Canadian Energy Podcast Series
The Energy Exchange |
Part 4: The pragmatic middle

Jason: Hi, I'm Jason Hatcher, managing principal at Navigator's Calgary office. 

Lorne: And I'm Lorne Rollheiser, a partner with Gowling WLG in Calgary.

Jason: Welcome to the final episode of The Energy Exchange.  A podcast where Lorne and I explore the energy transition in Canada and what it means for our industries, our climate change goals and for our future. On our final episode we've invited Kevin Birn, Vice-President, Commodity Insights, GHG Emissions Coordination and Chief Analyst Canadian Oil Markets at S&P Global. He helped provide some perspective on the energy industry and what we can expect to see in the future. Kevin is responsible for a team of greenhouse gas experts, tasked with advancing GHG emissions quantification and ensuring consistency in estimation across S&P's global commodity insights businesses. In this role Kevin provides strategic guidance on energy related GHG emissions, strategy and research. Kevin is an established thought leader on the Canadian oil market and serves as the Chief Analyst for the Canadian oil market. Welcome, Kevin. It's great to have you.

Kevin: Thanks for having me.

Jason: So, Kevin, you've been doing a whole bunch of media lately and, in fact, I think you had an op ed in the last few weeks here in Calgary. I would love to hear from your vantage point, with obviously the horrible events that are unfolding in the Ukraine and Eastern Europe and the implications on supply, maybe just off the top here give us a lay of the land that you see. What's changed in the last couple of months and what are the implications for this new dialogue around energy security and how it's going to impact Canadian oil sands?

Kevin: Sure. I will try. I don't think we're in months measuring this yet. We're still in weeks. I think you referenced the point, which is the one why we're having this conversation, is this really significant change in global behaviour with Russia invading Ukraine and realization from most countries that energy security really does matter. I think this is really coming to the head because Russia, and I hate these terms, but Russia, for all definitions, is an energy superpower. It is the top tier global oil producer. It's the single largest source of natural gas used in Europe. So there's this concern about the stability of supply. Back into the equation, in particular, is security supply coming from Russia and the ability to continue to purchase oil and gas from Russia and a desire not to purchase, frankly, oil and gas from Russia.

Lorne: Kevin, I think those are the two paths I kind of want to build out a little bit because the things I've been hearing a lot of are, I'll use the phrase bemoaning, of an under investment in oil, natural gas and energy infrastructure but I think that's just as prominent is a bemoaning of inadequate progress being made on renewables. I think there's a lot of second guessing, I suppose, about what we have or haven't been doing in respect of energy policy, locally and nationally and internationally. I'm a little curious about what you're hearing, or what your views are, in respect of the "either/or" and "and" associated with this. What I mean when I say that is I think the realization is short term, it's got to be oil and gas, fossil fuels, but even saying that is an odd thing to say in that it is a capital intensive business which requires a lot of planning and a lot of work to change the supply dynamics, and if that's the short term and the green transition is the long term, that is even more complex because how do you sort of invest now in a reasonable and responsible way, down both these paths, while trying to solve this problem at the same time. It's sort of trying to change the tire while the car's moving down the road a little bit and I'm curious if you're hearing sort of how to balance these two paths with people you're discussing this with.

Kevin: You very rightly point out that there is a disconnect and I typically call it a cognitive dishonestness about transition. There is a disconnect about the fact that our world remains very much hydrocarbon power. If I look out your window, and you look out my window, you see a car sitting out there that's an internal combustion engine. That's 99%25 of the cars out there. There's a billion of them out there. My home runs on natural gas. All those things that didn't change. It hasn't changed over the last 3 years. There certainly has been a material acceleration in net zero ambition and a mission for energy transition but all the infrastructure is still very much fossil powered. That's what the shock is hitting us, is hitting us in the fossil fuel sector. Is seeing these escalating energy crisis and you've got one camp going, "Aha! I told you. These things are important. We should have been paying attention to them.", and the other camp going, "Aha! I know I told you we should be getting off them and we'll be more energy secure with renewables." They're both right, to some degree, but there's a temporal gap between being right here. In the here and now we need those things to basically avoid, or ensure, that we have adequacy in a formal price. High energy prices, even at these levels people may think they're great for the upstream sector, that's the perception they're going to have, really great bottom lines, they're not great in the real grand scheme of things because they cause inflation. Everything we use and everything we consume, from the apple in the grocery store to even the water that comes through my pipe, uses energy. So high energy prices increase the cost of everything. We live in a very privileged part of the world. Where we have a little bit more disposable income than a lot of other people, now that's not universally true about everybody but you think about a developing nation, you just have less to do more with so it can really crimp economic growth and all those other things that you need to get these economies going, coming out of COVID as well. The other side of this is, and we're seeing this now, is a doubling down on transition. Particularly from Europe as they see a need to get away from their dependency on Russia. So energy transition isn't going away. Parts of the world are going to accelerate. Other parts are not necessarily going to change. Certainly the US is going to be looking to their upstream sector to produce more oil and I think we're seeing that as well. But in Europe, doubling down on transition to try to bring forward those renewables that would reduce the dependence on Russia, but they still need hydrocarbons today.

