A Comment on Alberta’s Unique Opportunity to Shape Its Energy Future, Part 1

–In the first part of this essay (below), I attempt to build the case that Alberta has entered a difficult but fertile period of uncertainty. In Part 2 (which I’ll publish someday) I will discuss the unique opportunity that this uncertainty presents.–

In complexity theory, “criticalization” is a point in the trajectory of an economy, industry, organization or other complex system at which its future becomes uncertain. Two or more outcomes seem completely plausible, and it is impossible to predict what the system will do or what state it will evolve into. As the authors of “Complexity and the Nexus of Leadership” write:

Criticalization is perhaps the most difficult time in the life of any organization as a whole or in part, since it is all about the effect of internally or externally generated shocks that disrupt the inner workings of the company. This disruption can show itself in a growing recognition that current operating models are not efficient and small fixes are not enough to deal with the scope and pace of change. Criticalization often signals a time of conflict and differences of opinion, a period of cognitive dissonance and information overload. Critical periods, however, offer unique opportunities for transforming an organization.

In other words, either slowly or suddenly, but in increasing numbers, players in the system begin to doubt what had previously been the most fundamental assumptions about how to operate and create value within that system. They come to believe that results they could once count on producing by taking certain actions are no longer guaranteed. The authors list a number of signs that a critical period has begun. Compare some of them with Alberta’s energy industry and the current political and economic state of the province:

  • An increasing sense that what we had been doing is no longer working or appropriate.
  • Well crafted plans for entrepreneurial expansion are not working out; targets are pushed off from one quarter to the next; expectations are continuously reframed, and the pace of internal change increases rapidly.
  • Performance declines due to shifting markets and changing environments–the organization’s traditional reliance on specialized activities or offerings is no longer effective.
  • Concern that all of the small changes will never add up to what is needed, that something big is necessary.
  • Competing interpretations and passionate disagreements about the meaning of external events for the organization, including which events are relevant to the organization and what should be done to address them.

Most oilpatchers would be unprepared to imagine that Alberta could become the Blockbuster Video of the energy sector any time remotely soon. And there are important reasons why this is the case. As Vaclav Smil puts it:

For years, even decades, we have been on the verge of mass deployment of (take your pick) fast breeder reactors, of coal-fired electricity generating plants that capture and sequester all of their CO2, of fuel cell-powered cars running on hydrogen, if not a complete hydrogen economy. We’ve been promised electric cars that will not only cost nothing to run but will also power houses while sitting in garages; or microorganisms genetically engineered to ooze gasoline.

The reality of energy transitions is very different. Too many modern observers have become misled by the example of electronics, in which advances have followed Moore’s law — the now 50-year-old prediction that the number of components on a microchip will double every 18 months. This has allowed exceptionally rapid progress. But the fundamental physical realities that determine progress of energy systems do not behave that way: they are improving steadily, but far more slowly. Moore’s law implies an exponential growth rate of 46 percent a year. The analogues in energy are not even close: Since 1900, the efficiency of electricity generation in large power plants has been rising by less than 2 percent a year, advances in lighting have boosted its efficiency by less than 3 percent a year, and the energy cost of steel, our civilization’s most essential metal, has been falling by less than 2 percent a year.

Albertans, in general, count on this. They deal in facts, fundamentals and ranges of plausibility. They are conscious that killing off a chain of video stores is an adventure of a different category than killing off the underlying mechanism of the global economy. And they hold little patience for wildcard system-transforming scenarios which don’t take seriously the astronomical magnitude of our current energy system, the monumental infrastructure project its displacement entails, or as Smil points out, the physical limits of the technology which it is hoped will form the basis of that displacement.

Yet that point about technology is controversial. While energy historically has evolved slowly in comparison to the tech sector, it is undeniable that the rate of change in the space is accelerating rapidly. Tech advocates point to this and insist that it is not clear for how long the constaints we currently take as givens will continue to exist. What is clear is that both the energy and high technology sectors (each unavoidably woven into the future) are colliding like never before. We might have to wait until the dust settles before we can truly understand the impact of this momentous junction.

Tracking Clean Energy Progress 2015 (EIA)
Global Electric Vehicle Stock. Source: International Energy Agency, “Tracking Clean Energy Progress 2015”

At the same time, the Canadian oil industry seems to be in an unabating battle to alleviate its ethical-existential predicament. Oil barons dogmatize about the appropriateness of phrases like “social license to operate” and, if not that, then what a measure of public goodwill (or lack thereof) towards the petroleum industry ought to be called. Never mind the actual dollars being deployed to convince neutral bystanders that “the oilsands” is the original, more accurate name, to be preferred over “the tarsands”.

Meanwhile the hope is that the lower mainland’s underground resistance won’t arrive at Alberta’s door with flaming pitchforks the moment a new pipe spans the eastern border of British Columbia. Or rather, that even though there will be pitchforks and protests and pictures of pillaging posted on pinterest, all of this will not ultimately be enough to thwart industry’s ability to pump its product to potential purchasers across the pacific.

Eight years ago when I began my journey into oil, the idea that Keystone would not have already been built by 2015, or that Gateway would still be tied up in legal and regulatory challenges was probably not on the radar screen of most industry executives. Yet weak signals and minor fluctuations pointing in that direction were already noticeable. And today it is the reality Alberta confronts.

Of course oil is (historically) a long game, and many of the players who understand the time scale are not that fussed about delays. But with calls to #keepitintheground mounting, the divestment movement increasingly taken seriously as a thing and supply competition from shale oil, natural gas and other newly accessible fuel sources creeping up during this ostensibly indefinite waiting period, one is left to wonder if a window of opportunity is not about to close on certain assets.

It is not unreasonable to think that Alberta has indeed entered a criticalization in which the future is fuzzy. That there are any number of spaces (attractors) in which the province and its economy may find itself.

After all, the people of Alberta have just elected their first NDP government. What conclusion could possibly be reached, other than that all bets are off? 😉

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s