By Alan M. Field

Recently, a group of scientists at the University of Alberta received a research grant of $340,000 from Alberta Innovates – Bio Solutions, an arm of the government-funded Alberta Research and Innovation Authority (ARIA). Now the scientists are trying to develop new technologies to manufacture what the Japanese call the “kokumi” sensation, in fish and poultry. Considered the sixth basic taste – and a potentially huge new food-business opportunity — kokumi molecules enhance the perception of saltiness even in foods that have a healthier, lower concentration of salt.

At Calgary-based Agrium Advanced Technologies, researchers have commercialized the company’s ‘Smarter Ways to Grow’ line-up of healthy turf, plants, and crops. Agrium calls itself “the world’s leading manufacturer and marketer of enhanced efficiency fertilizers and micronutrients.”

At SMART Technologies, also based in Calgary, scientists have developed a line-up of electronic “white boards,” which facilitate collaboration in schools and workplaces around the world “by turning group work into an interactive, engaging and productive experience,” according to the company.

What do all these innovative initiatives have in common, apart from their Alberta origins? Each represents an attempt to diversify Alberta’s economy from its heavy dependence on the energy sector. Lee Kruszewski, Executive Director, Innovation and Advanced Technologies Division, at Alberta Enterprise & Advanced Education, which advises ARIA, is optimistic. “Alberta has one of the highest per capita concentrations of technical people,” of any industrialized country, said Mr. Kruszewski. He added that the energy-rich province is enjoying “a net inflow of skilled labor, including skilled tradesmen, engineers and managers, and its young population has high science and math grades” comparable to leading nations like Finland.

The more things change…

And yet, despite this flurry of activity, Alberta’s economy remains as firmly rooted in the energy sector as ever. According to Alberta Venture magazine, in 2012, nine of the ten largest grossing companies in Alberta were involved in the energy sector; either in upstream development and production, or in downstream distribution. Thirty-six of the fifty largest companies in Alberta were involved in the energy sector. In the list of top-ten firms, the only exception was Agrium, the parent company of Agrium Advanced Technologies.

It’s not as if Alberta’s private and public sectors haven’t made repeated efforts in the past to develop other clusters of firms with innovative ideas, products and services outside the energy sector. On the contrary, noted Todd Hirsch, Senior Economist at ATB Financial, a crown corporation based in Calgary, “economic diversity has been the holy grail for Alberta policy makers” for many years. “We chase it and chase it, and yet it is always outside our grasp. In 2013, Alberta’s economy is less diversified than it was in the past.”

Worse, perhaps, Mr. Hirsch argued that those companies that are not in the energy sector are being “squeezed out [of Alberta] by energy sector companies that suck up talented people, and suck up capital” generated by energy-sector earnings. “They even suck up office space. It is a love-hate relationship; it is our bread and butter, but as energy booms, it tends to push out non-energy.”

Office space in Calgary has gotten so expensive, noted Mr. Hirsch, Agrium recently moved to a spacious office park outside the city. Meanwhile, the great majority of Calgary’s energy companies remain planted within a narrow radius inside Calgary, enabling them to network at frequent lunches. “We all want to be in proximity of a lot of rubber chicken lunches,” said Mr. Hirsch.

On the other hand, the good news about the energy sector, he added, is that “it has become [internally] much more diversified, and this [diversification of the energy sector] has saved our hide.” Back in 1981, conventional crude oil was “the only game in town,” noted Mr. Hirsch. Nowadays, “there are four legs on the energy stool, and if at least one of those legs is strong, then at least your pants are not getting dirty.” The four legs currently on that stool are first, conventional crude oil; second, natural gas; third, bitumen (oil sands or tar sands); and fourth, unconventional oils, such as shale oil.

When it comes to conventional crude, the oldest leg in the stool, most wells are reaching or are near the end of their capacity. Meanwhile, the natural gas story is “not intact,” notes Hirsch, now that prices have collapsed because of over-production. As for the third leg, bituminous oil prices are also low. With production in neighbouring North Dakota rising to surprising heights, the U.S. is no longer buying Canadian bitumen (or bituminous oil) at the same rate. That leaves unconventional oils like shale oil. Within all of those legs on the stool, said Mr. Hirsch, there has been an enormous amount of innovation; including horizontal fracking for extracting natural gas. A lot of that technology was pioneered in Alberta.