Jason: Now there's a couple of things there I'd like to unpack, Kevin, that you struck on that really jumped out at me. When you talk about the notion of this increase in oil price I think there'll be a surprise in the rest of Canada, outside of where we live in Alberta and noticeably associated with the industry, that there isn't a great celebration. People aren't here like Scrooge McDuck counting their dollar bills. In fact there's great concern about the price of oil and concern that it's getting to high. It kind of goes to this idea that we've talked a little bit about in our podcast about how well the oil and gas sector in Canada is telling their story, both nationally here and internationally abroad. The other thing I think that Canadians would find surprising is just how much dialogue there is around transition and transformation. Those are slightly maybe different things but we can get into that as well. But you go down to one of the largest oil shows and conferences in the world, at CERAWeek a number of weeks ago in Houston, the theme and the agenda could have been at an environmental conference or at the Globe Conference that we'll see coming up in Vancouver in a couple of weeks, I'm not sure Canadians appreciate what the focus of this industry is on right now and it is about managing that supply. So we manage the cost but also on that transition.

Kevin: I think you're right. I think one thing that we saw in the last 36 months is really an acceleration in interest in the broader society. A lot of people have pointed to government for energy transition policies. But society, first of all governments are a manifestation of the people, generally speaking, there's a few countries we talked about earlier, but that may not always be the case, but in democracies that's certainly the case, and the government's are acting on societal pressures and interests. That's true in the oil and gas sector. What we see is, and this is why you see so much interest around words like 'disclosure' and 'greenhouse gas intensity production', is because what's happening is the upstream sector, and the oil and gas value chain as a whole, is being asked to compete on carbon. We now want to make choices in terms of it's almost like putting the calorie count on the side of a Coke bottle. People want to make those choices in the fuels that they're going to use today, and if that's the case, if they're going to be asked to clean on carbon the upstream sector, and the oil and gas companies generally, are some of the most competitive companies in the planet. They're doubling down and figuring out how we're going to improve our competitiveness on emissions, that's the imperative. So I think you rightly cite CERAWeek. That is paramount for these companies is how do we position ourselves to make realistic, pragmatic statements of ambition but also then actually deliver and execute on them and doing what society wants us to do, because we know we're going to be rated and ranked by how we perform against them. So you'll see that ... every sort of discussion when you talk about oil and gas companies, including the oil sands and oil sands have been at this for probably longer than most because there's been a heightened amount of scrutiny in the oil sands emissions profile, they have a long track record of reductions now. We can get into are they significant enough to compete or how do they compare today against others? But that's the imperative that's being handed to the oil and gas sector, and I would expect to see some dramatic changes and improvements in their mission profile, across the entire sector.

Jason: Before we jump in, Lorne, to the next question, just for some of our listeners who don't live energy, oil and gas the way maybe some of us do, when we're talking about that upstream, that's that production piece, right Kevin? Then midstream is when you ship it. That's how we get it and then you're downstream, when you talk about that, that's when you're refining it into products that we use everyday in our lives, like gasoline in our cars. But that also goes to that disconnect that you were talking about in your op ed recently, in the vernacular and how we speak to each other in Canada. How does that impact our discussions around transition?

