Articles
28.01.10

Renewable Sustainable Investment

Article 1; Written for Western Divestments Publication January 2009.

Renewable Sustainability

 

Is Darfur a horrific collision of geopolitical events competing for resources both renewable and non renewable?  Could these events issue a warning to the need for management and sustainability of resource development and preservation of natural earth systems?

 

If we went back in time, a mere 5-10,000 years, the Sudan, Ethiopia, and the sub-Saharan belt in Africa would have been considered a 'have region' defined by the Canadian Standard of 'have and have not' provinces.  Rich in natural resources these regions, anthropologists have argued produced competitive advantages for the cultures dependant on the landscape for survival.

 

Hopefully these few words have raised an eyebrow!  And, no this is not an article suggesting inappropriate management, politically contrived petroleum law (i.e. the royalty review in Alberta), or irresponsible resource development will lead the rest of the world down the same destructive path.  But the notion does exist that management of natural resources can be both advantageous and potentially damning for those faced with the so called 'unintended consequences' of being a stakeholder confronted by contentious issues during resource extraction.

 

Consider briefly, Danny Williams the premier of Newfoundland and Labrador challenging Abitibibowater with 'emergency legislation' denying the corporation right of access to timber resources and repatriating the natural resources back to the' rightful owners' - the people of Newfoundland and Labrador, as the company is closing operations in the region.  Or the Pekisko Group of Southern Alberta representing a land use framework along the eastern slopes of Alberta that would prevent oil and gas lease development in a region that supplies most of the prairie provinces with drinking water (with some water winding up in the Gulf of Mexico).  This region also acts as a carbon filtration system influencing weather and food production for 2/3rds of Canada.

 

The notion this dialogue puts forth is the idea of sustainability and investment in the field of resource development and the myths of past thinking that suggest endless abundance of our most important resources.  Think briefly of the simple equation that influences our fundamental being; Air + Water + Energy = Food.

 

Much literature has been published espousing the well documented concepts of sustainability and resource management.  Conventional thought over the last twenty-five years suggests that resource extraction for non-renewable resources is somehow sustainable if both current and future generations can enjoy access to the resource.  Renewable resources have presented less of a problem as long as there is perceived equality in the right of access across the domain of stakeholders.  The access to both renewable and non-renewable resources is monitored by a complex moving target issued by the government of the day tying natural resource law to a social discount rate that implies some amount of the resource can be used today and some, given sufficient technological advancement and social responsibility, will be retrievable by future generations.  Many corporations advise us they are sustainable due to ongoing quarterly or annual earnings performance and suggest at the very least the criterion of sustainability is satisfied due to favourable returns for their shareholders.

 

 

The disconnect in the above is, resources have always been classified as either renewable or non-renewable. What if all resources were non-renewable?  For almost two billion inhabitants of the planet access to clean drinking water is a daily struggle.  For most of us on the planet air borne particulates linked to adverse health issues are a concern.  Somehow two of the most abundant resources on the planet seem alarmingly non-renewable. 

 

For those of us in the petroleum industry the debate over Peak Oil has created distinct camps.  It is likely true the only thing either side can agree on is that the concept of Peak Oil is a profound culprit of the extreme volatility in the oil markets over the last several quarters.  Policy makers are considering alternatives to the conventional benchmarks of West Texas Intermediate or Saudi Light to aid in the markets understanding of the complex basket of hydrocarbon products available to a host of industrial and consumer applications.  If, during the run up to almost $150 US/bbl of oil, in the first half of 2008 the oil markets more readily acknowledged differential prices things may have been different.  And, if the general market understood the economics of our hydrocarbon based economy transitioning from low sulphur easy oil to heavy oils; the issues of scarcity may not have produced extreme volatility in energy and commodities markets.  With stable prices, where a reasonable return on investment can be maintained, investment is sustainable.

 

What if this same debate existed for a Peak Water Theory?  Would the benchmark price be $50/750 ml of bottled water, found in some high end restaurant?  What if a Peak Water Theory obtained the same media attention as line ups at the pumps did while filling our SUVS?  How much would a bbl of Alberta Fresh Water be? 

 

It does seem that the conventional wisdom for sustainability with respect to natural earth systems and its resources needs to be re-evaluated.  With acute demand for commodities around the planet and 6 billion and counting voracious consumers sustainability cannot simply be accounted for though a social discount rate that mitigates risk through broad sweeping assumptions of current and future access to a resource.  The formula is not equipped to deal with class distinction in our communities and humanity cannot ethically judge who should be a 'have vs. a have not' when it comes to constrained resources that are essential to life. Sustainability with respect to resource development means a process cannot bottleneck or deny access to one resource for sake of another.  In other words a community cannot be denied access to clean drinking water or clean air for the sake of producing a barrel of oil, mining a tonne of coal, or from harvesting timber. 

 

What are the solutions going forward?  One of the most obvious solutions is to tie environmental metrics to the financial statements of extraction industries.  Investors and shareholders could benefit from improved stakeholder relations that often limit or hamstring negotiations over resource use.  In the oil and gas industry there are numerous opportunities to increase efficiencies and improve processes that have the convenient and 'intended consequence' of improving profitability. Some examples are; a) the use of 4D Seismic, and passive micro seismic applications to improve reservoir definition and understand fluid characteristics in mature fields. b) in-situ upgrading of heavy oil.  Companies such as Shell, Petrobank, and Ivanhoe are deploying technologies that upgrade heavy oil in the subsurface, contain CO2 emissions, and reduce water consumption during production. c) in the field of knowledge management, web enabled systems that incorporate structured and unstructured data distribution of information in an open environment are the best bet for both retention and future access to intellectual property.

 

Another 'intended consequence' of these processes and systems is an inherent and conscious decision to improve access to and hence the sustainability of hydrocarbon resources while mitigating risk.  Could it be that, 'quantified sustainability' in resource management improves both shareholder and stakeholder value?  A visit to the web pages of the Dow Jones Sustainability Index or the Jantzi Social Index might convince even the most sceptical that the financial markets and access to capital can be motivated by the concept of quantified sustainability in the oil and gas industry, and other mining operations.

 

The conclusion to be drawn from all of this and in particular to those of us reading this Western Divestments publication, while wondering about the future of our industry is that quantifiable sustainability can be a sound business practice.  This is possible if not essential in all business cycles.  Sustainability does not necessarily disadvantage those following a strict code of conduct or managing under a regime of rigorous environmental standards.  The fact is these practices are the best investment we can make for the health of our communities.