Much of what passes for innovation in Alberta is really a question of new ways to make the energy sector more productive. For example, these Calgary-based companies that have pursued such innovations:

Cenovus Energy: An integrated oil company, Cenovus owns 1.3 million net acres of land leases in the oil sands, and it is deep under the ground. But instead of removing the earth to get to the oil, Cenovus drills hundreds of meters below the ground and uses specialized technology such as steam-assisted gravity drainage (SAGD) to bring the oil to the surface. Cenovus has two major SAGD projects in the oil sands – Foster Creek and Christina Lake – as well as several projects in various stages of development. Since the oil is extremely thick, steam lowers its viscosity so it can flow through the sand and be pumped to the surface.

Focus Corporation: This firm’s Geomatics division provides a range of innovative technologies that including computer-aided land surveying, oil and gas surveying, global positioning technologies, geographic information systems, digital mapping and remote sensing and 3-D laser scanning.

Pason Systems: This firm is a leading provider of specialized data management systems for land-based and offshore rigs. Its rental applications, which deal with data acquisition, well-site reporting, remote communications, and web-based information management, make it possible for energy firms to manage collaboration between their rigs and the office. On location, at rig sites, Pason’s computers, instruments and monitoring equipment are networked around the drilling rig, providing real-time data to personnel at every location. Pason’s DataHub application collects, stores and presents drilling data, reports and real-time data about wells to customers, wherever they are located.

A new role for provincial government

Both during the 1970s and the 1990s, earlier Alberta governments made extensive efforts to diversify the economy and encourage technological innovation. In so doing, they took two very different approaches, which both failed to wean Alberta from its dependence on the energy sector. First, during the 1970s, the Alberta government acquired companies in a range of non-energy sectors, venturing into magnesium mining, high-tech manufacturing, waste management, and acquiring an airline – Pacific Western (which it owned between 1974 and 1983). “They threw money into these firms,” said Mr. Hirsch. “It was a top-down diversification; a dramatic shift from free enterprise. But almost all of these companies turned into white elephants, and were later sold off”. The only survivor, he noted, was Alberta Energy Co.

During the 1990s, the Alberta government took a very different approach to diversification, founded on free-market principles. It slashed taxes, established a flat income tax of 10 per cent, lowered corporate income taxes, and eliminated tax credits aimed at attracting innovative firms. “The energy companies loved this,” said Mr. Hirsch. “Alberta’s economy boomed, but it did not diversify Alberta’s base.” One problem was that although lots of people moved to Alberta, companies did not relocate to the province because Alberta’s labour costs were still high – about 20 per cent higher than in other provinces – and its commercial office space was expensive. Ultimately, neither top-down government intervention nor free-market deregulation did the trick. Perhaps a more moderate approach, based on cooperation between all stakeholders in the innovation process might work more effectively.

And so, on January 1, 2010, the Alberta Research and Innovation Act (ARIA) came into force. ARIA provides policy direction and advice aimed at helping Alberta take advantage of economic, scientific and technological opportunities, diversifying Alberta’s economy, and “empowering its future.” To that end, ARIA established Alberta Innovates, a unique system for fostering innovations in which businesses, government, and universities collaborate to share resources, experts, and ideas. Applied researchers from various institutions work together, unrestricted by the usual academic barriers, said Mr. Kruszewski, and supported by billions of dollars in long-term endowment funds. “Instead of needing to negotiate with multiple partners in industry, government and universities, you can access all the resources you need through one point of contact, one agreement and one system,” according to a mission statement on its web site.

