Beyond the Boom: The Future of Canada's Oil & Gas Industry

Speaker A: Foreign.

Speaker B: My name is Jeremy Cote and you're listening to Iona.

Speaker A: On today's episode, we'll discuss Canadian oil and gas project at a time where our Prime Minister, Mark Carney, vows to jumpstart the Canadian productivity. What is the future looking like for our homegrown oil and gas industry? Just this morning, on October 27, 2025, TD bank published a not so glamorous report on Canadian productivity levels. They highlight a sharp decline in Canadian productivity growth over the past decade. With nearly $28,000 of investment per worker per year. The US invests nearly twice as much capital per worker as Canada does. More worrisome, this tangent has been accelerating since the pandemic. The senior Deputy Governor of the bank of Canada has publicly referred to the situation as an emergency. Trying to find causes, some experts have pointed at the environmental regulations on the oil and gas industry put in place since 2015. They argue that this is limiting investment in Canada's premier industry and also limiting productivity. Today, to discuss this important topic, we receive Charles St Arnou Schall is the chief economist at Alberta, uh, Central, the central banking facility and trade association for Alberta's credit union. His work focuses on monetary policy, the oil industry, productivity, housing and household finance. He has previously worked as an economist and strategist for the bank of Canada, the Department of Finance, Morgan Stanley, Lombard, ODA and Nomura in New York. The future of Canada's Oil and Gas Industry, an episode produced and edited by Jeremy Cote with the collaboration of, uh, Charles. Charles, thank you very much for joining us today.

Speaker C: Good afternoon. My pleasure to, uh, join you.

Speaker B: So it has now been over a decade since the end of Alberta's oil boom in 2014 and the subsequent economic recession that we know Alberta experienced. Following that, could you maybe start by giving us an overview of the current state of Alberta's oil and gas industry?

Speaker C: Yeah, well, the oil and gas industry kind of finds itself at an interesting juncture, is that we're still seeing investment, nothing compared to what we saw during the boom years of the early 2000s. That came actually to a sudden stop in, uh, 2014 when we had a sharp drop in energy prices, with oil prices going from about $140 a barrel to like $40 in the space of six months. And that basically dried out all investment in the sector. But right now we're still seeing some investment, but it's more to, uh, regain or to improve the efficiency of current assets. So it's not, we're not talking about new greenfield investments, so we're not talking about a New uh, oil sand mine for example, that's being developed. So it's more, let's try to improve uh, efficiency, how to extract more barrels out of the current system. But at the same time. So we're continuing to see oil production increasing. We're actually uh, production is reaching record almost year after year, uh, over the past uh, six, seven years or so. And with that, revenues in the oil industry are still extremely high, despite oil prices right now that are um, kind of not as good as they, as most producers would like to see. But it's still generating relatively high level uh, of revenues. What has changed though, and it's fundamental right now in the oil industry is that a greater share of those revenues are being returned to shareholders in terms of dividend and share buybacks, and also a smaller share of those revenues are being reinvested in operations.

Speaker B: This is really interesting. On the one hand, we have the industry reaching record level production and record level profits, yet we see very little money being reinvested locally here in Canada. Why is that so?

Speaker C: Yeah, well I think there's two things we have to think there. One is like from those uh, dividend and share buybacks we have to remember, and that's something I should, I failed to mention, is that we have to remember that about 80% of the shareholders of Canadian oil companies are not Canadians. So 80% of those shareholders are foreigners, mainly U.S. uh, investors. So when those dividends are returned to shareholders, it actually gets returned to, it goes outside of the country. But we also have to look at it also in a different way way is that the way I often describe the oil industry is that we're now in what I would call a mature phase of the industry, um, if we'll put it this way, is that the period of the mid 2000s to the mid 2010s was in some ways kind of the startup phase of the oil sands. We finally kind of found a way to make oil sands extremely profitable for at least being able to produce more and generate revenues out of that. And the industry invested massively in those resources and uh, basically without necessarily, uh, looking into how much it costs. And profitability was not necessarily the aim. A bit similar to when you look at startup, uh, in many industries, in the high tech industry, it's just in a slower moving because those investment takes time to happen. So as in the startup of a new industry, you invest massively. Profitability is not necessarily the aim. What you aim is to future capacity.

