In the News: Canadian Politics, Electricity Challenges, Climate Week NYC, and Oil Price Volatility
This week, Peter and Jackie discuss recent news headlines. Here is what they explored:
Canadian Federal Politics. Last week was not the time for an election as the NDP and the Bloc Québécois did not support the Conservative Party of Canada’s motion for a carbon tax election. But when will the election be held, and what does a faster election mean for advancing new energy legislation and regulations?
Climate Week NYC is an annual event that focuses on addressing climate change. Peter and Jackie discuss the news that caught their attention while watching headlines from the week, including a nuclear energy renaissance. There is also a growing recognition that greenhouse gas emission reduction goals are not being achieved and that oil demand continues to grow.
Canadian Electricity Markets. Ottawa opened a consultation to consider adding a surtax on Chinese modules, semiconductors, batteries, and battery parts imported into Canada, similar to the 100% surtax on EVs introduced in the summer.
Electricity demand in Canada is growing. As a result, several provinces, including Ontario, British Columbia, and Quebec, have recently made calls to build new electricity generation plants. Alberta, however, is in the middle of an electricity market redesign that is, for now, making new investment in the province uncertain.
Oil Markets. While WTI oil price stayed in the $US75-85/B range for most of 2024, it fell to $US65/B on September 10th and recovered to $US68/B at the podcast recording time. Jackie and Peter discuss factors contributing to the weakness in oil prices.
Other content referenced in this podcast:
- World Nuclear News: Constellation to restart Three Mile Island unit, powering Microsoft (September 2024)
- DCD: Oracle to build nuclear SMR-powered gigawatt data center (September 2024)
- Canada consults on measures to protect Canadian workers in critical manufacturing sectors from unfair Chinese trade practices (September 2024)
- Alberta AESO stakeholder feedback on potential strategic reserves
- Financial Times: Saudi Arabia ready to abandon $100 crude target to take back market share (September 2024)
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Episode 253 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back.
Jackie Forrest:
Well, we’re recording on the National Day for Truth and Reconciliation, which started already in 2021.
Peter Tertzakian:
It did. It’s an important day.
Jackie Forrest:
So it’s been for a few years. And it recognizes the devastating and enduring legacy of the residential school system in Canada and pays tribute to the children that did not make it home as well as the survivors and their families and communities.
Peter Tertzakian:
Yes, it’s an important day to reflect. And I think we’re going to have someone from the indigenous community come on our show soon.
Jackie Forrest:
Yes, so we are going to have a show about indigenous reconciliation as it pertains to corporate reconciliation and working with indigenous groups, so we’re excited about that. So wait for that later in October.
Peter Tertzakian:
Yeah. Wonderful. So what are we talking about today, Jackie? I think it’s a solo, you and I, no guest.
Jackie Forrest:
No guests. We’re going to just talk. There’s been lots going on, lots of news and we thought we would just talk about it. So I want to go over the Canadian, federal politics. Lots going on there, especially last week, Climate Week, which just happened in New York last week. Lots going on with Canadian electricity markets. And if time warrants, we’ll have time for the oil markets.
Peter Tertzakian:
Going on there with all the trouble in the Middle East and also the economic malaise in China. The two competing things.
Jackie Forrest:
All right, so can’t miss Canadian federal politics because it’s lot of drama going on. Last week, Pierre Poilievre of the Conservatives tried to get a non-confidence vote passed in the House of Commons and that would start an election. And he’s calling it the carbon tax election. But the NDP and Bloc Québécois did not support the motion, so at least for now we’re not going to get an election, but I think it’s definitely going to happen before next October.
Peter Tertzakian:
Well, I think it’ll happen before next October. The common wisdom is it’s in the spring. The common wisdom is that it’s too late in the year. Nobody wants a Christmas election. Nobody wants an election just fresh into the New Year. So I think it’s probably into the spring. But the whole House of Commons is turning into a circus. When I grew up, even back then it was considered to be a circus with the whole question period in the passing, but it’s just now to the point where just looks like a kindergarten playground.
Jackie Forrest:
It really does. I actually went to the House of Commons in February and you know how you can watch from above and you could see-
Peter Tertzakian:
Yeah, from the gallery.
Jackie Forrest:
… the question period, which I was really looking forward to. But there was a whole school group there at the same time and it wasn’t quite as bad as what we saw last week, but it wasn’t great either, and I thought, well what kind of example is this setting for kids?
Peter Tertzakian:
Well, maybe the kids are setting the example for the people down below.
Jackie Forrest:
Maybe. Maybe they should look above. But I did hear something funny on the CBC. They said this Parliament may die from embarrassment and that’s how it’s going to end because some of these comments are pretty ridiculous.
Peter Tertzakian:
They are, they are. But anyway, we didn’t get an election. We didn’t get the carbon tax election. The NDP and the Bloc Québécois, as you mentioned, did not support the motion. So what do we expect?
