Alberta Needs a Diversification Plan as the Global Energy Transition Accelerates

The alarm bells are ringing for the Alberta oil and gas industry. Unfortunately, Danielle Smith has her fingers in her ears. Instead of listening to the International Energy Agency’s (IEA’s) warning about peak oil demand by 2030, she demonizes the IEA as a “political activist organization.”

Alberta urgently needs an energy diversification plan. The Alberta government has shirked its responsibility to create a plan to attract investment and job creation, so the Alberta Federation of Labour (AFL) created one.

New technology disrupts mature business models all the time. Sometimes the incumbents can re-engineer their companies or pivot to a different business model, but sometimes they cannot.

Take the auto industry.

The sector has accepted that electric vehicles (EVs) are its future. Most manufacturers are planning to phase out internal combustion engines by 2030 or 2035.

But the most successful EV-makers are newcomers like Tesla and China’s BYD, while many legacy automakers are struggling. Volkswagen stumbled early with EV software bugs but seems to have righted the ship. Ford and General Motors, however, “pushed back near-term EV targets in the second half of [2023], citing less consumer demand for their plug-in models than expected.”

The global oil and gas industry is about to be similarly disrupted and it will be EVs that lead the charge. Global oil demand increased to over 102 million barrels a day in 2023, and road transportation fuel accounts for almost half of that total.

In 2022, electric transportation – two and three wheelers, cars, trucks, vans, and buses – displaced 1.5 million barrels per day of oil demand, according to BloombergNEF. The global energy research firm expects EVs to displace “over 20 million barrels per day by 2040”.

Premier Smith and the Alberta oil companies don’t accept this economic modelling from BloombergNEF. Instead, they support the OPEC report that forecasts oil consumption expansion to 116 million barrels per day or more by 2045, then a long plateau in demand, and perhaps no decline at all, or a small one at best. This is the slow transition argument.

Like BloombergNEF and other private forecasters, the IEA has marshalled evidence for the fast transition argument. Premier Smith says the IEA has never gotten a forecast right. Ironically, the truth is that IEA forecasters consistently underestimate the speed at which clean energy technologies like wind, solar, batteries, and EVs are spreading.

Another truth is that many other reputable forecasters, like BloombergNEF and Rystad, are far closer to the IEA’s view of the energy transition than OPEC’s.

Premier Smith and the UCP government do not have a plan to diversify Alberta’s energy economy at the pace and scale that’s needed. Only the AFL has a blueprint for how Alberta should adapt to the energy transition.

The AFL’s energy diversification plan asserts that an entrepreneurial government armed with modern industrial policies can build new domestic markets for traditional oil and gas by pivoting to manufacturing advanced materials like carbon fibre.

New industries based on low-emissions fuels like hydrogen and sustainable aviation fuel already have a toe hold in Alberta. Growing these industries are two more proposals in the AFL’s plan.

Remember former premier Peter Lougheed’s greatest lesson: when it comes to oil and gas, think like owners. The oil companies don’t own the resource, Albertans do.

Thinking like owners means building Alberta’s new diversified energy economy on the foundation of the existing one.