to learn more about the economics of the changes you highlight. You mention a 75% decrease in energy used for heating bitumen, but how does that translate to a dollar or GHG emissions number? What is the overall cost of the changes, eg, in autonomous vehicle technology? I wonder if there is an opportunity there to engage with autonomous vehicle researchers to develop systems tailored to the oil industry’s needs.
More generally, though, at this point it seems that conformism is not only the default option but possibly necessary–public backlash over oil projects continues to grow (eg, recent pipeline demonstrations), and although the US lags in implementation the larger perception battle has already turned against oil companies. I wonder how successful a social media campaign can be in that environment, and if people will find it believable. Regrettably I have no better recommendation.
Very interesting read, thank you!