Kevin: Canada's unique in the sense it's a major energy exporter but it's also major consumer in the planet. You get different responses from different regions in terms of what we're going through in high energy prices. In the East it's a larger importer. There isn't a similar upside revenue benefit going on in that part of the world from these prices that would be happening in Western Canada. That obviously changes your view of what these prices look like. In Western Canada we do feel the prices, you and I personally, as we see things go up. In Eastern Canada they just go up and there isn't necessarily a government being buoyed with profits. Which is what we've seen Alberta do. It's enabled them to do things, frankly, that other Provinces are not going to be able to do such as they've cut the tax at the pump to try to soften the impact of higher prices, and they're also talking about giving rebates to homes to offset some of the heating costs associated with that, and they're able to do this because they're benefitting from the high energy prices. So they're trying to blunt the impact to the consumers. That's not something that's necessarily in the same realm of possible in regions that are not energy exporters but energy consumers on the balance. You also hit on another thing. In Canada we're a major energy producer but most of what we produce isn't consumed here. Almost all of it is actually exported and it's consumed by our neighbours to the South. We've become, I think this is probably worth conversation South of the border as well as on our side of the border, we've become the United States' largest source of supply. We've been that way for a long time but we're now 60%25 of the foreign imports. That's huge. The United States became Canada's largest source supply and we've had this for about 10 years, I'd say, a very good sense of energy abundance. I think rightfully so, because we've been flushed with all forms of energy, but we haven't really been thinking hard and long about energy security until this most recent crisis really threw it in our face.

Lorne: Maybe just to pick up on energy security a bit, I think some words that I think are somewhat helpful to frame thoughts around all of this, ESG, environmental social governance has been a real touchstone for quite some time now. I think that's kind of a fuzzy, or has been somewhat of a fuzzy concept, it kind of depends who you ask and I think it's really coming into focus to greater extent where the social and governance part, environmental is pretty clear. It's carbon and emissions. I don't that's changed but what does social and governance mean? I think the stability piece of it, for social stability and inflation impacts on people, and governance/security I think are really coming to the fore. So I think we're getting a lot more benefit and, I feel like I say this every time we get together, Jason and I get together and chat, is what we want to do is talk in a realistic way about energy and I think we do that although I do try to catch myself from being overly optimistic. Some of this optimism that I think I might have is that we're going to maybe start moving past some of the finger pointing, and some of the demonization, and some of the could've/should've/would've and people are going to start getting a little more serious. With having ESG come into focus in a more practical way, based on the shock to the event in Europe, inflationary issues that we'd had before then which are being exacerbated now, and I think it's bringing home to people this finger pointing, this dithering, a lot of talk and not enough investment, it's time to put that away and it's time to get serious about doing real things. What I'm interested in hearing you provide your perspective on is how you see those conversations taking place with the people that you interact with. People that are in the industry and trying to make it run today, but also advancing industry and working on the transition that we think is coming, concurrent with our present needs.

Kevin: I think you hit on a bunch of really good points. I think I'd start by saying we touched into this early, early on about high energy prices and they're generally not good everybody. There's a sweet spot for energy prices, and then there's too low, and then there's too high. I think one thing that we didn't really talk about is the negative impacts of high energy prices, it's destabilizing. It makes it very hard for governments to maintain policy stability. When they have to try to respond to offset the costs of energy or worry about the affordability and people's quality of life. This is where I got into the definition, when I wrote about it last week, about energy security is kind of the junk word. We all use it but we don't really think about what it means to us, as individuals. I am certain a lot of people are thinking a lot about it when they go to the pump now and they see $2.00, but that isn't really the full story of energy security. It's about adequacy. So security, which we certainly have reinjected in this conversation in your ESG metrics. We're looking at that to have a more rounded out conversation about that. It's about affordability. So if we can't afford it, that's a problem. If it chews into our quality of life, it's a problem. It's also about environmental sustainability. So my view is that energy security is very much aligned with the environmental social governance metrics. It's about preserving our quality of life, both from an environmental point of view, which is we can't live without the environment, but also in the sense of balancing our needs for affordability and accessibility of energy. So we feel secure in our ability to spend money on other things, frankly, and prioritize other projects that are required. So I think those are kind of some key points. You covered quite a lot of ground in your statement there. But to your original question, the conversations we're having, I won't name the name but there's a really good politician I got to spend some time with a couple of years ago and he said, there's 20%25 that are build everything everywhere no matter what, we don't care about anything. There's 20%25 of build nothing anywhere, anytime, any place and he's like, there's the remaining 60%25 and that's who you need to target. They're the reasonable middle, or the pragmatic middle, and if you're honest and you're transparent, Canadians will make the right choice. I think that's generally true, and what we tend to see is these two pillars arguing with each other rather than where most of the Canadians are, and I think most Canadians recognize the importance of energy security. Certainly it's been amplified and they're ready to have that conversation. Not just a conversation in relation to what's going on in Europe and the really tragic events in Ukraine, but also conversation about how do we ensure the adequacy of upstream supply, or investment, to ensure that upstream supply from hydrocarbons is there, to meet demand in an affordable and adequate framework so we can have the quality of life we want while we go through the transition. The opposite is if we don't make those choices, and we don't allow those investments to happen, we end up in a lot more volatile, a lot higher price bracket that slows everything down.

