Alberta
The Alberta energy transition you haven’t heard about
From the Canadian Energy Centre
Horizontal drilling technology and more investment in oil production have fundamentally changed the industry
There’s extensive discussion today about energy transition and transformation. Its primary focus is a transition from fossil fuels to lower-carbon energy sources.
But in Alberta, a fundamental but different energy transition has already taken place, and its ripple effects stretch into businesses and communities across the province.
The shift has affected the full spectrum of oil and gas activity: where production happens, how it’s done, who does it and what type of energy is produced.
Oil and gas development in Alberta today largely happens in different places and uses different technologies than 20 years ago. As a result, the companies that support activity and the communities where operations happen have had to change.
Regional Shift
For the first decade of this century, in terms of numbers of wells, most drilling activity happened in central and southeast Alberta, with companies primarily using vertical wells to target conventional shallow natural gas deposits.
In 2005, producers drilled more than 8,000 natural gas wells in these areas, according to Alberta Energy Regulator (AER) records.
But then, three things happened. The price of natural gas declined, the price of oil went up and new horizontal drilling technology unlocked vast energy resources that were previously uneconomic to produce.
By 2015, the amount of natural gas wells companies drilled in central and southeast Alberta was just 256. In 2023, the number dropped to only 50. Over approximately 20 years, activity dropped by 99 per cent.
Where did the investment capital go? The oil sands and heavy oil reserves of Alberta’s northeast and shale plays, including the Montney and Duvernay, in the province’s foothills and northwest.
Nearly 60 per cent of activity outside of the oil-rich northeast occurred in central and southeast Alberta in 2005. By 2023, overall oil and gas drilling in those regions had dropped by 30 per cent, while at the same time increasing by 159 per cent in the foothills and northwest.
“The migration of activity from central and southern Alberta to other regions of the province has been significant,” says David Yager, a longtime oil and gas service company executive who now works as a special advisor to Alberta Premier Danielle Smith.
“For decades there were vibrant oil service communities in places like Medicine Hat, Taber, Brooks, Drumheller and Red Deer,” he says.
“These [oil service communities] have contracted materially with the new service centres growing in places like Lloydminster, Bonnyville, Rocky Mountain House, Edson, Whitecourt, Fox Creek and Grande Prairie.”
Fewer Wells and Fewer Rigs
Extended-reach horizontal drilling compared to shallow, vertical drilling enables more oil and gas production from fewer wells.
Outside the oil sands, in 2005, producers in Alberta drilled 17,300 wells. In 2023, that dropped to just 3,700 wells, according to AER data.
Despite that massive nearly 80 per cent decrease in wells drilled, total production of oil, natural gas and natural gas liquids outside of the oil sands is essentially the same today as it was in 2005.
Last year, non-oil sands production was 3.1 million barrels of oil equivalent (boe) per day, compared to 3.4 million boe per day in 2005–but from about 13,600 fewer new wells.
Innovation from drilling and energy services companies has been a major factor in achieving these impressive results, says Mark Scholz, CEO of the Canadian Association of Energy Contractors. But there’s been a downside.
Yager notes that much of the drilling and service equipment employed on conventional oil and gas development is not suited for unconventional resource exploitation.
Scholz says the productivity improvements resulted in an oversupply of rigs, especially rigs with limited depth ratings and limited capability for “pad” drilling, where multiple wells are drilled the same area on the surface.
Rigs have been required to drill significantly deeper wellbores than in the traditional shallow gas market, he says.
“This has resulted in rig decommissioning or relocations and a tactical effort to upgrade engines, mud pumps, walking systems and pipe-handling technology to meet evolving customer demands,” he says.
“You need not go beyond the reductions in Canada’s drilling rig fleet to understand the impact of these operational innovations. Twenty years ago, there were 950 drilling rigs; today, we have 350, a 65 per cent reduction. [And] further contractions are likely in the near term.”
Scholz says, “collaboration and partnerships between producers and contractors were necessary to make this transition successful, but the rig fleet has evolved into a much deeper, technologically advanced fleet.”
A Higher Cost of Entry
Yager says that along with growth in the oil sands, replacing thousands of new vertical shallow gas wells with fewer, high-volume extended-reach horizontal wells has made it more challenging for smaller companies to participate.
“The barriers to entry in terms of capital required have changed tremendously. At one time a new shallow gas well could be drilled and put on stream for $150,000. Today’s wells in unconventional plays cost from $3 million to $8 million each,” he says.
“This has materially changed the exploration and production companies developing the resource, and the type of oilfield services equipment employed. An industry that was once dominated by multiple smaller players is increasingly consolidating into fewer, larger entities. This has unintended consequences that are not well understood by the public.”
