Fail Fast, but Learn Faster – Going Global, Alberta!
Today, Alberta carries a sustained budget deficit of $10.64b (FP, GoA), at about 10% unemployment rate, and Calgary, once the fastest growing city in Canada sits at 30% office vacancy rate and 7% residential vacancy rate (25Y all time high). The question is that will Calgary become like Detroit? Has Canadian oil and gas industry lost its competitiveness?
This morning we gathered to hold the second round of Going Global, Alberta. The following is a reflection on the initiation.
If you operate in the Canadian oil and gas sector and interested in exporting to International markets continue reading.
Canadian oil and gas cluster
Canadian E&Ps mostly see US, EU and South America as their natural top choices of geographical expansion, then the Asia Pacific and China. The Middle East usually left for the very end. The service sector follows a similar pathway, though the top notch Canadian SME’s often acquired by US rivals.
The cluster is accustomed to 6-12 month recovery time-frames whenever global economic crisis pushed the commodity prices down and left the cluster in crisis; a period short enough for companies to survive and even expand through consolidation. But what about the current downturn?
ARC’s Peter Tertzakian’s recent post suggests a lot of uncertainty around the projection of the oil consumption (see below). The level of uncertainty simply keeps cheap capital out of reach to the industry for development of liquids for a while.
Scenarios of Future Oil Consumption 2025-2040 (ARC Energy)
The ground is shifting!
Recent reports suggest major change in the global strategic map of the oil and gas and energy industry (more on BP, Shell, ExxonMobil, Dentons, EIA). Accelerated pace of development of renewable energies supported by social and environmental driven policies have eroded the competitiveness of the oil and gas industry. E&Ps are struggling to keep their dividends steady, while some even started diversifying to renewable resources.
BP revised its rate of growth of demand for liquids (yes, again) to the extent that BP’s chief economist foresee that billions of barrels of oil resource may end up left in the ground unexploited forever.
The shift has already started, cut 400,000 jobs out from the industry, but it would take decades to complete. The deceleration factors are accelerated global population in developing countries, and the legacy of the oil and gas supply chain and distribution channels.
“The best way to predict the future is to create it” – Peter Drucker.
Let’s take a look at the major trends in our industry:
- Social and environmental license is getting harder on fossil based resources
- Alternative renewable energy resources are very competitive economically
- Low commodity prices for longer (thanks to breakthrough technologies)
- Rise of the protectionism and the right wing
Above trends will signal E&Ps to hire a mix of following strategies:
- Cost: To seek for innovative solutions to reduce unit cost
- Cost: To push service industry and supply chain for lower service fees,
- Scale and efficiency: Consolidation, revisit asset mix,
- Portfolio: To diversify their portfolio to include renewable energies and low-cost barrel resources (Middle East?!)
How the Canadian service industry could develop set of strategies to align with the ones for E&Ps? How could Canadian oilfield services and supply chain sectors take the advantage of the above four strategies?
The following are proposed strategies that the Canadian service industry can benefit from:
- Innovate: Innovation is the key to competitiveness. It allows Canadian industry to provide the E&P sector better solutions, and at lower cost. Also, it allows them to compete better in the International markets. Connect with universities, professional groups and network in/out of the industry for new ideas. Our industry is not top of the line when it comes to innovation, so there is a lot to be done in this arena.
- Diversify: Geographical expansion is not a luxury for Canadian oil patch, it is a necessity, it is the life-line. Canadian service sector needs to shift its view to export, from a “revenue filler”, to a “long-term strategy”. You cannot export occasionally, when you fall short in sales in a quarter. It doesn’t work that way. Export development is a coordinated effort that demands leadership’s commitment and focus. The Canadian cluster has unique specialties such as heavy oil technologies that can be offered to projects in Russia, Oman and Iran (see Habhab project in Oman for an example).
- Collaborate: Think creative ways to collaborate with your clients, as well as with your peers. Many emerging markets demand integrated services. Your collaboration with other Canadian peers in entering into Oman, for example, can mitigate several risks while improving your marketing effort. There is a trend in emerging market for local content and technology transfer. Take the advantage of this trend when competing with the big four service companies targeting developing nations.
Why technology development is vital to export?
The answer is reflected in below graph. Innovation gives you an advantage when you compete globally. Are we doing good and enough in Alberta and in our oil and gas cluster? Going Global can definitely benefit from participation of key innovation institutions, namely UoC, UoA, Alberta Innovates, COSIA, PTAC and others.
Proportion of Innovating and Non-Innovating SMEs that Exported in Canada – 2014
What is Going Global?
This is an initiation to boost Alberta export globally. The effort is made jointly by EDC, BDC, TCS, PSAC, CGEF and few other stakeholders coordinated by JWN.
Canadian oil and gas cluster is dynamic, diverse, sizable, … but seems less eager to export opportunities. The cluster is a victim of Canadian prosperous diverse asset base, and a decent pool of local experts and of course good access to cheap energy capital (at least until 2014). Numbers suggest that only 11.8% of Canadian SMEs are exporting (GoC, 2014), of that 89% exported to US which accounts for 74% of the total export value.
You can quit the oil and gas industry. But if you decide to stay in, then you need to think differently, you need to do different things to grow and expand.
See the Going Global resource page here.
The good news!
The good news is that you can receive export advisory services to Canadian SMEs today. For start take a look at EDC and BDC web page. Give them a call and ask for guidance. All you need is your courage and determination. There are tons of resources available to Canadian SME who want to expand globally and start exporting.
Contact us if you are a Canadian Small-to-Medium company and need consulting or advisory services to go global. Our focus is the Middle East region.