Brian Zinchuk is editor and owner of Pipeline Online
Ken From, left, and Jon McKenzie. Photo courtesy PTRC
REGINA – Just days after taking the helm of Cenovus Energy Inc., Saskatchewan’s largest oil producer, Jon McKenzie was on stage at the Williston Basin Petroleum Conference in Regina on May 2. And he’s not afraid to call a spade a spade when it comes to the role of oil and gas in Canada over the next several decades. It’s not going away, according to McKenzie.
The new president and CEO of one of Canada’s largest oil producers spoke with Ken From, retired CEO from SaskEnergy, former CEO of the Petroleum Technology Research Centre and occasional columnist to Pipeline Online.
Cenovus has been one of the leaders of the Pathways Alliance, a collaboration of six major oilsands producers who are combining efforts for carbon capture and storage of oilsands greenhouse gas emissions.
Embedded in the fabric of the country
McKenzie said he’s been working in the industry for 35 years, from coast to coast to coast. “I think it’s kind of indicative of what this industry is to this country. It’s embedded in the fabric of this country. And as an industry, you know, this is something that people’s lives are better, from not on just from the products that we produce, the jobs that we produced as well. I’ve just been honored to be part of that.”
In laying out his vision for the company, he said, “I would kind of preface everything I’m about to say by saying that Cenovus, we’re an unapologetic hydrocarbon company.
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“And we are a company that produces a product I said that I think makes people’s lives better. The premier talked about cheap, reliable, and abundant energy. And that’s what we produce. So today, as a company, we’re producing about 800,000 barrels a day of production and are the second largest producer in Canada. We have 745,000 barrels a day of refining and upgrading capacity, which again, is the second largest downstream producer, in Canada. So, by any scale, we are large, we are a world scale producer. And we have a vision to take the company from the 800,000 barrels a day that we produce today, to something closer to a million barrels in the next five years.
“So this is something that is a bit of a change for our company, and change for the industry. And then after kind of seven, eight years of poor commodity prices, and retrenching this business, I think we’re finally in a position to grow. And that’s always exciting when companies start to spend money, hire people, you know, pay more royalties, pay more taxes, regenerate free cash flow for the investors as well. And that’s kind of the world that we see ourselves in.
He continued, “I think the challenge for us, though, is to make this growth consistent with the expectations of the Canadian people. And we have an obligation, one we take this very seriously, to reduce our carbon footprints and we’re actively involved with that.
“We are more broadly embracing things like Aboriginal reconciliation, water usage, land usage, all those things we take very seriously. So, we are in a world again, where I think the energy industry can start to grow. But it’ll probably be a very different type of growth than what we’ve seen in the past. And that’s really my vision for where we are. We’re hydrocarbon company, that seeks to grow responsibly,” McKenzie said.
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No other solution
From noted oil and gas is important as we live in colder climate. He pointed out that a Canadian bank had recently been criticized for investing in oil and gas. From asked if McKenzie was afraid of stranded assets.
McKenzie replied, “I don’t think I’m alone in being positive on the future outlook for the energy industry, in particular, in the oil and gas industry more broadly.
“I think if you look at any credible forecast for the energy mix, going forward for the foreseeable future, and when I say the for the foreseeable future, I’m talking about the next three, four decades. There is no credible forecast that comes out from any agency that doesn’t have hydrocarbons representing a substantial portion of the energy mix. And I think that’s very important.
“So that’s just not my view. This is the view of independent agencies that study this for a living.
“I’m really optimistic about this is oil and gas industry really, for two reasons. One is, I think Premier Moe mentioned this, is that without cheap, abundant, affordable energy, life is brutal. Life is short. You know, there’s one thing that First World nations all have in common: they have cheap, reliable, abundant energy. And today, hydrocarbons make up just over 80 per cent of that energy mix.
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“So even after spending the trillions of dollars on renewables over the last 30 years, the market share of hydrocarbons to stay relatively the same, stayed above 80 per cent. Because there really is no technological solution that replaces hydrocarbons more broadly.
“Over the long term, if you go back and look at energy trends year over year, you’ll find that oil and gas use just continues to incline year over year. In years where it does decline, like when we had COVID, like the 2008 financial crisis, but by and large, this continues to increase because there is no technological solution today, that replaces oil and gas. It’s ubiquitous in everything we do. You know, whether it be the petrochemical industry, which is scheduled to almost double over the next coming decades, or whether it’s transportation fuels, or everything we do, oil and gas plays a huge role in what we’re doing.