Speaker B: Charles, you brought up production increase. I would also like to talk about Demand. There seems to be quite a fundamental disagreement. Uh, on the one hand, we have energy tycoons that are claiming a sustainable demand growth for oil and gas products throughout the next decade or so. Uh, and on the other hand, we have more independent energy analysts and environmental exports that are actually warning of the oil and gas. The demand for oil and gas products just quite literally flattening by 2030. Uh, I'd be curious, uh, to know what is your data suggesting at, uh, Alberta Central?

Speaker C: Yeah, well, I think there's a bit of. Both camps are a bit. Right. I think it's just we need to look at. We need to take a bit more care in looking into the details. So when I look at demand, is that what we can say is that if you look at all the expectations for the demand for. Especially if we look. If you focus mainly on oil, because gas is a bit of a different animal at the moment is in terms of oil demand, whether we look at various, uh, forecasts, we'll see oil demand start to plateau somewhere in the 2000s. Some say it's in the early 2000s. Some say it's late 2000s. And then we'll start to see demand slow down and probably start to decline somewhere in the 2000s. So that's kind of roughly where the consensus is. The question is how quickly it's going to happen. I think we have to be careful that we also have to look that oil has a lot of other usage than only being extracted, refined and burned. We can all drive an EV tomorrow. We all still need the same thing. And it's a road, and most likely that road is made with asphalt, which comes from oil. The same with, if we start looking at other usage, whether it's um, petrochemicals, plastics, uh, carbon fiber, like there's a lot of industry usage that can come from, uh, oil. So there will still be demand. I think the demand is just not going to be as important as it is right now.

Speaker B: Well then, given that large oil and gas infrastructure can cost billions of dollars and take years, if not decades to be completed. Um, just I have in mind a recent completion of the Trans Mountain pipeline expansion, um, and that the global demand for oil and gas might plateau in the, uh, mid-2030s, is it a sound economic decision for Canada to carry such strategic investment in 2025 when we are trying to move away from those fossil fuel? I mean, is there even money to be generated? Uh, for Canadians, yeah.

Speaker C: Well, that's the, I would call it the Billion, if not trillion dollar question is that there is a window of opportunity to bring very important revenues in Canada in as you explained in your introduction, we have issues with productivity, we have a lot of investment, a lot of areas in the economy that we will need to have money to spend to invest. So it's that, it's that you will need that development to achieve our long term goal in other uh, sector of the economy. But that windows of opportunity is very small and is going to close very rapidly if we don't take it. But at the same time we can also help to make our energy sector more resilient to energy transition. Like I said, we can all drive ev. We'll still need asphalt, uh, so how can we help and invest into kind of doing more research to use our production locally to and direct it towards more um, durable usage. Whether like I said, it's asphalt, whether it's uh, carbon fiber, like let's be honest, there will still be oil, sand, produce production in 30, 40 years from now because it will still be profitable because the cost of production is extremely low. So ensuring that there is a market there or ensuring that we already develop a market there already, uh, is probably as crucial as exporting more to other countries. So it needs to be a bit of both.

Speaker A: Right, and so you mentioned a very interesting piece there speaking about uh, investment window that we have right now. And well, the federal government announced in early September the first five projects on the major project office list. On that list There was only one LNG project, LNG Canada Phase 2, which is arguably already well underway. Um, and no pipeline for oil. What signals uh, is that sending to the industry?