Jackie Forrest:
Well, I think there’s a couple of scenarios. The NDP and the Bloc show they didn’t want to election today, but they also want to show that they don’t support the Liberals. So I do think we’re going to see slow legislation progress. You may see a lot of debate, a lot of asking for special committees and just slowing down the ability to get much new law passed through Parliament.
Peter Tertzakian:
I mean how much can be done in this last year? I mean the common wisdom is that once you hit the one-year to election mark, things slow down. Certainly in the civil service they have to prepare for a potential election, and I know they’re doing that right now. If the probability of even a spring election is quite high, they have to prepare the materials for any potential new government. So the civil service is already on alert for a potential election, which means that the probability of passing a lot of new legislation is quite low given that what they call the runway to the next election is quite short.
Jackie Forrest:
Well, when it comes to policy, there’s two types of policy. There’s the things that go through the House of Commons and that would be those investment tax credits. They were passed through an active legislation. So I do think there was a number of them passed in June of 2024 and a few more slated to be passed this year. I’m not quite sure if those will happen.
Peter Tertzakian:
So these are the investment tax credits for things like carbon capture.
Jackie Forrest:
Well those were already passed, but there were some additional ones like the ones for investment tax credit if you were building generation and you are non-taxable entity or for transmission. So those are slated to be passed in this upcoming legislative period. So I am not so sure if those will get done. However, the things we’re really watching right now are many of these things are regulations and regulations do not go through Parliament. So if things are slowing down in Parliament, it technically shouldn’t really slow them up. So agencies like ECCC, Environment Climate Change Canada, are granted the ability to make these regulations from other legislations, usually the Canadian Environmental Protection Act. And so these agencies can continue on doing their work and issuing these policies and they don’t really get slowed down. So the ones we’re really watching are the clean electricity regulation and the methane rules. Both of these have already had what we call a Gazette one, which means they’ve been out for quite a long time, like a year, they’ve had a long consultation period, and once they’re published they’re pretty much made into law.
Peter Tertzakian:
That’s the Gazette II.
Jackie Forrest:
The Gazette II, yeah. And so I think it’s possible those can get done before the end of this legislative period or if there’s an election called. The oil and gas cap is an interesting one in that we haven’t seen a Gazette I yet. And typically you would bring out the draft Gazette I. There would be a fairly lengthy consultation period where people would write in about their concerns. And in the case of the methane rules and the clean electricity, those periods have been a year. And then when the government has absorbed all that, they would then put out the Gazette II, which is pretty much a rule and in law at that point. So I think the oil and gas cap, it seems difficult to see how it would get through Gazette I and Gazette II if we’re going to have a shortened period prior to the election, because as soon as the election is called, usually it’s pens down within these agencies on these types of policies.
Peter Tertzakian:
Oh, for sure it’s pens down if an election is called. The clean electricity regulation is one that has been contentious, and certainly the province of Alberta amongst, and the utilities within Alberta and other provinces that are reliant on gas and even Nova Scotia ,for example, and coal generation have not been overly favorable to that regulation. What’s the status of that?
Jackie Forrest:
All the feedback has gone in, people have put in the letters, but we haven’t seen the Gazette II yet or we don’t really know what’s coming. I mean we’re hoping that there’s a lot of changes and a lot more flexibility added to it. It was a one size fits all saying that every province has the same requirements, but yet the cost for complying is very different in Alberta compared to somewhere like BC where they already have mostly clean electricity. But the interesting thing is if these regulations do become law before the next election is called because the Gazette II comes out and they’re passed into law, it’ll be interesting if the Conservatives or the CPC can reverse them. I’m not an expert here, so I’d love a lawyer to dial in, but I think it can be challenging to change these regulations, especially ones that are done under the Canadian Environmental Protection Act. So it would be quite an effort to reverse some of these rules.
Peter Tertzakian:
Well, there’s the effort to reverse and then there’s also the will to reverse. And one can imagine the CPC coming in, axe the tax, but that’s only axing the retail tax. That’s only one branch of the broad Greenhouse Gas Pollution Pricing Act, which is the carbon tax legislation, which was, I think passed, was it 2017 or ’19? I can’t remember.
Jackie Forrest:
Also under SIPA.
Peter Tertzakian:
The political platform to this point has been to axe the tax, which is that retail tax, but the industrial emitters tax, in other words, the corporate carbon tax hasn’t been discussed. And so if-
Jackie Forrest:
Well, we don’t know. I guess that’s the thing, they haven’t really said, but I think most people are assuming that they’re not going to touch that. And I think most industry in this country wants it there, at least at the price levels maybe in the stringency we see today.
Peter Tertzakian:
But the stringency that you just talked about is the key because there are complicated tables and formulas for stringency, for each subsector of the economy and to go through it all and try and figure out whether you’re going to axe the tax is going to be very complicated. I mean, I don’t foresee that a new government can come in and axe the industrial tax completely because there’s a lot of entrenched trading activity. There’s a lot of mechanisms in there for the carbon markets and funding clean energy. So I don’t think that’s realistic. I think the potential government is going to have to potentially review the structures and the details and the nuances of the industrial side of the Greenhouse Gas Pollution Pricing Act. Which by the way is further complicated because certain provinces like Alberta for example, have their own provincial equivalency legislation that falls underneath it. In the case of Alberta, it’s the TIER Program. So I mean it’s so complicated that I just can’t see a new government coming in if new regulations are legislated between now and then and changing things.