Lorne: A piece about that pragmatic middle, that I think is changing and I think now for different reasons, which is costing has always been a relevant factor. I wouldn't say it's no longer relevant but I just think people's thoughts on it have evolved somewhat. So an extended period of low interest rates and low inflationary issues, and I think people are always sensitive to costs, but I just don't think it's been the priority issue. I think the pandemic, with all the pandemic spending that took place, My read on it is it was viewed to be the right thing to do because it's necessary. Because this pandemic is hopefully once in a lifetime event. It's like, well listen. I don't love it but that's the way it goes so we've got to do what needs to be done. That's now been followed up with significant inflationary pressures and the issues in Europe. I think the pragmatic middle is reacting in a somewhat similar way which is again, I don't want inflationary issues but I recognize there's costs that need to be paid, associated with having secure, stable, reliable energy. If that's going to mean that I'm going to wind up paying more, which I don't like, but I think the pragmatic middle is kind of softening on the view of this is just a thing that has to be done. I don't need to like it. I didn't like the pandemic. I don't like conflict in Europe. There's a lot of things I don't like but some stuff has to be done and the transition is one of those. I think that that is kind of opening up some room, Jason this is sort of more for your side of the ledger for sure than mine, opens up some room in the political space to say, listen folks. This is just the way it is. It's going to cost. It's going to take time and money but we've got to get at it and that leads us to, yes, doing what we're doing presently but kind of reinvesting, and that reinvesting largely to transition in a green way and now it's trying to get the sticks and carrots, as Jason and I have spoken about a few times, and getting those right to make sure that the words turn into actual deeds. I don't know, Jason, from a policy and political perspective do you think anything from armchair communications and public relations make sense, but I do think the pragmatic middle is softening, or maybe just reluctantly accepting that there's a change in cost structure coming.

Jason: I'd like to pick up on that and, Kevin, maybe get your thoughts on what the brand is like for Canadian energy. Whether it be nationally first and maybe then internationally, with your involvement that you've had. We have talked about having this discussion with the practical middle and I've heard, I think, the same politician say something very, very similar a number of years ago to me. So how do we have that conversation because I think a lot of Canadians, like I said earlier, don't believe the amount of work or understanding the work effort investment that's going into transition by the oil and gas sector. So what is the state of the brand from your chair?

