Interview: Deborah Gullaher
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Interview Description
IBR: Describe the importance of Suncor’s downstream business, under the Petro-Canada brand, to the company’s integrated business model?
DG: From a financial standpoint, the downstream business provides Suncor with financial stability and is a key contributor to earnings and cash flow. The integration of the upstream and downstream segments provides an internal market for our products. Within the downstream segment, the majority of our refined product production of gas and diesel goes through our retail and wholesale channels.
IBR: How does Suncor’s commitment to sustainability transfer down to the company’s downstream division?
DG: Suncor is a leader in the area of sustainability. In recognition of our commitment to sustainability, we have been recognized by the Chartered Professional Accountants for excellence in corporate reporting. We are also listed on the Corporate Knights’ Global 100 index. We participate in several industry forums, such as COSIA (Canadian Oil Sands Innovation Alliance) to improve sustainability for the entire industry. Internally, we challenge ourselves to have a sustainability mindset in all of our operations. In our downstream segment, this can be seen in the production of environmentally responsible lubricant products, as well as working to reduce electrical and water consumption at our retail facilities through installation of LED lighting and water recycling at our car washes.
IBR: Many studies forecast that gasoline consumption is expected to drop by 2.1 million barrels/day by 2040 in the US. Do you expect a similar trend to occur in Canada, and if so, how is Suncor preparing for this shift?
DG: We are continually monitoring areas that we believe will impact consumption, such as the Corporate Average Fuel Economy (CAFE) standards, alternate energy sources, and demographic trends and the impact these changes have on consumer behavior. It is interesting to note that consumers continue to buy SUVs and less fuel-efficient vehicles. We want to meet the needs of our consumers so we will continue to watch the trends and developments closely. We are proactively planning for gasoline demand decline over the next 10 to 20 years and we are focusing on two main areas of opportunity: gasoline growth in rural markets and diesel growth in retail and wholesale.
IBR: Does shifting away from refining oil into gasoline have a negative effect on Suncor’s refining operations?
DG: It is difficult for refineries to materially change the ratio of gasoline to diesel that they produce. This challenge exists because the refinery is designed to produce a certain ratio of gas and diesel given the crudes that they refine. The more likely scenario is that we will deal with any supply imbalances through imports, exports, and storage.
IBR: Does Suncor see any new alternative fuels altering the retail market in the next 10-20 years?
DG: We assess various forms of alternative energy sources every year as part of our strategic planning process. We look at multiple factors including type of storage, infrastructure requirements, auto manufacturer buy-in, and consumer trends to determine the likely growth in new energy segments. Out of all of these alternatives, I believe that electricity has the greatest growth potential in retail over the next 20 years. Electric vehicles are still in their infancy, however. We project that it will take at least ten years for electric cars to make up 3% of new car sales, which is where diesel is today. We are planning to learn more about this area and pilot some EV stations at our retail sites. The reality is that electricity as a fuel still has a significant number of challenges. While there currently is enough generated capacity to support a few charging stations, large-scale adoption could be a challenge for the grid. Additionally, the long charging time is still an issue. The electric market really needs a breakthrough in battery technology. With Elon Musk’s new $5 B battery plant in Nevada, maybe he’ll be able to develop something that really changes the game.
IBR: How does Suncor plan to price the use of an electric charging station?
DG: That’s is something we will need to work through. We are all still learning and the exact pricing model will develop over time.
IBR: Stepping away from electrical, new entrants like ENN Canada are selling liquified natural gas a substitute for diesel fuel. Are LNG players siphoning off diesel sales a concern for Suncor?
DG: Suncor does not see LNG as a threat to our fuel business, but rather a potential complimentary product. I should note that LNG has some barriers to adoption, specifically regarding the safety risk to the consumer. There are also technological barriers, including the requirement that LNG fuel be delivered in a specialized cryogenic tank and stored at -100 degrees Celsius when idle. LNG may have potential in the wholesale market, where long haul, heavy duty vehicles have the size required to justify LNG use. However, we don’t expect material growth in this area.
IBR: Can you comment on Toyota’s recent announcement of its hydrogen-powered vehicle, Mirai, and the company’s plan to retain ownership of the fueling stations?
DG: I can’t speak to Toyota’s announcement, but I can say that predicting the future success of alternative fuels is challenging due to the speed of technology, and its impact on consumer behaviour. Toyota is not the only auto manufacturer with an interest in hydrogen fueled vehicles. There was a recent article in the Globe and Mail that described Hyundai’s desire to develop a fleet of hydrogen fueled vehicles in Canada and they are bringing their Tucson FCEV to British Columbia, where a small infrastructure of hydrogen fueling stations exists today. On fact alone, it is not obvious that hydrogen technology will have a significant place in the future; there are a number of key obstacles to overcome such as availability, cost of infrastructure, and consumer acceptance. It is an area that we will continue to keep an eye on as Suncor is committed to meeting the fuel demands of Canadian drivers.
IBR: Are there any lessons that can be taken from the failure of propane as a motor fuel that should be considered when growing any of the aforementioned alternative fuels?
DG: Propane is considered an alternative fuel to gasoline and diesel. I believe propane has been negatively affected by the entrance of other, more attractive alternative fuels. Additionally, there has been very limited auto manufacturer and original equipment manufacturer support. Other factors that contributed to its failure include reduced government policy support, trucker legislation, and safety standards. Finally, vehicles require an aftermarket conversion kit to retrofit the vehicle to use propane. Due to these factors, there has been reluctance to invest in significant infrastructure.
IBR: This isn’t the first time Suncor has been forward thinking in providing alternative fuels.
DG: Yes, that’s true. Suncor is proactive in regards to alternative energies and fuels. The company has been blending ethanol in its gasoline since 1996, more than a decade ahead of the ethanol regulations in Ontario (est. 2007). In 2006, Suncor opened the St. Clair ethanol plant, the largest ethanol plant in Canada with a capacity of 400 million liters per year. St. Clair is the leading provider for the Golden Horseshoe, Canada’s largest gasoline consuming region by volume.
IBR: Do you think growth in alternative fuels interferes with Suncor’s desire to grow its presence in the Canadian oil sands?
DG: I don’t see alternative fuels having an effect on our upstream business. Taking the fuels we’ve discussed and others into account, even at their maturity we don’t believe they will be material enough to impact our upstream business.
IBR: What would you tell a university student who wanted to work in alternative energies, whether retail or infrastructure?
DG: If a student has a passion for sustainability, I think they have a couple of options. They could work for a company who makes that space its core business, such as an NGO. Their second option is to work for a company like Suncor who has a sustainability mindset and business division, but is also passionate about the area and strives to achieve sustainability in its day-to-day business and at all steps in its value chain. Lastly, those who have relevant experience, whether work, volunteer, or school clubs, will certainly have a competitive advantage when aiming to work in this area of business.