Time to recharge our energy resolve

David Hobbs, chief energy strategist for IHS CERA, metaphorically took Canada to the woodshed Monday.

Hobbs, who spoke at the annual conference of the Canadian Association of Petroleum Landmen in Vancouver, weighed into the market diversification debate — ironically on the same day Bank of Canada Governor Mark Carney was doing the same in Ottawa.

Hobbs’ remarks followed on a theme introduced by CTV broadcaster Brian Williams, who was first to speak in the morning. Williams, fresh from the London 2012 Olympic Games, talked about Canada needing to do better when it comes to celebrating success.

The same holds true in the energy sector, said Hobbs. Canada, he said, needs to stop wringing its hands over low natural gas prices and “deal with life as it is, rather than what we wish it to be.”

“In a world that is connected now as it has never been before in terms of energy, in a world where people have choices about where they are going to make investments and where they will not, the most important thing is for Canada to capture the spirit of Vancouver (2010 Winter Olympics) and decide where Canada plays it can be the best in the world,” he said.

“It has actually some of the lowest cost resources in the world. It has access to any market it chooses to. But it has to choose to.”

One challenge to seizing the opportunity presented by having access to the low cost reserves, it seems is that Canada appears to be suffering from a ‘Little Red Hen’ complex.

You remember the story: the little red hen asks for help sowing grain, harvesting and grinding it and finally baking bread — but gets none. Yet when the bread is ready, everyone from whom she has asked for help comes running. Too late, she says. You didn’t help — you don’t get any.

And so it seems to go with the energy sector.

As Hobbs pointed out, he continues to hear about LNG being exported from Canada as a fantastic idea — “provided someone else does it.”

But in the world of multibillion dollar projects — it can’t and shouldn’t work that way because it means the sharing of risk is anything but equal.

“The person who has paid $5 per Mmbtu to liquefy, ship and re-gasify in foreign markets is $5 down on the transaction and has paid billions of dollars for the privilege of being $5 down on the transaction, whereas the rest of the market can get an uplift by virtue of their linkage to the global market — and has got it for free,” he said.

Until there is a mechanism to discourage this behaviour, Hobbs is of the view that it will be difficult to get buy-in to the various projects.

This may be, but talk to people in British Columbia — especially those protesting against either the Northern Gateway or Trans Mountain pipelines who were in evidence on Vancouver streets this week — and it’s hard not to conclude the likelihood of an LNG export market is closer at hand than the expansion of oil exports.

On this, Hobbs also offered a few bits of advice; some might have described as not-so-gentle finger wagging aimed at the energy sector and the way it has approached gathering support for its initiatives.

Just like his compatriot, the economic historian Niall Ferguson who wrote of the ‘apps’ downloaded by emerging countries from the developed world, Hobbs identified six areas in which the ‘E&P’ players must change their approach if they want to achieve success.

The sector, he said, commits six sins.

These include underestimating the power and sophistication of the stakeholders, and erroneously believing that providing reams of data and statistics is enough to garner much needed support.

There is also a gap in terms of understanding between the energy players and the consuming public. Hobbs suggested that because the industry provides what the public needs — ‘without a hydrocarbon lifestyle you don’t have a life’ — it is in the fortunate position of being trusted. There is also an element of the parent/ teenager relationship at play; the industry provides energy — like the parent provides pocket money — without being thanked.

This dynamic, as every parent knows, creates an unbalanced — and at times — resentful relationship.

Another shortcoming is the focus on the short-term fix rather than the long-term vision.

The energy sector, suggested Hobbs, is too focused on peripheral issues rather than the bigger ones.

That may be, but the question that needs to be asked in tandem with this, is how much of the short-term mentality can be attributed to the similar focus of the capital markets. It has long been said — and was in fact raised by Pentti Karkainnen of KERN Capital at the 2009 CAPL Conference — that the public markets are out of sync with the longer term life cycle of the energy sector. One could very well make the case that Encana is taking the long view on natural gas because it believes the fuel will grow in importance and use, but because this is likely several years away there is no value being attributed to this perspective by the market. It’s all about the low price of natural gas because of the current supply/demand imbalance.

The sixth failing of the energy sector is its communication strategy.

While everyone likes to fault the energy players of doing a poor job of explaining themselves to the outside world, Hobbs made the point that internal communication is also lacking.

Employees are, after all, the best ambassadors for any company. If there is inadequate internal communication, don’t expect a positive picture to be painted for external stakeholders.

The challenge is communicating with all the different demographic groups represented under one roof — from the baby boomers to the gen Xers and the Millenials. Each one obtains, consumes and distributes information differently and companies need to be mindful of all these differences; the ‘one size fits all’ approach is gone.

There’s no mistaking Hobbs’ message: Canada has been blessed with a bounty of energy resources and it’s imperative that both industry and nation cease being apologetic about how these are developed to maximize value. To continue along the lines of the message first delivered by Williams, perhaps we need to think of it in terms of developing an ‘Own the Podium’ program for the energy sector.

It’s working for Canada’s athletes, perhaps the same approach will bear fruit for Canada’s energy resources.