HOUSTON — Jim Mattis, the retired U.S. marine general and Donald Trump’s first defence secretary, left a rapt audience at CERAWeek with this parting advice: Watch your assumptions like a hawk. 

A significant percentage of the 11,000 people who attended S&P Global’s annual energy extravaganza filled a hotel ballroom on March 23 to watch Mattis talk with S&P Global senior vice-president Carlos Pascual and Suzanne Maloney, an Iran expert at the Brookings Institution, about the biggest energy story in the world. 

Mattis, who resigned after two years in the first Trump administration, had already punctured any remaining assumptions that the U.S.-Israeli war on Iran would leave the world in a better place. “If we were to declare victory and basically pull out our armada, the number of forces we’ve sent there, [Iran] would say, ‘We now own the Strait,’” Mattis said.  

In other words, the best-case scenario would leave Iran in a position to administer some kind of toll on the oil, natural gas and other commodities that pass through the Strait of Hormuz. The other possibility—escalation—would be more of what the world has been watching since Feb. 28, only worse. Neither scenario suggests oil and gas prices will be returning to prewar prices anytime soon. The polycrisis rolls on. 

It’s a bad idea to cling to old notions when everything is coming undone. Mattis advised the business leaders in the room to hire someone to stress test every assumption on which their strategies were based; he shared that he used to have an aide from the CIA who kept him honest. “Check your assumptions very closely [during] this time, because they can give you a pathway into some really bad decisions when you are in this crisis mode right now,” he said.  

What assumptions might Canada have wrong? Probably too many to tally in one go, so let’s narrow the focus to the issue of the moment. 

Even before the Iran war, Prime Minister Mark Carney, Alberta Premier Danielle Smith and other leaders were talking freely about Canada as an energy superpower. Practically every Canadian at CERAWeek—and there were a lot of them—described the real-time geopolitical shift to energy independence as an opportunity. “Alberta really is a powerhouse when it comes to energy,” said Brian Jean, the province’s energy minister. “All we need to do is get it to market.” 

All we need to do is get it to market. 

The assumption for years has been that the only thing standing between Canada and superpower status was its aversion to stringing pipelines across undisturbed wilderness. That aversion has softened considerably since Carney became prime minister a year ago. Yet the federal and Alberta governments missed their April 1 deadline to clear a regulatory path for a new pipeline to the West Coast. 

Why? It isn’t a lack of opportunity. Mark Maki, chief executive of Crown-owned pipeline company Trans Mountain, said at the conference that China and India “love” Alberta’s heavy oil. My guess: the delay is rooted in the political class’s assumption that profit-seeking enterprises would be keen to chase that opportunity and join the Big Leagues. The revealed preference of the five oilsands behemoths who would fill any new pipeline suggests they are only moderately interested in making the jump to superpower status. They have it too good being merely powerful, so why change?

The misalignment between government and industry showed itself each time Jean appeared onstage at CERAWeek. I noticed a disconnect between Cenovus and the Alberta energy minister over who should cover the cost of a carbon capture and storage system, a condition of the federal government’s support for a pipeline. There was another such moment when Jean appeared alongside Enbridge executive Colin Gruending, who oversees pipelines that the company says transport about 30 per cent of the oil produced in North America. 

More pipelines will be necessary, Gruending said, but Enbridge isn’t responsible for any holdup. “We need to talk about a couple of other P’s here too,” he said. “One is policy and another is production to fill them. I feel like we over-index on the pipeline part, but we have got to make sure the other two are in lockstep.” 

The oilsands exist because of an excellent marriage between former Alberta premier Peter Lougheed’s desire to make his province wealthier and the oil industry’s wildcat spirit. But that union of purpose has faded since the local subsidiary of Sunoco that became Suncor Energy began mining bitumen nearly six decades ago. One of Lougheed’s successors, Ralph Klein, slashed royalty rates and gave the industry a long leash. Lougheed’s entrepreneurial state was replaced by a different kind of government.  

Alberta’s oil industry has also changed. Canadian Natural Resources Ltd., Suncor and Cenovus—the three distinctly Canadian oilsands miners—have evolved into hyper-efficient producers who need an oil price of only US$60 per barrel to generate gushers of cash. The oilsands companies are now majority-owned by institutional investors and Canadian banks, not freewheeling entrepreneurs. That changes the incentive structure. Institutional investors are wary of expensive greenfield investment, and they attach no value to moonshots such as carbon capture. They want predictable returns over long periods of time, so the oilsands companies have responded by focusing on free cash flows, dividends and share buybacks.  

“It’s not my money,” Nick McKenna, president of ConocoPhillips Canada, said at CERAWeek. “It’s my investors’ money. They need a return.”

That’s not as greedy as it sounds. Just as executives like McKenna feel bound by a fiduciary responsibility to their shareholders, institutional investors see themselves as stewards of pension funds and individual nest-eggs. Oilsands executives and fund managers are getting rich, while also doing their part to ensure many of us receive a pension.

But any assumption that those companies would jump at a chance to fill a new pipeline was a faulty one. The opportunity to become an energy superpower is of only secondary importance for Canada’s biggest oil companies because they have no incentive to make big bets. Their mission now is to generate cash—and they already are world-class at doing that. 

Kevin Carmichael is The Logic’s economics columnist and editor-at-large. He has spent more than two decades covering economics, business and finance for outlets including Bloomberg News, The Globe and Mail and the Financial Post, where he also served as editor-in-chief.