Kevin: I'm trying to think of a way to formulate a good answer for you. I just wanted to say one quick comment and then I'll try to answer your question. I think one thing that we've had, this acceleration and commitment and doubling down of ambition for transition in the last couple of years, and now we have this incredible price shock that's going on. It's not just a shock. It's the volatility that comes with it and we're seeing the prices swing around which makes it destabilizing. But you've also seen unwavering commitment remain in place for those ambitions. From the Government of Canada, Europe doubling down. So this is what we're doing is what they're telling the world. It's going to be a journey. It's not going to happen overnight and I think that's the part we need to have a conversation about. How do we manage this transition so it is, and I don't necessarily like these words either, orderly or disorderly, but so it isn't one that is disruptive and volatile, which ultimately would probably weaken its own speed anyways. But to your question, what's the Canadian energy brand look like? Canadian energy is viewed, and I deal mostly with the United States, as stable, predictable. It's there when you need it. But I do think it isn't always appreciated. It isn't always fully acknowledged how pervasive Canadian energy exports are in the United States. Like that 60%25 I threw out earlier. Not well known. Probably even in the energy community in the United States and the things happening in Canada are also now well known. I'd say this has been Canada's own detriment for it could do more to engage globally and then people could argue, well the United States isn't global. If you go to DC, you go do the circuit in DC, it's global. So I think there is something to be said about Canadians to start engaging like they are, major energy player internationally. My background's oil. We can debate whether it's fifth or fourth largest producer in the world. That's a significant role. 5%25 of global supply, it's a pillar and Canadians needs to start acting like that internationally, and engaging and travelling and doing that part, and building those relationships. I think that's a good ...

Jason: Where do we want our supply to come from? Do we want it to come from a country like Canada that has very ... social governance standards? Or what's surprising to me is in the discussion in the US right now when they're looking at increased supply, there's countries like Venezuela that come tip of tongue, not Canada. In fact, Canada wasn't in the first 2 or 3 that I heard the Secretary of State refer to. That was shocking.

Kevin: Yeah, but they don't worry about Canada. They don't have to worry about Canada delivering supply to them. So if they're looking at the world, where can I get an incremental barrel? I don't necessarily agree, from a social and governance perspective, we've got to go back to ESG metrics, but they're looking for places that could incrementally ramp up in very short order. So that brings to mind Venezuela's latent capacity that's fallen off. I don't think it's short order one, in my mind, given the lack of human capital that is left. Iran's another one. There's places around the world that are not the sunny spots you want to go spend holidays right now, that do produce oil, and we've forgotten about that in this conversation and so you're getting to my point. Canada wasn't on the list because it is a steady, stable source of why they'll trust it will be there. Maybe it should've been just out of that nod of the cap kind of thing but in some sense the United States knows we're there. But should we be part of that conversation? Yeah. If we were more engaged, would we? Probably. One thing that I think that's caught us up on kind of almost every major export project associated with hydrocarbon, it's ... term in the lower major pipeline, has been this debate about how will this impair our national ambition, and that's cast over the light that oil and gas sector emissions have been growing steadily and become our largest source of emissions, and what's not fully taken into account is how do those exports then impact global emissions? I'm not talking about repatriating off of those emission credits back to Canada. I'm just talking philosophically. We should take that in account. A lot of the LNG export go to this gas to coal competition. We're displacing gas. I don't really necessarily buy into that argument but I do buy into gas on gas competition and, although I don't buy it, there is something to be said about not building another coal plant in China as well. That's a positive to society. When I look at the LNG value chain coming out of town for gas on competition, you do have the potential to have a molecule that is lower carbon intensity than other molecules being delivered to Asia. So now you have to think about if I build this terminal, am I doing something to benefit society in reducing emissions? First on coal and then from the gas on gas, which I think is a more valid competition basis today, and we have to square that. We never did. That makes it hard and in a country like Canada we're relatively small with a very clean power sector, you don't have the same amount of levers to pull whereas the United States has been able to achieve, most of the reductions have come from coal to gas switching in the United States. So it's a different beast and it makes it very hard. It really has been Canada's challenge. If you look at our ambition, our absolute emissions have not really moved immaterially for a number of years because of that challenge of growing value in our energy export commodities, but also then accompanying it with emissions. That's been pushing back or offsetting reductions elsewhere.

Lorne: We kind of started to nibble up against the pressure oil and gas companies are under but I think on the whole pressure to be part of the change, but not really sure how to do that and be responsible to shareholders, but I think you might say that there's more to it that simply that pressure which is the internal pressures. How do we go about this? What do you think or what are your views of the current pressures and competing objectives that the oil and gas companies have to address nowadays?