Mr. Kruszewski explained that Alberta Innovates has established four entities that are each based on leveraging Alberta’s strengths, including its prowess in the energy sector. These entities are Alberta Innovates -Technology Futures (EI-TF); Alberta Innovates – Health Solutions (AI-HS); Alberta Innovates – Energy and Environment Solutions (AI-EES); and Alberta Innovates – Bio Solutions (AI-BS). Each entity is a corporation legally required to report to Alberta’s deputy premier Thomas Lukaszuk. Alberta Innovates not only issues annual reports, but is held accountable to meet the requirements of the Ministry, noted Mr. Kruszewski. One of these institutions is not brand-new. Over the past thirty years, Alberta Innovates – Health Solutions – formerly known as Alberta Heritage Foundation for Medical Research – has invested more than $1 billion in health and medical research.

“We are not just a funding agency,” explained Mr. Kruszewski. Alberta Innovates aims to avoid the mistakes of previous initiatives to foster innovation by bringing together the private and public sectors and providing them with both funding and a guiding hand. Rather than launch new firms on its own, or acquire existing ones, Alberta Innovates plays a series of intermediate, highly strategic roles: First, identifying “the right people and partners needed to bring projects to completion;” second, providing the technical expertise as part of the project’s “steering committee;” third, monitoring projects to make sure they stay “on track and in scope;” fourth, providing third-party validation of research; and fifth, making recommendations for the next stops to take. “Ultimately, it’s our role to ensure that government policy decisions are informed by sound technical analysis while innovative clean energy technologies are shared to speed up technology development worldwide,” said the organization in its mission statement.

“The unique thing is not just the corporations, but also Campus Alberta,” Mr. Kruszewski added. He was referring to an umbrella organization that brings together post-secondary institutions throughout the province that are engaged in research. These various institutions identify high-value opportunities, and then co-generate and coordinate related strategies, polices, programs, and investments, said Mr. Kruszewski. This approach aims to develop and support strong businesses throughout their “life cycle”; to mentor the most promising such firms, and to “increase private leverage in them as they develop, through significant co-investments with industry in top priority areas.”

Searching for bright new points of light

It will take years before many of these new projects can be qualified as either hits or expensive flops. While skeptics question whether Alberta can ever wean itself from over-dependence on the energy sector, Mr. Kruszewski and others are optimistic about the range of possibilities. A few recent promising examples:

With funding from Alberta Innovates – Bio Solutions (AI-BS), the Biorefining Conversions Network at the University of Alberta is trying to become a hub for bioeconomy investments and a world class centre of excellence for biorefining and biomass conversions. Using a Campus Alberta approach over the next three years, the network will receive $3.8 million for business development and research to convert the province’s agricultural and forestry biomass into “drop-in” fuels and chemicals that are compatible with both traditional and emerging industries.

Alberta Innovates – Health Solutions (AI-HS) is sponsoring a team of University of Calgary researchers to investigate novel ways to improve wound healing for burn survivors, by using adult stem cells to improve the function of split thickness skin grafts. Although skin grafts are currently the best treatment for serious burns, they lead to loss of skin sensation and function, loss of hair follicles, and altered appearance.

Alberta Innovates-Technology Futures (AI-TF) is co-sponsoring the Alberta- Finland Innovation and Commercial Program, funded by $2 million from Alberta’s Ministry of Enterprise and Advanced Education. Matching funds for the Finnish partner are provided through Finland’s government-supported innovation organization. Small and midsize Alberta enterprises will be using these funds to develop clean technologies such as in water management, environmental solutions and bio-industrial sectors.

For his part, Mr. Hirsch remains skeptical about the prospects of transforming Alberta’s economy into a more balanced engine for future growth. To some degree, the prospects will depend on how strong global demand is for the energy products and services that have become virtually synonymous with Alberta. Referring to numerous efforts by Albertans to develop innovative products in sectors outside the energy sector, Mr. Hirsch said, “These are small points of light, which if the night becomes very dark, would matter.” That is to say, if Alberta’s energy sector were to slow significantly, non-energy firms would grow in importance, and become more visible both at home and elsewhere around the world. “However,” Mr. Hirsch concluded, “when the energy sector is burning bright, these points of light tend to get drowned out.