Sector Report: Oil and Gas
The oil and gas sector contributes an average of $17 billion to government coffers yearly and employs approximately 500,000 through direct and indirect jobs. In global rankings, Canada is the fifth largest producer of natural gas and the fifth largest producer of crude oil.
The Canadian oil and gas sector encompasses three segments. The upstream segment finds and produces crude oil and natural gas and is sometimes referred to as the exploration and production (E&P) segment. The midstream segments processes, stores, markets and transports (through pipelines) the commodities; and the downstream segment processes it and gets it to market through refineries, petrochemical plants, distributors and retail outlets.
Canadian companies are renowned internationally for excellence in a number of areas in the oil and gas industry, including E&P methods; heavy oil and sour gas; the construction, operation, monitoring of pipelines; optimization software and other computer applications; and a variety of services and equipment. Canadian companies have and are continually working on innovation in enhanced recovery and unconventional development. This innovation has a trickle-down effect into environmental technologies, geomatics, information technology and communications (the digital oilfield), and health and safety equipment. This is why international buyers are interested in Canadian companies.
“That’s something we’re currently doing,” said Robert Hodges, Export Development Canada’s sector adviser for oil and gas. “We’re trying to find the Canadian companies that could be relevant so that we can make them aware of the applicable international opportunities.”
There is a definite shift in strategy with this lower-price environment. When the price was more than $100 a barrel, Canadian companies were operating at near capacity and weren’t necessarily thinking about export opportunities. But in the current low-price environment, things have slowed down domestically and in the U.S., so Canadians are now looking for those foreign opportunities.
“At EDC, we’re using a Team Canada approach — leveraging both our international business development group and our regional staff in Canada, in conjunction with Global Affairs Canada and provincial and industry associations — to identify those international opportunities and promote them to relevant Canadian companies,” Hodges said.
ExportWise spoke with Hodges to get his sense of where the sector stands, where it’s going, and how Canadian exporters can best get a piece of its future successes.
Tell us about your role and responsibilities at EDC.
I’m sector adviser for oil and gas, so I’m basically responsible for the development and execution of EDC’s corporate strategy for supporting Canadian companies operating within the oil and gas industry. My priorities and responsibilities include developing and executing strategy; supporting our business development teams in encouraging Canadian companies operating in the sector; and selecting, developing, and executing events that facilitate introductions for relevant Canadian companies to the procurement needs of international buyers.
What kind of companies export in this sector?
It’s broken up into upstream, midstream, and downstream. Upstream is the actual exploration and production, to bring the oil and gas to the surface. Midstream is the transmission of the oil and gas through pipelines and downstream is the refinery aspect. We’re renowned for our capabilities and technologies in upstream and midstream. It’s hard to generalize the kinds of companies that export because lots of Canadian companies, regardless of their size and segment, have a value proposition that would be relevant to an international buyer.
Where are the export opportunities for companies in the oil and gas sector now?
In this lower-price environment, there is predominantly a slowdown across the board. Even those lower-cost producing countries are re-evaluating capital expenditures. It’s all about cost savings, price, innovative technology, optimization applications, environmental technology, improved processes and procedures — anything that gives a leg up on costs.
When it comes to the geography of opportunities, it’s truly global. Our international connections — through EDC and our partners — provide us with a myriad of opportunities. Currently we’re seeing interest in Australia, Brazil, Colombia, India, Mexico, Turkey, the Middle East, the U.K., and the U.S.
In terms of opportunities in other markets where we currently have limited involvement, there’s Iran, which a lot of companies are asking about now that sanctions are being lifted. A lot of companies are also asking about Argentina. EDC is currently evaluating how we can best support Canadian companies in those markets. And just because we’re not looking at a country specifically doesn’t mean Global Affairs Canada or our provincial partners, aren’t looking at it.
Are there supply-chain opportunities for Canadian companies in this sector?
Yes — across the board. It inevitably comes down to either price or whether the offering is innovative or cost-efficient.
What are the characteristics of companies in this sector that are doing well?
The companies that are successful in going international are the ones leveraging relationships — whether through EDC, Global Affairs Canada, or provincial partners. They tend to figure out what these foreign buyers are looking for relative to what they offer and they’re actually willing to act on that market knowledge. They’re willing to do a little bit of the work. If they’re interested in a certain buyer in a certain market, they’ll actually do some of the preliminary work to get registered on their site to be a qualified supplier. That’s key when you’re looking at a sit-down meeting with the buyer, be it at one of our events, or a referral through the Trade Commissioner Service. The first question a buyer typically asks is ‘Are you registered on our procurement site?’ If they have done that legwork, that shows they’re making an effort to get business in that market with that buyer, and that gives them an advantage over someone who is hesitating.
The successful ones also have a value proposition, such as: ‘This is going to save you money,’ ‘this is going to be a process improvement,’ ‘here’s our competitive advantage’, or ‘this is a better mousetrap.’ That sort of message looks good to the buyer.
What are some of the mistakes that companies in the oil and gas sector make?
There’s some commonality. Some of them don’t do the legwork that I mentioned earlier — they don’t do their due diligence on the market, they don’t seek out key buyers nor start the registration process on the procurement site. Sometimes, if they are interested in a specific market they haven’t considered appropriate domestic or international trade shows. This is important as EDC, GAC or provincial partners could have a matchmaking session organized with key buyers in various regions. We, and our partners, endeavour to get interested buyers of Canadian goods and services to visit Canada during shows such as the Global Petroleum Show in Calgary so they can meet a critical mass of Canadian companies in a short period of time.
What should companies in this sector know about exporting that they don’t know?
There’s lots of resources available to assist them if they’re looking at a specific market. EDC, through its website, has country information. You can go to the Global Affairs website and drill down to a specific trade commissioner for that region; they talk about the sectors and have valuable information. You can actually reach out to the Trade Commissioner Service to get some more specific data. I mean, both EDC and Global Affairs Canada and the other provincial partners are there to help Canadian companies go, grow and succeed.
How can EDC help companies in this sector?
You mean aside from products and services such as financing, guarantees, bonding and insurance? Our goal through our trade creation strategy is to introduce Canadian companies to international buyers. And we do that in a variety of ways. There are flagship events such as the Global Petroleum Show in Calgary, ADIPEC in Abu Dhabi, Congreso Mexicano de Petroleo in Mexico, and others. We also organize webinars as a cost-effective way for foreign buyers to communicate their procurement needs to Canadian companies. We also make virtual introductions when we see a Canadian company fulfilling the needs of a buyer. Regardless of the approach, we’re trying to help the exporter, but we would only set up the meeting for them if we felt there was a value for them and the buyer.
EDC has also provided support through a $750-million oil and gas fund to help small- and medium-sized Canadian companies through this downturn. EDC will be choosing to support firms that have a solid survival plan for the next two years. As well, potential recipients would need to have an ‘export angle’ — whether they’re active internationally or are interested in expanding beyond Canada.
EDC will be focusing on investments aimed at boosting productivity, opening up new markets for resources, advancing technology that can help firms diversify into different industries and improving environmental sustainability.