Kevin: Yeah. It really comes down to you have to put this in the context of in the preceding half decade or more the North American upstream sectors, the producers, particularly shale, really drilled away any upside in oil prices. Part of the business was I'm going to go explore and find something and if I find something the oil prices will eventually be cyclical and go up and I'll make lots of money. Or I'll sell it to someone else and they'll produce it and that was kind of the business model. But what happened with shale was so prolific. It not only was able to meet growing demand, in terms of as it was growing production, it even began to exceed, it coupled with things like oil sands. Together they started to overwhelm the oil market, and that got us into this period of really malaise prices for the last half decade, basically since 2015 and the finance community lost interest. Your value proposition vanished. There's going to be no upside for your business and so it shifted the mentality in the upstream sector, these producers of oil and gas, to one of exploration and production and production growth being a metric of value to returning our cashflow becoming the metric of value. You're seeing all the CEOs talk about value now. Or ... and those sorts of languages. So the paramount pressure is to return cash. There's different ways they can return cash. They can increase dividends. That's always a slippery slope. You don't want to increase too much because you get married to it. You can pay down debt. You can improve your margins that way or you can buy back your share and increase your valuation that way. They're doing all of that. They're absolutely doing that but they're doing in the lens of finance communities return cash but finance communities also asking them to prioritize decarbonization. Improvement of competitiveness and identification or transparency on transition risk. What's transition risk? Transition risk is really to what degree have you thought about the way your future demand could be impacted from the energy transition, or the degree of which you have thought about the potential impact on your bottom line of increasing carbon costs, in some way or another. It's oversimplification but the general gist. You've got return cash, decarbonization and then within the decarbonization one, there's not a lot really if you're a core producer of oil and gas you can do. The first thing you can do is you can fix your assets and they're all doing that. Looking at efficiencies, improve their carbon intensity output. They can start shifting their asset portfolio. So within a play you can high-grade where you drill in terms of shale. Like I'm not going to drill over there. Poor rock quality. By the way, emission intensity, the geologists get to be right. It's just a game of rock quality because it's of metric or productivity over emissions. Then the last thing is you can dilute it which is you buy or move into something entirely new or different. So you become more of a holistic energy company. We see all those levers being pulled, to varying degrees, based on geography. European majors are much more into the going into renewables, where North America is much more improve the operation of my facilities and compete on carbon kind of thing. But there is a challenge for these upstream companies. I call it the accurse moment. How far do you pivot to one of these strategies or the other? How far do you pivot to non-traditional fossil fuels before, why would I invest in you? I can go invest in a renewable. Or how far do you pivot or do you not pivot? So you fly to close to the ocean. You fly to close to the sun. So trying to find a sweet spot where the investors respond to the behaviour, in terms of decarbonization, but also still returning significant cashflow. We talked about this a little bit earlier, you have to maintain your production volumes too, especially if you're in something like shale that has deep declines, which is quite different than the oil sands. It doesn't have that. So priorities are return cash, decarbonize and maintain your production right now.

Lorne: When I think about a waterfall graph of company's production profile, and this is the lawyer oversimplifying the part that the business and science folks do, which is the bottom of the waterfall graph that stacks up your production which declines down over time, can have long run green facilities layered in, over time. So instead of reserve replacement, which has always been a thing that needs to be done, as you've kind of described. The company's all run on the production treadmill and it's find and replace the reserves and hopefully beyond. If you're not finding reserves beyond what you've produced you've got a real problem. But that replacement of reserve model can be with long run green energy if it can be economically sustainable. So when the investors are deciding which projects they're going to fund, and they meet their rate of return requirements or not, maybe the way this measuring of metrics has been going nowadays makes it easier to say, let's start layering in. I think as I heard you talk, that's a little more acceptable or adopted model in Europe and less so in North America, but I suppose we might be transitioning that way. Which is I'm doing well here, I'm still on the production treadmill, it's just the production shift is going to have to happen internally. Again, my optimism might be showing through, but the timing associated with all the things going on in the world nowadays and the sticks and carrots that are out there and continue to be offered by government, I think might help advance that a little more quickly, in the next 10 years, in comparison to the last 10 years.

