Global clean tech opportunities abound, just not in Canada

September 11th 2020

Global developments suggest a Canadian migration to a green economy is critical to competitiveness. However, if one tries to find Canadian clean tech manufacturing/innovation companies listed on a stock market, one will likely come up with nearly zero, while the number of Canadian-based oil and gas firms offering stocks is seemingly infinite.

Canada has got its priorities wrong.

Last month, for the first time in 92 years, ExxonMobil was dropped from the Dow Jones Industrial Average index. In the 1980s, the oil and gas sectors accounted for 28 per cent of the Standard and Poor Index, but in 2020, these sectors represent 2.6 per cent of the index.

ExxonMobil has indicated it may write off 20 per cent of its reserves by the end of 2020.

In the second quarter of 2020, Shell, BP and Total wrote down $45 billion US from the combined values of their oil and gas assets.

BP, likewise, sees the writing on the wall. In August, BP indicated it would cut its oil and gas production by 40 per cent by 2030 or one million barrels a day, compared to 2019 production levels. This strategy comprises the selling of $25 billion US in assets in the next five years and a 10-fold increase in investments in the low carbon economy, projected to reach $5B US a year by 2030.

Global oil glut and Trans Mountain

The current global oil glut is not going to go away any time soon.

U.S. shale oil production has contributed to the glut, rendering the U.S. a net exporter of oil. This, despite the fact the entire U.S. shale sector depends on debt financing.

This global oil glut is exacerbated by Saudi Arabia flooding the market with low-priced oil to eliminate non-conventional oil competition, such as the tar sands and shale oil. This will have lasting effects since it is difficult to regain market share once it is lost.

Rystad Energy of Norway evaluated that 12.5B barrels of oil equivalent in recoverable reserves are now stranded.

The massive divestments of assets in tar sands are going from bad to worse.

This past July, French oil giant Total wrote off $9.5 billion of tar sands assets because it foresees no market for them. Reflecting the growing interest of the fossil fuel sector in a migration to a green economy, Total withdrew its membership in the Canadian Association of Petroleum Producers because of a “misalignment” with Total’s climate goals.

This follows the cancellation in February of Teck Resources' Frontier project, a $1.13-billion write-off.

Trans Mountain is a white elephant. The latest estimate of the public bill for financing the twinning of the Trans Mountain pipeline is $12.6 billion.

Keystone XL is a white elephant, too. In July, the U.S. Supreme Court upheld a lower court decision to block construction of Keystone XL until a proper environmental review is completed.

If U.S. polling trends are an indication, Joe Biden will rescind approval for Keystone XL.

Permanent decline of oil demand: Transportation electrification

Transportation accounts for two-thirds of petroleum consumption, of which 89 per cent is associated with road transportation. That puts road transportation at 60 per cent of oil consumption.

The next shoe to drop for the petroleum industry stems from the radical vehicle legislative initiatives in the European Union and China, requiring a massive rapid transition to zero-emission vehicles (ZEVs), as well as low-emission vehicles. In plain language, this is predominantly about a shift to electric vehicles (EVs).

Accordingly, European corporate and government investments in EV production and batteries reached $70 billion US in 2019. For many European automakers, China represents a large portion of their global sales.

The BloombergNEF Electric Vehicle Outlook 2020 predicts there will be at least 500 electric vehicle models on global markets by 2022.

Wanting to ensure the U.S.-based vehicle industry does not bite the dust in the face of EVs from foreign manufacturers, presidential hopeful Biden has been making strong statements about American-made EVs.

The electrification of transport revolution will contribute to peak oil arriving around 2023.

Natural gas, shale and liquefied natural gas (LNG): Going bust

In 2019, 75 per cent of new electrical power capacity installed was associated with renewables, with solar and wind energy together representing 67 per cent. In 2021, renewables investments, for the first time in history, will be greater than investments in the oil and gas sectors combined. These are historic milestones.

Contributing factors include renewables being less expensive than new coal- or gas-fired electricity facilities for most of the world. During the last decade, the cost of solar projects has declined 80 per cent, while onshore and offshore wind power declined 39 per cent and 29 per cent, respectively.