Speaker C: Yeah, well I think on the LNG side for LNG Canada Phase 2, it was in some ways a uh, very low hanging fruit because we knew it was coming. They were already planning, they were already doing the work. So it's kind of giving them a boost that yes, it's going to happen. And as I said, we need that LNG to be exported outside of our border because one demand in Asia will be extremely high, whether it's for their own consumption, for production, uh, of energy and all that, or petrochemicals. But also we have also an issue in Canada where we kind of have a glut of natural gas in our market to a point where actually not too long ago the gas price in Alberta was negative. So at some point it doesn't make any sense to produce or we should be able to produce, but be able to get the maximum price available. And unfortunately that Maximum price is not in North America, it's actually in Asia, it's in Europe. So having that is a very big positive. So I think for LNG Canada that's really that it was, everything was pushing in the right direction. It's not let's be honest, it will be an easy first win for the um, Big Project Office when it comes to the oil pipeline. Well it's a bit harder for the big Project pipeline for a pipeline to make the list. There was no official project being advanced by anyone. There's no private backer right now who says yes I want to build a uh, pipeline. The only thing we have is the government of Alberta saying that we will do all the application for um, uh the Big Project Office to ensure that there's a project so that then when they say yes, someone from the private sector can come and do it. But we don't know even if it's approved are the big pipeline companies be willing to build it? That is still a big open question.

Speaker A: Right. And well you also, you mentioned a very uh, important piece there again mentioning uh, the Canadian oil, especially Canadian gas, uh, trading at a discount. This has long been a problem. Um so with the construction of a new pipeline like that necessarily automatically fix that long term problem of Canada.

Speaker C: Well in some ways CMX or the Trans Mountain as expansion has already fixed the problem. On the oil side the differential between what we call Western Canada select which is the price of uh heavy Canadian oil is roughly about between 10 and $12 a barrel since, well since about the opening of uh tm that's roughly where the fair value would be compared to where the prices of um Western Canada select and the difference is the difference in quality. The uh, West Texas Intermediate is what we call uh, light and sweet so it's a better grade while Western Canada select is more is what they call heavy and sour so it costs more uh to refine the analogy I make is like WCS is like your regular uh gasoline at the pump and WTI is your premium at the pump. There will always be a price differential between the two. It's just where is the natural and the natural difference is about 10 to $12 a barrel where we are right now. So TMX actually did what the label said it was supposed to do was to increase exports outside of the US which it did because now we export about 8 to 9% of oil production outside of the of the US before TMX was about 3% so still managed to triple that. But more importantly was really that narrowing of the spread My estimates put that that narrowing of the spread just for the first year of operation of TMX brought in about 13 billion in extra revenues for the oil industry. That's the equivalent of one extra month of production at no cost. That's pure profit.

Speaker A: Interesting. But now are those profits necessarily being reinvested in Canada? Uh, that comes back to our initial question and it also brings me m to my next point. Um, so you've mentioned. So the government of Alberta is going ahead with uh, kind of uh, doing like filing all the paperwork with uh, the federal government, with the major project office, uh, with the idea of fast tracking a pipeline. However, there's no financial back roof for such a project. For an oil pipeline specifically. Um, and with private capital and institutional investors increasingly apply esg, uh, criteria across the board, um, how will this uh, affect the capital availability for oil and gas at the end of the day, at the end of the year? Will there be someone committing to finance uh, an oil pipeline?

Speaker C: Well that's a big question. I think the question if we will come back to the SG component, but what the tmx, the construction I've shown is that it is very expensive to build a pipeline in Canada. And I.

Speaker A: Why is that?