Kevin: I think you're right and stronger energy prices we're seeing, although they're not entirely positive, will generate the cashflow for companies to diversify into alternative forms of energy. I think that's always kind of been the thought for upstream oil and gas companies. You're going to have small producers that are going to be core focused on core, and what I mean by core is continued to do what they've been doing and being successful at it, but the bigger ones you will see pivoting their portfolio for diversification to dilute their intensity of overall operations by bringing in non-emitting sources into their calculus. Emission intensity is a ratio. Your units of output over your emissions. So if you increase units outputs with that lower intensity, whether they come from generation of power of the wind or additional lower intensity fossil fuel production, it doesn't matter. The corporate emission intensity falls. So that's the game they can play to align themselves with a net zero scenario if they transition scenario. They're just all choosing different pace of which they're doing that. I do think when you look at North America they're focusing on improvement of assets right now. Europeans are focusing more on the dilution or investment in renewables but they're all going to have to follow a similar tract trajectory over time.

Lorne: When you think about what price has done from 2014 to today, so take the last 8 years, and wonder why haven't they been doing it for the last 8 years? When you're in a fight for survival, you can't prioritize in that way. You're trying to get your ship righted and, again high prices, though they can cause problems, they do solve other problems and create some more flexibility. Which we might be entering that period where the correct combination of events is coming into focus that will allow the kind of development  for a transition in a smoother way. But time will tell.

Kevin: Yeah. I would just, not to belabour this point a little bit longer, but if I look back to the last, say 2015 which is the beginning of the price collapse. So we had the oil prices go from almost $90.00 on a WCS, so heavy barrel in Western Canada, so let's say over $80.00 a barrel, they fell to $20.00 a barrel within about a year. They hung around $40.00 a barrel for a year or so then we had the differential blowout in late '18, where we saw tested single digits of WCS, then they shot up to $55.00 then we went back down to single digits to COVID, and now we're testing heights we haven't seen since 2008. So it's one thing to have low prices, it's another thing to have high prices. But instability is really hard to manage because it impairs decision making because you want to save your money for tomorrow, and then tomorrow it falls out from you, so you blow your money trying to pay off the fallout of tomorrow. So you just can't. It impairs decisions across the board, not just in the production sector.

Jason: Maybe to just sort of wrap things up, Kevin I'll ask you to put on your prognostication hat, the worst hat of all to ask someone to put on, especially given how volatile events are in the world right now. But let's look to 2030, maybe to 2035, and what do you sort of see kind of, as your predictions, what horizon are you looking at for price fluctuation, where production's going to ramp up and maybe not ramp up, and what impact that might have on Canadian Government policy.

Kevin: Well there's two aspects. There's a very short term, immediate term issues of what's going on right now and then there's the longer term aspect of which would weave in more of what happens on transition, and to a degree that advances. I think in the short term, certainly we saw developed Western nations really choose to wage economic warfare over physical direct confrontation. There's many reasons for that. At first they sought to avoid impacting the energy exports. Now that's open season and they're going after energy exports in Russia. Even if they hadn't had gone after the energy exports coming out of Russia, it's almost impossible to imagine the energy exports wouldn't have been negatively impacted when you consider the loss of human capital, and straight capital, coming from the divestments major oil and gas companies out of Russia. So you're going to need to backfill that. In the short term, you're going to see a lot of volatility in the market, simply because of uncertainty about the stability of Russian supply and where it could go, and degree of where it could be impacted. Could it fall dramatically? Could it be blocked dramatically? How will trade flows be impacted? Longer term I think you have to have a conversation about the degree and pace of energy transition, the roll-out of electrical vehicles and oil demand and those sorts of things. I would say where I work, now S&P Global, we tend to look at the world through scenarios and very credible scenarios. We have three kind of base core scenarios. There's inflections which is really our base case. It's as world where the world does become more multi-polar. Where domestic interests can trump international cooperation, and governments do move on climate, but it's only one of many priorities that they have to juggle. There's green roles which is a full scenario, but it's a dramatic reduction global emissions, about a 50%25 cut by 2050. It's about 1.9°C there. The basis of that scenario is world envisions of catastrophic environmental events, one after another. That really emboldens strong arm of government to really get in and really embolden an unprecedented level of global cooperation and public support to really move aggressively in climate. That does perceive a world where we retire infrastructure well, well before it's actual physical end of life. Then there's discord. I won't get into a lot but it is a world I probably really hope we don't get into. Incredible volatility due to basically, as it sounds, discord. A lot of people just don't get along globally and they pull in different directions in a very dramatic sense. I think it comes down to what world do you find yourselves in. I think there's a credible basis from all those worlds. In our inflection case we have oil prices than they are today but oil demand continues into mid-2030's before slowly plateauing and bending over. We still have significant penetration of electric vehicles and then green roles is you throw everything you can at it. But I would say, in these two kind of bookends, one thing that isn't fully appreciated is the role of hydrocarbons. Even in our most kind of dramatic demand decline scenario, which is green roles, the world continues to need new oil and gas to replace declining assets, globally, because the pace of global demand doesn't fall on a pace that exceeds base declines. Now, what's a base decline? A base decline is if I drill a well, it will immediately begin to decline. It's a wasting asset. So I have to replenish it. If demand exceeds that base decline, the decline of which oil falls globally naturally, then I need to go and do something else. I need to find something else. That supports an oil price high enough to stimulate activity, and for Canadian supply, one of things that's misconceived about it is it's often called high cost. It is not high cost. It's large, out of front out of pocket expenditures over multiple years. It is expensive to get in online but it's all built. So to continue to operate is very competitive, globally, and it can hang in there with most sources of supply. Our view on transition, it's about competition. There are going to be winners and losers in the upstream extraction business, that includes in Canada, but it doesn't mean the sector's a loser, totally. That's true of every play on the planet. There's room and competitive forces in every play. There's a lot more dynamism in the upstream than I think a lot of people give an understanding or credit for. Sorry, long, long answer.