More Oil (Sands), Less Gas
Higher oil prices and horizontal drilling helped change Alberta from a natural gas hotbed to a global oil powerhouse.
In the oil sands, horizontal wells enabled a key technology called steam assisted gravity drainage (SAGD), which went into commercial service in 2001 to allow for a massive expansion of what is referred to as in situ oil sands production.
In 2005, mining dominated oil sands production, at about 625,000 barrels per day compared to 440,000 barrels per day from in situ projects. In situ oil sands production exceeded mining for the first time in 2013, at 1.1 million barrels per day compared to 975,000 barrels per day from mining.
Today the oil sands production split is nearly half and half. Last year, in situ projects–primarily SAGD–produced approximately 1.8 million barrels per day, compared to about 1.7 million barrels per day from mining.
Natural gas used to exceed oil production in Alberta. In 2005, natural gas provided 54 per cent of the province’s total oil and gas supply. Nearly two decades later, oil accounts for 60 per cent compared to 29 per cent from natural gas. The remaining approximately 11 per cent of production is natural gas liquids like propane, butane and ethane.
Alberta’s non-renewable resource revenue reflects the shift in activity to more oil sands and less natural gas.
In 2005, Alberta received $8.4 billion in natural gas royalties and $950 million from the oil sands. In 2023, the oil sands led by a wide margin, providing $16.9 billion in royalties compared to $3.6 billion from natural gas.
Innovation and Emerging Resources
As Alberta’s oil and gas industry continues to evolve, another shift is happening as investments increase into emissions reduction technologies like carbon capture and storage (CCS) and emerging resources.
Since 2015, CCS projects in Alberta have safely stored more than 14 million tonnes of CO2 that would have otherwise been emitted to the atmosphere. And more CCS capacity is being developed.
Construction is underway on an $8.9-billion new net-zero plant producing polyethylene, the world’s most widely used plastic, that will capture and store CO2 emissions using the Alberta Carbon Trunk Line hub. Two additional CCS projects got the green light to proceed this summer.
Meanwhile, in 2023, producers spent $700 million on emerging resources including hydrogen, geothermal energy, helium and lithium. That’s more than double the $230 million invested in 2020, the first year the AER collected the data.
“Energy service contractors are on the frontlines of Canada’s energy evolution, helping develop new subsurface commodities such as lithium, heat from geothermal and helium,” Scholz says.
“The next level of innovation will be on the emission reduction front, and we see breakthroughs in electrification, batteries, bi-fuel engines and fuel-switching,” he says.
“The same level of collaboration between service providers and operators that we saw in our productivity improvement is required to achieve similar results with emission reduction technologies.”
From the Canadian Energy Centre
For Canada, the path to a stronger economy — and stronger global influence — runs through energy.
That’s the view of David Detomasi, a professor at the Smith School of Business at Queen’s University.
Detomasi, author of Profits and Power: Navigating the Politics and Geopolitics of Oil, argues that there is a moral case for developing Canada’s energy, both for Canadians and the world.
David Detomasi. Photo courtesy Smith School of Business, Queen’s University
CEC: What does being an energy superpower mean to you?
DD: It means Canada is strong enough to affect the system as a whole by its choices.
There is something really valuable about Canada’s — and Alberta’s — way of producing carbon energy that goes beyond just the monetary rewards.
CEC: You talk about the moral case for developing Canada’s energy. What do you mean?
DD: I think the default assumption in public rhetoric is that the environmental movement is the only voice speaking for the moral betterment of the world. That needs to be challenged.
That public rhetoric is that the act of cultivating a powerful, effective economic engine is somehow wrong or bad, and that efforts to create wealth are somehow morally tainted.
I think that’s dead wrong. Economic growth is morally good, and we should foster it.
Economic growth generates money, and you can’t do anything you want to do in social expenditures without that engine.
Economic growth is critical to doing all the other things we want to do as Canadians, like having a publicly funded health care system or providing transfer payments to less well-off provinces.
Over the last 10 years, many people in Canada came to equate moral leadership with getting off of oil and gas as quickly as possible. I think that is a mistake, and far too narrow.
Instead, I think moral leadership means you play that game, you play it well, and you do it in our interest, in the Canadian way.
We need a solid base of economic prosperity in this country first, and then we can help others.
CEC: Why is it important to expand Canada’s energy trade?
DD: Canada is, and has always been, a trading nation, because we’ve got a lot of geography and not that many people.
If we don’t trade what we have with the outside world, we aren’t going to be able to develop economically, because we don’t have the internal size and capacity.
Historically, most of that trade has been with the United States. Geography and history mean it will always be our primary trade partner.
