Transition will be Tough

Technology, Innovation and Transition was the promoted theme of the 2022 Calgary Energy Roundtable, but Energy Security stole the stage, with the twin threats of lack of investment and the war in Ukraine featuring prominently. A joint team of PLCAC Regular Member firms and union leaders participated in the Roundtable on May 25th.

The Hon. Jonathan Wilkinson, Minister of Natural Resources, highlighted the Government of Canada has committed to an increase of 300,000 BBD of production to global markets by end of 2022. The Minister went onto say the current policy approach of the Government of Canada will continue to be to “walk and chew gum” in addressing the twin challenges of Energy Security and Climate Change.

Investment portfolio manager Alex Letko, speaking on the seeming rise of electric vehicles, highlighted that passenger vehicles account for 25% of daily oil market demand while 75% of oil and gas markets are captured by areas that are hard to electrify, including the heavy-duty component of commercial trucking fleets. Letko reminded participants that petrochemical sectors still use 12 million BBD, the aviation sector uses 8 million BBD and that is with three-quarters of the world population having yet to step on an aircraft, and asphalt and lubricants having no currently known substitutes. In short, oil is here to stay so how do assure it is accessed, processed and used in the most responsible ways? Letko also reminded that Divestment is a supply side attack that does not get at the demand intent for those sectors that have no substitutes for oil and gas, increasing the cost of capital and essentially penalizing those least able to pay for their energy needs while shifting more production to jurisdictions with questionable human rights and unjust business practices. What can be done? Letko suggests about one third of current emissions could be more effectively addressed through electrification, decreased use of coal, engineering and technology innovation to further mitigate carbon, methane and other emissions while investing in substitutes.

It was also noted that energy producers need to take Indigenous Reconciliation much more seriously than in the past, with Chief Joe Dion of Frog Lake Energy Corp saying “We have to stop going to court and do more work together.” Active Economic Reconciliation is now “table stakes” with more focus on substantive equity positions in projects, more focus on building wealth within communities and learning from Traditional ways of knowing to mitigate environmental impacts.

Across panel discussions it was noted that everything energy producers do is capital intensive and more needs to be done from within Canada to assure investors that Canada is a safe, stable place to invest. The electrification requirements to meet Canada’s 2030 emissions reductions targets require unprecedented capital investment and labour for infrastructure build out, with many of those investment decisions needing to be made in the next 18 months to meeting end of decade policy aspirations. Participants heard that if Canada wishes to be a serious player on the Liquified Natural Gas (LNG) world stage it will need to also get much more serious about “take away capacity” (read, pipelines!), with concerns expressed by panelists about the Government of Canada’s emission ambitions and messages and actions being out of alignment with market needs.

That is, a Canadian business environment of continuing regulatory and broader political risk at a time when industry and investors really need more certainty. The panel noted USA and European investors are slowly returning to Canada, the Divestment dynamics may be turning around (e.g., Blackrock) and there are indications of balancing investments in operations with clean tech investment in more cohesive, responsible ways. It was noted that Carbon Capture, Utilization & Storage (CCUS) is a significant growth opportunity which will enabled as an ongoing social license to operate aspect of sustainable oil and gas operations.