Jason: Kevin, I assume that these scenarios have certain probabilities attached to each of them and I'm curious about unforeseen events, including technological change. I imagine that that's kind of a catch all qualifier thrown into your scenarios but I'd be interested to know.

Kevin: I'm glad you asked. That's a great segue. So we have three core scenarios and then we have a number of net zero scenarios. But we also have a couple of cases so there not necessarily full blown. Our three core scenarios, there isn't a probability assigned with them. They're meant to be compelling and so you can get debates to really stress test business strategies. So they need to be compelling but, to your original question, we have an accelerated CCS case. So we try to see how much CCS is feasible to deploy and see what that could do to the world. There is what we call a multi-tech scenario, which is really an accelerated technology scenario, from what could you really see happening from a pure technology standpoint to change the world. What would it be required to get to a certain outcome as well. So we do do those analyses and that allows our clients to contrast their version of the world, what they think is compelling or could happen, and try to find, these are meant to be strategic, find a path where you can be resilient amongst the vast majority. That's really, I think if we go back and talk about, we kind of hinted on it, disclosure and TCFD and that stuff and transition risk, that's really what the financial community is asking of all companies, particularly oil and gas. How can you be resilient in all these different scenarios? Not necessarily I need you to believe you're going to be in one of these scenarios but how are you resilient in all of them?

Lorne: That's very helpful and it helps, at least in my mind, kind of clarify what investors and boards are thinking about in respect of building out their scenarios. What are the risks that we can monitor? How do we foresee them? How do we quantify them? Then try to make our business decisions based on the world as we see and foresee it in the future. That's very helpful. Thanks, Kevin. I really appreciate your time today.

Kevin: You're welcome.

Jason: I think we've got tons to work with here, folks. This is going to be a fun one to see how it comes together. Good luck to our editors on this one. Thanks, Kevin, so much for joining us. Really appreciate the time and the thought you put into this.

Kevin: No worries. Thank you. Thanks for asking me to do it, you guys.

Jason: So, that's a wrap on the Energy Exchange, a joint podcast brought to you by our teams at Navigator and Gowling. We want to extend a huge thank you to Kevin for joining us today. Some very though provoking commentary that I think provides us with some important considerations for the future of our energy producing Provinces, our country and international energy markets. This podcast, in fact this series, wouldn't have been possible without our incredible behind the scenes team including Anne Derby and Ian Mondrow from Gowling and Catherine Moar, Kayla Doody and Zoe Keirstead from Navigator. A very special thank you to my Co-host, Lorne, providing some incredible legal insights and for being a great podcast partner. Finally, I want to extend another thank you to all of our previous guests in this series, and to you, for joining us as we attempt to distill the energy industry in a mere four episodes. It's been a lot of fun. I hope you've enjoyed it as much as we have in producing it.