Natural gas stakeholders, the majors, plus shale gas small- and medium-size independents alike are losing money. Rating agencies have graded shale debts at junk levels making borrowing difficult.

In response to the plummeting of the global LNG sector, in Canada 1) Chevron has sold its 50% stake in the Kitimat LNG project - northeastern BC gas lands, a 471-kilometre Pacific Trail Pipeline and an LNG facility near Kitimat , and 2) GNL Québec and Gazoduc are experiencing difficulties in getting financing while having laid off employees.

Possibilities to invest in Canadian clean tech manufacturing/innovation: Nearly zilch

There are many Canadian clean tech manufacturing and innovation firms, but they have not got the government support they need to achieve stock market status, nor have they acquired private financing of the order of magnitude potential witnessed elsewhere. The contrast is striking.

U.S. clean tech startups such as the Nikola electric truck company and the Lucid electric passenger vehicle enterprise are now offering stocks, though neither has started production. The Rivian electric truck and SUV company has so far raised $6 billion US in private financing and hopes to launch the R1T pickup and the R1S SUV in the second half of 2021. China’s Xpeng, an EV manufacturer, hopes to raise$1.1 billion US for its initial public offering (IPO) on the New York Stock Exchange.

Here in Canada, Lion Electric, a global leader in developing an electric school bus from the ground up, recently introduced its Lion 8 electric truck with up to 400 kilometres of autonomy.

Lion has 300 of its electric school buses on the roads. In 2021, the company hopes to produce 500 to 750 school buses.

Regarding trucks, Lion has developed many specialty trucks with its seven partners, the only electric trucks of these kinds to integrate all specialty functions with the electric vehicle technology.

In late summer 2020, the first big order for Lion 8 trucks was made by Canadian National (CN) for 50 trucks with an autonomy of 250 kilometres and a capacity 110,000 pounds for intermodal last mile use including urban delivery, container shuttle service, and port operations. Since CN has 1,300 trucks and another 1,200 owned by an affiliate company, this is an important major coup for Lion.

And the first two Lion 8 waste management trucks, developed in partnership with Boivin Evolution with fully automated side load bodies, were sold to Waste Connections, a major North American solid waste collection firm, for delivery at the end of the year.

But Lion is not on the stock market, nor is it in the league of Rivian for private financing.

In Quebec, the provincial government invested $7.9 million for the development of Lion heavy-duty trucks and the company acquired $7 million from XPND Capital. As well, the provincial government offers a rebate for electric school buses,$120,000 and $100,000 for large and small versions, respectively.

No shortage of options to support Canada’s clean tech sectors

German public bank KfW is one of the world’s largest investors in clean technologies. The program, “Green Bonds — Made by KfW,”, helps support KfW clean tech investments.

Imagine if the Business Development Bank of Canada played an equivalent role and offered the Canadian public possibilities to invest in Canadian clean tech by issuing green bonds.

Positioning Canadian clean tech firms to enter into the stock exchange could, in turn, multiply the possibilities for these enterprises to expand and break into international markets. Consider that the EV stocks of Tesla and China’s NIO and Xpeng are hot.

Further on EVs, if Canada were to adopt vehicle legislation with objectives similar to those of the European Union and China, it would provide an incentive for global automakers massively investing in EVs in compliance with the legislation of these two jurisdictions, to offer significant lineups of EVs in Canada. In doing so, some could view Canada as the ideal jurisdiction to set up their first manufacturing and innovation facilities to serve the North American market.

And with some of the major oil and gas firms actively seeking to diversify towards low carbon investments, the time is ripe for converting subsidies into conditional funding for partnerships on Canadian clean tech. Canada has plenty of wiggle room. During the height of the Covid-19 pandemic, the Energy Policy Tracker estimate of Canadian spending on fossil fuel subsidies stood at C$16B.

Indeed, since Canada has so much clean-tech catching up to do with other developed nations, there are no shortage of paradigms/ideas that can be adapted for Canada.

What is missing is political will.

Editor's note: This op-ed was corrected to indicate Chevron has sold its 50% stake in the Kitimat LNG project.

[Top image: In 2021, renewables investments, for the first time in history, will be greater than investments in the oil and gas sectors combined.  Photo credit: shutterstock​]