Speaker C: Well there's been many, many differences, many problems with the TMX from uh, changing like a lot of change in the engineering, having to read, redirect the route a couple of times. So there's been uh, delays, there's been the permitting, there's been also all the court uh, challenges that have delayed. So the project has been probably hit by every single problem you can imagine with a big infrastructure project. And my view is that it should be analyzed in terms of what went wrong and why the cost exploded. So much to learn from the problems because a lot of the learning could be transferred uh, to other big project that we have, not just to oil pipeline. Whether it's a new port terminal, whether it's a new uh, rail line. We definitely need lots of infrastructure in Canada to be built over the next decade. And if we don't learn from those mistakes of the past and why we've had those excessive cost, everything is going to cost too much to build and nothing will get built. So we really need to get that. So I think TMX should be used as a learning uh, process. So then the question is, is an oil producer willing to come in and face those kind of costs? That's a big question. When it comes to esg, I think we have to be very careful on how ESG is made and how we Think about ESG I used to work for when I worked at Lombardo, uh, da. I was in their investment manager, uh, branch. And a lot of what they do is actually impact investing, ESG investing and all that. But we have to remember that ESG investing doesn't mean just minimizing a score or just saying that, oh, we're the most ESG investing. No, it's relative to each other because if you just minimize the score, you end up just investing in, uh, tech services and never in anything that's manufacturing or uh, natural resource production and all that. And that's not what you want. What you want actually is to incentivize good behavior. So actually what you should be doing with ESG and many those who do what I call clever esg, who actually thought about it, what they do, they actually invest in the companies that are actually getting result. So that could mean that you have two. And comparing within an industry, that means, for example, in the oil industry, you have two oil producers. Well, you might be investing in the one, um, that has a higher level of pollution in terms of emission, but it's actually doing a lot of investment and actually its delta is coming lower. So you're seeing a fast reduction in their level of pollution because they're actually serious. While if the other one is posing less but does nothing. Should you be rewarding someone who does nothing to prevent pollution? And is that you want to reward those who are actually taking action and getting result for their action?

Speaker A: Right, Absolutely. Um, so, I mean, I see time flying by and so I want to kind of, uh, go on with our agenda and kind of coming back with our original prompt, which was talking about Canada's productivity problem. It's one of the lowest amount G7, uh, trading partners. What's limiting. What's creating this productivity problem?

Speaker C: Oh boy. Yeah, I would say that could be a whole podcast on its own because there's. It's a multifaceted and that I think it's where as an economist I'm a bit worried is that we're not seeing the. We don't want to really see the whole picture. It comes from one Canadian or Canadian, uh, businesses have been investing much less in productive means than, than their partner. And not just for the past 10 years. That's been decades in the making. You can go back, I've done the calculation. You can go back to the early 80s seeing Canada under investing in machinery, equipment and intellectual property. Another part is even there. We're not investing in the right part of the economy. Uh, one Statistic that I often give to people is that until very recently we were spending more or almost as much in home renovation and homeownership transfer cost, in other words flipping homes than we were on again machinery, equipment and intellectual property. So if we spend on non productive ways that is not going to help us uh, either. So we need to rethink a lot of our economic system and quite fundamentally another part that is important is that we are not competitive. And a lot of it has been happening through since if we look at our manufacturing sector more specifically since about the late 1990s we've had barely any growth in our manufacturing sector and in our export to the rest of the country to the point where actually we are completely. Normally our exports were growing in line with imports from the uh, from the US or demand in the US and now we're diverging completely and lagging. And what's going on is that Canada has not adapted to the new reality of globalization where we used to be the cheap supplier to the US but unfortunately with globalization they find a cheaper supplier in China and other Asian countries. But we never reinvested, we never reinvented ourselves as a country to move up in the value added or in the uh, in the scale of our uh, to be more kind of mid middle goods or more kind of value, higher value added goods uh, for our exports. So we kind of end up being in situation where we kind of got complacent over the past 25, 30 years and now it's coming to haunt us where we're not. We haven't seen like, we've seen basically like for, for a country like Canada that kind of uh, pride itself to be called a trading nation. Well our exports as like our exports per capita have flatlined completely for the past uh, 30. So there's something completely wrong and that includes exports from uh, good services and natural resources. So there is something there. So solving productivity will need just more than uh, it's a multifaceted problem, right?

Speaker A: So like it is so often the case with major economic problems like the housing crisis also has multiple root causes.

Speaker C: Uh, and the housing crisis has an impact on productivity, right? Like that whole, like I was explaining that whole increase or uh, very high investment or spending on renovation and homeownership transfer cost takes up money, takes up money, takes up resources that could go for productivity. So it's, and that's the problem is that we're not, I don't think sometimes we see, we're seeing that it's all ethical system and it's not if you just solve one problem and problem might come up at another place. So it might be just a whack the ball type of game.