But the United States clearly can be an unreliable partner. Free and open trade matters more to Canada than it does to the U.S. Indeed, a big chunk of the American people is skeptical of participating in a global trading system.
As the United States perhaps withdraws from the international trading and investment system, there’s room for Canada to reinforce it in places where we can use our resource advantages to build new, stronger relationships.
One of these is Europe, which still imports a lot of gas. We can also build positive relationships with the enormous emerging markets of China and India, both of whom want and will need enormous supplies of energy for many decades.
I would like to be able to offer partners the alternative option of buying Canadian energy so that they are less reliant on, say, Iranian or Russian energy.
Canada can also maybe eventually help the two billion people in the world currently without energy access.
CEC: What benefits could Canadians gain by becoming an energy superpower?
DD: The first and primary responsibility of our federal government is to look after Canada. At the end of the day, the goal is to improve Canada’s welfare and enhance its sovereignty.
More carbon energy development helps Canada. We have massive debt, an investment crisis and productivity problems that we’ve been talking about forever. Economic and job growth are weak.
Solving these will require profitable and productive industries. We don’t have so many economic strengths in this country that we can voluntarily ignore or constrain one of our biggest industries.
The economic benefits pay for things that make you stronger as a country.
They make you more resilient on the social welfare front and make increasing defence expenditures, which we sorely need, more affordable. It allows us to manage the debt that we’re running up, and supports deals for Canada’s Indigenous peoples.
CEC: Are there specific projects that you advocate for to make Canada an energy superpower?
DD: Canada’s energy needs egress, and getting it out to places other than the United States. That means more transport and port facilities to Canada’s coasts.
We also need domestic energy transport networks. People don’t know this, but a big chunk of Ontario’s oil supply runs through Michigan, posing a latent security risk to Ontario’s energy security.
We need to change the perception that pipelines are evil. There’s a spiderweb of them across the globe, and more are being built.
Building pipelines here, with Canadian technology and know-how, builds our competitiveness and enhances our sovereignty.
Economic growth enhances sovereignty and provides the resources to do other things. We should applaud and encourage it, and the carbon energy sector can lead the way.
A new program funded by the Sustainable Canadian Agricultural Partnership will accelerate expansion in Alberta greenhouses and vertical farms.
Albertans want to keep their hard-earned money in the province and support producers by choosing locally grown, high-quality produce. The new three-year, $10-milllion Growing Greenhouses program aims to stimulate industry growth and provide fresh fruit and vegetables to Albertans throughout the year.
“Everything our ministry does is about ensuring Albertans have secure access to safe, high-quality food. We are continually working to build resilience and sustainability into our food production systems, increase opportunities for producers and processors, create jobs and feed Albertans. This new program will fund technologies that increase food production and improve energy efficiency.”
“Through this investment, we’re supporting Alberta’s growers and ensuring Canadians have access to fresh, locally-grown fruits and vegetables on grocery shelves year-round. This program strengthens local communities, drives innovation, and creates new opportunities for agricultural entrepreneurs, reinforcing Canada’s food system and economy.”
The Growing Greenhouses program supports the controlled environment agriculture sector with new construction or expansion improvements to existing greenhouses and vertical farms that produce food at a commercial scale. It also aligns with Alberta’s Buy Local initiative launched this year as consumers will be able to purchase more local produce all year-round.
The program was created in alignment with the needs identified by the greenhouse sector, with a goal to reduce seasonal import reliance entering fall, which increases fruit and vegetable prices.
“This program is a game-changer for Alberta’s greenhouse sector. By investing in expansion and innovation, we can grow more fresh produce year-round, reduce reliance on imports, and strengthen food security for Albertans. Our growers are ready to meet the demand with sustainable, locally grown vegetables and fruits, and this support ensures we can do so while creating new jobs and opportunities in communities across the province. We are very grateful to the Governments of Canada and Alberta for this investment in our sector and for working collaboratively with us.”
Sustainable Canadian Agricultural Partnership (Sustainable CAP)
Sustainable CAP is a five-year, $3.5-billion investment by federal, provincial and territorial governments to strengthen competitiveness, innovation and resiliency in Canada’s agriculture, agri-food and agri-based products sector. This includes $1 billion in federal programs and activities and $2.5 billion that is cost-shared 60 per cent federally and 40 per cent provincially/territorially for programs that are designed and delivered by provinces and territories.
Quick facts
- Alberta’s greenhouse sector ranks fourth in Canada:
- 195 greenhouses produce $145 million in produce and 60 per cent of them operate year-round.
- Greenhouse food production is growing by 6.2 per cent annually.
- Alberta imports $349 million in fresh produce annually.
- The program supports sector growth by investing in renewable and efficient energy systems, advanced lighting systems, energy-saving construction, and automation and robotics systems.
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