For years, the focus in Alberta has been on getting the bitumen out of the ground. This has led to charges of inattention on the environmental front, it’s led to significant wage inflation in Alberta, it’s led to massive project over-runs. It’s required big dollars for an extended period of time.
And now, Alberta (not to mention the industry) is looking at a budget deficit, because it has all this capacity, and no way to get it to market. Alberta, has until recently focused on a single customer – the US. The industry has built capacity, expecting a promise of pipelines. But the promise is turning out be very uncertain. President Obama will decide, with input from John Kerry, and if anyone tries to interpret what they’re saying, it doesn’t look good for Keystone. There are other choices too, like pipelines east to refineries in Canada. And rail and barges to bypass places with no pipelines. And ports on the West Coast to access Asia. But all of these are fraught with their own issues.
How did we get here? The one big factor that everyone underestimated was the development of shale oil/gas in the US that will make them much less dependent on oil imports. They are growing quickly to need less imports, and get to choose which source they like best. The environmental lobby likes the oil sands the least. The security lobby likes the Mid-East the least. Mexico may or may not stay an exporter in the long term as domestic demand increases. But they have choices, and the environmental lobby is working aggressively to make choosing Canadian oil from Alberta an undesirable and politically painful choice, by focusing on the Keystone pipeline.
The success or failure of these investments in the medium term will directly impact Canada’s economic well-being, from GDP growth and tax revenues to government deficits. While on one level these are industrial projects, governments care, and taxpayers will care. On a different level, however, there are the environmental responsibilities and the land stewardship rights that need to be balanced in a way that is well thought through.
And now, as Alberta signals a deficit, the clock is ticking.
This is political risk that is much larger than any one company can undertake. Even the approval of any one pipeline (Keystone, for example) will buy breathing room, but cannot be assumed to eliminate the risks. If the US becomes energy self-sufficient, Keystone will become considerably less important, and all these issues will need to be addressed again.
Just as companies need diverse customer bases they do not take for granted, so do exporting countries. And to manage smooth un-interrupted growth, they need strategies that get ahead of the rsks that are clearly visible, years off.
This is the cornerstone of strategic risk management.