Speaker A: Right. Um, so you've said something that really caught my attention there. You've talked about us becoming more complacent in the past couple years, maybe even a couple decades, uh, about just Canada being like exporting products and not maybe investing much and thinking ahead in the future with significant investment for, you know, like a new pipeline really help us achieve this kind of productivity growth that we're looking for. Um, in the sense, and I think you've previously researched this yourself, that Canada, um, has become more and more reliant on its oil and gas industry. No.

Speaker C: Well, we've been very reliant, especially in the, during the boom years. But now without the boom years, it's much harder. Um, so the question is, will it, it might help. You have a lot of economists that are pushing that, well, increasing the export, uh, of oil and gas. Increasing that sector would be productive because it's a very productive sector. Yes, indeed. Uh, productivity in the oil and gas sector is seven times higher than national average. But it's only 3.5% of the economy. So even if you were to grow that sector in the economy, it would take a lot of growth to really generate uh, a lot of productivity gains. However, where it helps is that by exploiting those resources, by exporting most of the resources, you also have increasing revenues that hopefully stays in the country and gets healthy feed and finance other uh, type of investment in the country hopefully

Speaker A: stays in the country.

Speaker C: Well, and that's the thing is that the past 10 years have shown that really a smaller share of those revenues are being kept in the country.

Speaker A: Is there a way to fix that? I mean, I know in Canada the airline industry is heavily regulated in the sense, I think no, uh, foreign owner can own more than 50% of a Canadian airline. You've mentioned previously that uh, 80% of Canadian, uh, oil companies are actually owned by foreign investors. Uh, should we like, uh, should the government intervene in something like in some sort of regulations to try and keep those like profits at home?

Speaker C: I'm not a big fan of doing that. I think there's more ways to bring money in Canada by having uh, a more investment friendly environment and not just in the oil and gas in all sector, uh, of the economy. A lot of what we're seeing like we're talking about productivity and how it's more of a system and kind of a more holistic approach that's needed is that I don't think over the past 20, 30 years we've had uh, an economic system or policies where we were thinking in terms of we need to bring investment, we need to improve our productivity, we need to because. And we need to generate that kind of those, those investment. Because over the past 30, 40 years, the way I see it, and you see it also in the, in the way the policies were driven. A lot of the policies were made in terms of consumers working. Consumer spending was what mattered the most the more for growth because hey, consumers are 60% of GDP. So if they consume, if they continue to grow, it generates the economy. But what has been missed in that thinking is that yes, that's kind of the demand side of the economy. There's more consumers are consuming more and that generates more economic activity. But it kind of forgotten that those consumers, they will need an income to consume and that incomes come from higher wages that are directly link to productivity gain. So we kind of reach kind uh, of a turning point in that framework where Canada has made this whole economic model over the past 30 years on consumers, consumers spending, housing, uh, spending and housing investment. And now we kind of realize that oh yeah, but now the income has not increased for so long or has been a week, they are overly stretched whether it's through too much debt on the household side, um, and not enough income. And we can relate the housing affordability is as much as a problem of lack of income as it is a lack of supply for new homes. Uh, the same with the cost of living. Groceries, uh, and everything are expensive because our income are not growing. But that is all linked to productivity. So we kind of miss that thinking that oh yeah, there's a supply side on the economy that we also need to nurture to ensure that income, whether it's household income, whether it's business income or whether it's government income or revenues continue to increase so that we can actually spend on what we need and support the demand side of the economy. So that's really what's needed having that

Speaker A: more,

Speaker C: that more supply oriented thinking and that will require more investment in productive and productive means, whether it's business, whether it's machinery, uh, equipment, whether it's intellectual property, whether research and development goes into that. Infrastructure also uh, helps on that front. So it's really kind of putting a bit more of a focus on that rather than just constantly supporting the demand side via households.