McKenzie continued, “Secondly, I would say is that demographics are in our favor, in that as a globe, we need all forms of energy, and we need them in increasing quantities. Over the next 30 years, we’re going to add somewhere between 1.5 and 2 billion people on the face of this earth. They are going to require a decent standard of living. And we still have a large portion of the global population that doesn’t have access to some of the basic things that we take for granted every day.
“So I would be of the view that the energy complex is going to grow, and that we’re going to need all forms of energy, including hydrocarbons, and particularly oil and gas.
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“So I think the question for us really is where should that energy come from? And again, Premier Moe talked a little bit about this. But if you look at the four largest resource basins in the world, where are all global resources kept? That Canada is in the top four, I think there’s going to be three or four, but you know, the resources in Saudi Arabia, Iran, Venezuela, and Canada. We have sort of a longevity in our resource base that can’t be replicated in any other country, particularly a country that respects human rights and has democratic principles embodied in it. That doesn’t really exist in the top four global resource countries, outside of Canada,” he said.
“And secondly, we’re the fourth largest producer of oil and gas, we are the only country that has a carbon tax, I would argue that we have the most stringent regulatory environments or any of the other top four producers, which include the USA, Saudi Arabia, and Russia.
Significant on any scale
McKenzie said, “So we are significant on any scale. This is something that Canada does particularly well; energy. For 10 per cent of our national economy, we are biggest export by far. And so, we as a country really need to think about what we want this energy complex to look like and how we intend to participate on it. But we should be particularly proud of what we’ve done, and particularly proud of where we’re going as a national energy producer.”
From recently returned from Norway, which has decided to go full bore in its oil and gas development, but doing it as “green as possible.” He said the elephant in the room is how energy-intensive production can be in Canada, referring to the oil sands. From asked McKenzie about the Pathways Alliance and its goal of cutting greenhouse gas emissions.
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McKenzie responded, “We as an industry, and we as a company have spent millions of dollars on reducing our carbon footprint, not only in the past, but also when we’re committed to the future. So at Cenovus, we have a target of reducing our greenhouse gas emissions in absolute numbers by 35 per cent by 2035. And we have a line of sight to doing that.
“Beyond that we have an aspirational goal of getting to net zero by 2050. And that’s a little bit more or less understood, in terms of the clarity of the pathway. This will require technology improvements and accepting of some technologies that today are probably not seen as mainstream, going forward.
Decarbonize the barrel
“But, one of the things that I think is important is, is the company and the industry has come to the conclusion that the right way to go about this is to decarbonize the barrel. So what he won’t see, I don’t think, of the major players in the oil sands, in the industry, as well as the conventional side of our business, which, you know, today is four and a half million barrels a day. It’s not insignificant by any stretch, is a shift towards a different business model. The right way to go about this is to decarbonize the barrel. And the best way we believe, to do this. And I think, again, this is shared by Pathways and shared by the peer group and Cenovus, itself, is one to not combust as much fuel as we do to liberate the carbon dioxide.”
In this, he was referring to the fact oil sands extraction process, such as steam assisted gravity drainage, require immense amounts of heat, generally from natural gas, to extract and process the raw bitumen captured within the oil sands.
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McKenzie continued, “But secondly, CCS (carbon capture and storage) is probably the right technology. That’s a proven technology to decarbonize the barrel and the kind of commodities that I mentioned before. To get to 35 per cent reduction, it is probably the only viable technology they get.” He said, adding that could include the “utilization” part of carbon capture, utilization and storage.
He noted carbon capture and storage had been a focus of the Pathways Alliance and the industry. “We are mobilizing on that front.”
Beyond 2035, he said small nuclear reactors have to be part of the equation.
Asked about Indigenous engagement, McKenzie responded, “One of the things that we fundamentally believe in, is that the communities in which we participate in individualism provinces in the country should benefit to the same extent or should benefit alongside with Cenovus, because we produce those resources.”
He added, “We really embraced, I think, the whole concept of Aboriginal reconciliation. And we think that the best way to do that is allowing them to participate in the economic prosperity that comes with oil and gas extraction and production. So, as a company, we set a target for ourselves to spend $1.2 billion with Aboriginal businesses by 2025. I think we’re actually three quarters of the way there today. But it’s something that we take very seriously.
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Editor’s note: After dodging the end-of-the-world plague for three years, I came down with it just days before this conference took place. It was the first time I’ve missed it since I started attending in 2009 (not counting the border closed 2021). I wish to extend my heartfelt thanks to the Petroleum Technology Research Centre, and in particular Norm Sacuta, who recorded the Williston Basin Petroleum Conference and provided photos so I would be able to report on it. Watch for several more stories on the conference over the coming weeks.