Is the oil and gas industry ploughing enough of its record profits back into research and development? In a word, no.
I took part in a Calgary workshop last week, sponsored by Petroleum Technology Alliance Canada (PTAC), aimed at trying to answer why that’s the case and coming up with solutions.
PTAC, with the help of consulting firm Deep Blue Associates Inc., is trying to identify why the upstream oil and gas industry, which does the exploring, drilling and producing of conventional oil and gas, doesn’t invest more in new and emerging environmental technologies.
These are technologies that could reduce companies’ natural gas fuel and electricity costs, clean up pollution (such as methane gas leaking and oil-contaminated water seeping from thousands of wellheads across Alberta), and make operations safer and more efficient overall.
Many of these technologies, typically developed by small, entrepreneurial firms, have been shown to work well. Yet it’s easier to pull a drilling rig through boggy muskeg than it is to get the innovations adopted by the industry.
PTAC found that when it comes to deploying new environmental technologies, in a range between 1 and 7 (with 1 representing “little or no deployment” and 7 being “maximum possible deployment”), the best the oilpatch can do is an average 3.4. And there were no 7s.
So why is the industry doing so poorly in tapping innovation?
An ongoing online survey by PTAC has found that the top barrier to deploying environmental technologies is that companies see investing in them as a cost rather than as a saving.
The second-most significant barrier is that industry and the financial markets have a short-term focus. In contrast, the payback time for using many of the new technologies is longer term.
The third-biggest barrier is that companies are reluctant to pay the upfront costs of the technologies.
PTAC identified many other barriers that play a role. But I think there’s a more systemic problem.
In the breakout discussion group I was in with participants from the oil and gas sector, environmental industry and government, I pointed out that the oilpatch can’t be successful in R&D if it doesn’t put enough money into it in the first place.
Another member in our group said he thought the oilpatch had begun to reinvest in research, but that the real problem was a failure to take the new ideas out of the laboratory and into the field and commercialize them. But I left unconvinced that oil and gas companies are reinvesting sufficiently in the basic research and development of new technologies, let alone the commercialization stage.
Now there’s a new report that backs up my suspicions.
Corporate spending on R&D in Canada declined in fiscal year 2003 – for the second year in a row, according to a report on Canada’s top 100 corporate R&D spenders by Research Infosource Inc., a division of The Impact Group in Toronto.
Canada’s top R&D companies invested almost $10.6 billion in research and development activities in 2003. But that was down 5.1 per cent from 2002, in which R&D spending also dropped from the previous year.
The two-year decline comes on the heels of five straight years (1996 to 2001) of spending increases, Research Infosource notes.
Petro-Canada Inc. was the only oil and gas company in the top 100 corporate R&D spenders that significantly boosted spending in this area in 2003 – by more than 100 per cent.
No oil and gas company made it into the top 30, let alone the top 10.
Imperial Oil Ltd. was the highest-ranked oil and gas firm, at No. 31. Yet its R&D investment was also miserly – a total of $63 million compared with revenues of more than $19 billion.
Calgary-based EnCana Corp., Canada’s largest natural gas producer, ranked No. 36. It spent just $56 million of its more than $14.3 billion earnings on R&D.
The year ahead is also shaping up to be another disappointment for R&D spending, Research Infosource says. “Corporate profits have increased for eight of the nine last quarters, but CEOs appear not to be reinvesting in their companies’ future products, processes and service streams through R&D.”
It is clear that the ambitious target set by the federal government in 2002 – that Canada should move from 15th to fifth position globally in research spending by 2010 – will fall woefully short. The oilpatch shares a good deal of the responsibility for the country not making that target.
Says Research Infosource: “Companies and the government each need to get back to the drawing board to figure out where they want to be in the future, and how they’re going to get there.”
(To participate in the PTAC survey on barriers to environmental technologies, and find out how your company can be part of the solution rather than part of the problem, visit www.ptac.org)
Qu’est-ce Que C’est ‘Nimby’?
Enbridge Inc.’s plan to import liquefied natural gas (LNG) is running into the NIMBY (not-in-my-backyard) syndrome in Quebec.
Maybe the Calgary-based company needs to take a lesson from Anadarko Canada Corp. on how to build an LNG project.
Community, government, labour and industry leaders gathered last week to celebrate the construction start on Anadarko’s $400-million (US) LNG terminal in the Point Tupper Industrial Park in Cape Breton, N.S.
The terminal, capable of processing up to one billion cubic feet per day of LNG, is expected to be complete by late 2007 and will deliver natural gas to markets in Eastern Canada and the northeastern U.S.
In contrast, the $700-million (Cdn) LNG terminal proposed by Enbridge and its partners on the St. Lawrence River across from Quebec City is running into fierce local opposition.
There is a big difference between the two projects.
Anadarko, before going public with where the terminal would be located, spent months on the ground in the community, educating people about LNG and gathering support.
Enbridge and its partners announced their site in the spring, yet only last week started mailing information packages to thousands of residents in the communities of Beaumont and Lévis telling them who their new neighbour would be.
The clumsy, after-the-fact attempt at public consultation will sink this terminal – at least at this site – long before one LNG tanker hits the water.
Gas Rates Hard to Swallow
Natural gas rates to Alberta households are poised to jump by 60 per cent this month.
It begs the question: Why?
Why, in the province where the gas is produced, doesn’t the government have a long-range energy strategy to protect Albertans from this seasonal shock to their wallets?
And I’m not talking about doling out rebates just in time for the provincial election.
Direct Energy, which bought the residential natural gas retail business from Atco in May, blames the need for the higher rates on soaring world natural gas prices, which have climbed more than 69 per cent this month.
But gas producers are storing massive volumes of natural gas underground in the province, typically in huge natural salt caverns and depleted reservoirs designed to hold the fuel.
This storage system suits the companies fine. They sit on the gas, wait for the highest prices and then pipeline half of what’s produced here across the border to heat homes and businesses in the U.S.
But shouldn’t Alberta homeowners also benefit from a system that makes the most of a resource they own?
Instead of the short-term, Band-Aid solution of rebates, the government should invest some of its billions in oil and gas revenues in the storage system.
Keep more of the gas at home, in a provincial storage system, as a cushion against volatile prices for a commodity that’s only going to get more expensive.
(Mark Lowey can be reached at mark@businessedge.ca)