Speaker B: So it's a really interesting point you brought up there Charles, mentioning the supply side of the Canadian economy. Needing a bit more planning, uh, maybe in the going forward in the next couple years, um, and especially significant investment. Uh, I do see time running out here and although there's a lot more I'd like to go over, I would like to keep uh, this reasonably short, so I'd like to move on to our conclusion. So I essentially have a list of a couple infrastructure projects that are currently being debated on the Canadian political landscape. And I'd like to have your opinion whether, uh, these projects will be built within the next five years. So the first one on my list, the Northern, uh, Gateway, uh, pipeline project.

Speaker A: Hello.

Speaker C: If we can get around all the opposition, I would say yes. And it will be beneficial because it opens up to where demand for energy will be in the next few decades and it's Asia. And it helps to also to continue to benefit from the full price of our resources.

Speaker A: Right. Um, next one, the Keystone xl.

Speaker C: Keystone Excel, I would say yes, if we find someone who's willing to back it because the political will is there. I think both in the US And Canada there's a bit more support and it's also a lot easier to build. You don't have to cross mountains. So the engineering work and all that is a bit more, a bit less tricky than for example Northern Gateway.

Speaker A: Right. And it's already, the construction has already started too. Right.

Speaker C: Well, actually the Canadian side of Keystone XL is actually fully built, apparently. So it's only the US Side that needs to be uh, to be built.

Speaker A: Okay. Uh, Canada's emission trading ceiling, uh, is it uh, staying in place or it's going down the hatch as well, just like the consumer carbon tax?

Speaker C: That's a good question. I think for me is it's in need of a big reform. I think the way it was done as a pure cap in level, did it work and didn't provide the right incentive to the system. My view is that it should have been done in terms of objective, in terms of, or target in terms of um, emission intensity. So emission per barrel. But it can be relatively, um, kind of very strict. But the right way of doing it, having it as an intensity measure or intensity target, is that you have a carrot and stick approach. You have the stake that, hey, you need to reach that target, otherwise you get fined or your project is not accepted. But you have the carrot that once you reach the uh, desired level, produce all you want, you can make revenues and you can make the investment that you've done in decarbonization. You can make them profitable because that's a Big thing is that if it's not profitable, why would a business do it?

Speaker A: Right. Uh, moving on, next project, uh, Western Energy Corridor, Alberta to Manitoba pipeline. Is that being built? Sure.

Speaker C: That I think would be more of an alternative to Northern Gateway.

Speaker A: Right.

Speaker C: The issue we have is that the port of Churchill, as much as, as it looks good and as much as in the next few decades with, uh, melting, uh, sea ice, it will be less of a problem. Right now it's still close M. Probably at least three, four, maybe more months a year. So that's uh, in the short run a bit of an issue. There's also how much investment do you need in terms of refueling stations around the world, around the coast or around the corridor for the Coast Guard for the icebreakers? There's a lot of logistics that is required to make it a viable port. And also when you speak to people in Manitoba that knows the area, the issue also with Churchill is that it's also becoming more and more a tourist hub. So there's a lot of opposition to modify that, uh, because M. Churchill is the uh, polar bear capital of the world, so it attracts a lot of tourism. So would an uh, oil terminal or gas power terminal change that, um, that industry? So that's where we'll have to see.

Speaker A: Yeah. Um, and finally, last kind of last project, uh, TransCanada 2.0. That's, that's a big one. Uh, I think a lot more contentious too. Is that. Is that being built by 2030?

Speaker C: I don't think so. I think we're. I think there's probably more chance in Dealer 1 that might be kind of the fallback if nothing else happened. But I think it's more, uh, it's

Speaker A: more the kind of the last resort.

Speaker C: The last resort because at the end of the day, as long as there's always that view in Canada that, oh, the eastern part of the country is importing. All the western part is exporting. It's just a detail. I can give another example that's very similar. Australia is one of the biggest LNG exporter in the world. Yes. The old yet the east coast where uh, Sydney, Brisbane and Melbourne are have to import some of their natural gas because they don't have a pipeline cross country because it's too expensive.

Speaker A: Right. And yeah, so same thing might very well apply to Canada given our distance, given uh, our geography. Uh, Shal, it was a pleasure hosting you. Thank you so much for sharing your insight with us, uh, today.

Speaker C: Well, thank you for having me.