Home » News » OP-ED: Gulf spill may spell trouble for Alberta
News
OP-ED: Gulf spill may spell trouble for Alberta
Opinion Featured | Edmonton Journal | David Finch and Paul Varella | May 24, 2010
Read the full article on the originating site
There is no doubt that the environmental disaster evolving in the Gulf of Mexico will have implications for the Alberta energy sector. The oil spill is a stark reminder of the challenges that face this industry.
Some have speculated this disaster could be positive for the industry because the devastation in the gulf will show that onshore operations, such as the oilsands, are relatively safer.
Moreover, industry analysts believe this event could dramatically limit the potential of offshore assets, thereby increasing the value of other large oil resources such as the oilsands.
Though we agree perspective is important, we think history will teach us that this oil spill could have broad negative implications on the Alberta energy industry as well.
Corporate reputation can be a powerful asset or a massive liability. Reputation is simply the bridge between the past and the future. We look at past behaviour and use it as a compass to predict the future.
A firm’s reputation in the oil and gas sector, however, is trumped by the industry’s reputation. In other words, the reputation of the oil and gas industry is only as strong as its weakest link.
We found evidence of this in polling we did shortly after the dead duck disaster; it showed fewer than two per cent of Canadians could identify Syncrude as the company responsible. Most respondents had no idea which company owned the tailings pond on which the ducks perished, yet they had no difficulty passing judgment on the whole industry.
We like to do a little test with our business students. We ask them to name the company where the ducks died in the tailings ponds. Though almost all are familiar with the incident, at best five per cent can name the company.
But when we ask which firm was implicated in 1996 for using child labour, more than 90 per cent can name Nike. This is interesting given that most of these students were not even in kindergarten when the Nike child labour issue erupted.
This shows that when people have a direct relationship with a company, corporate reputation (good or bad) has a powerful impact on both attitude and behaviour. But in the case of the oil and gas industry, most people have little if any direct relationship with the upstream industry, so it is easy to generalize “big oil.” In this case, attitude and behaviour are influenced by perceptions of the whole industry.
So, why should managers in the Alberta oilpatch be concerned about the Gulf spill? Because reputation is highly intertwined with a company’s “social licence to operate.”
In a democracy, voters ultimately define the terms of this “social licence,” which results from a risk-versus-return calculation made by society. Voters will weigh the costs and benefits to society resulting from the activities of a company, or in this case, an industry. These voters will then pass judgment on the terms of the social licence.
Catastrophic happenings like the Gulf spill tarnish the whole industry and can convince the public that changes need to be made. Astute politicians will get ahead of this curve.
The challenge is that the terms of the social licence for the energy sector are not defined exclusively by Albertans. Other key constituencies reside in cities like Toronto, Montreal, Vancouver and San Francisco. These voters will have the power to influence these terms.
This already occurred in California when the state adopted a new low-carbon fuel standard that could limit future market access to the oilsands.
It also occurred when Prime Minister Stephen Harper announced, in the midst of the last federal election campaign, a move to ban exports of raw bitumen to countries that do not match the Canadian commitment to reduce greenhouse gas emissions.
This new policy was not the result of extensive consultation with industry or environmental groups. Rather, it was a not-so-subtle attempt to sway voters in key ridings in Ontario, Quebec and B.C., in an attempt to show that the Conservatives are serious about the environment.
It will not take long for opinion makers to connect the dots from the Gulf spill to the tailings ponds. It is not difficult to imagine CNN-style computer simulations of the contamination of the Athabasca River following the breech of a tailings pond.
The industry will say that it can never happen, but will the voters who control the industry’s social licence believe it?
If history is the foundation of reputation, the reputation and the future of the Alberta oil and gas industry is now firmly stuck in the oily goo in the waters of the Gulf of Mexico.
David Finch is an assistant professor and Paul Varella is an associate professor in the Bissett School of Business, Mount Royal University, Calgary
Tagged with: alberta, gulf oil spill, edmonton journal