Jackie Forrest:
Right. Well, and corporations have made investments because they thought that they would get paid back through these credits. I agree with you and I do think that you could see a scenario even if the federal one goes away, that the provincial ones stay. But if you go back, Doug Ford scrapped their carbon pricing system when companies had already invested in it. So it can happen. But I agree with you. I think it’s probably less likely.
Peter Tertzakian:
Well, it can happen. I’m not saying it can’t happen, but it can’t happen without repercussions and having some winners and losers. And I think that that calculus has to be made, but I would argue that the calculus can’t be made overnight because it’s so complicated now. The policy structure surrounding energy is so dense and complex that it is very difficult for someone to come in or a group to come in and try and unwind it all, even though I would argue it needs to be unwound and rewound to make it more efficient.
Jackie Forrest:
Yeah, making it more national. Well, we’ll find out more. I’m sure we talking a lot more on that in the months to come. Let’s talk about Climate Week, New York. So we weren’t there, but I definitely watched the news flows and I just thought we could highlight some of the things that caught our attention. First of all, I think there’s a bit of a nuclear renaissance and one of the big announcements was 14 financial institutions support a three times growth in nuclear by 2050 at Climate Week. And there was also some big news, not at Climate Week, but before that, that we’re going to get another restart of a mothballed nuclear plant. This time it was Microsoft agreeing to buy all the power from the Three Mile Island for 20 years. Now this is not the one that had the partial meltdown. This was another unit, and I didn’t even know about this, there was another unit that operated right until 2019 for over 40 years. And that’s the one that’s being restarted. And it’s a 0.8 gigawatts or 800 megawatts of energy that Microsoft has agreed to buy.
Peter Tertzakian:
Yeah, I mean this seems like big news 0.8 gigawatts and old nuclear power plant restarting, all the infrastructure is in place, it’s like renovating a home times 1000 or 100,000. It’s just so costly to do these things. So I think it’s interesting news, but it always has to be put in perspective because we’ve had our conversations on this podcast about the rise in electrical power demand. We had Rob West talking about potentially, what was the number? 150?
Jackie Forrest:
150.
Peter Tertzakian:
150 gigawatts-
Jackie Forrest:
Globally, yeah.
Peter Tertzakian:
… globally of power just for data centers. And so this one is 0.8.
Jackie Forrest:
Yes, so it’s one if you round up.
Peter Tertzakian:
Okay, round up for one.
Jackie Forrest:
One power plant then.
Peter Tertzakian:
And probably if you’re lucky to get, what do they call it, social license or buy-in, you might get half a dozen old nuclear power plants to fire up.
Jackie Forrest:
We have two now, right? Because we had that Palisades plant in Michigan. I understand Japan is doing some restarts too.
Peter Tertzakian:
Reset. Okay, call it 10. I mean it’s still woefully inadequate to see how these data centers are going to be powered up and the runway for powering them up, as we discussed on that podcast with Rob West, is that it typically takes a couple years, two to four years between the time a data center is commissioned and by the time it’s built and all the servers installed and then the power switch is flipped on and most of those FIDs, the final investment decisions, for the data centers are now. And so the wave is already starting. But I think by the end of the decade it’s going to be a big power surge and even this 0.8 gigawatts is going to be dwarfed by many of these other server farms. I mean most of these AI-related server farms consume one gigawatt in themselves.
Jackie Forrest:
Some of the new ones, yeah, like-
Peter Tertzakian:
The entire nuclear power plant is taken up for one data center.
Jackie Forrest:
Yeah, there’s an article. Oracle is designing new data centers. Their largest right now consumes, or the one they’re planning, 800 megawatts, and soon they will hit one gigawatt of capacity. Now they are actually planning to have a data center be powered by three small modular reactors. So that’s those SMRs or those small nuclear plants. And they say they already have permits. I don’t think they’re getting those in North America if they already have permits for those, but maybe that will be a solution too, although SMR seem a little bit beyond 2030 in terms of being a solution here.
I did want to say one thing though. If you look at those greenfield nuclear plants, which is I guess the other option in the near term, we had this Vogtle nuclear plant in Georgia that was just complete, by comparison, if I correct it for capacity, it’s about six times more expensive than restarting this three-mile island. And it took 11 years to do, where this restart, they’re saying in three years it can come online. So there’s always solutions that come out of the blue here, Peter, think there’s a problem and then wow, now suddenly we have a solution.
Peter Tertzakian:
I agree, but if it’s anything like a home renovation, then the three years turns to six. So I am not optimistic that these things are going to be-
Jackie Forrest:
On time, on budget?
Peter Tertzakian:
… on time, on budget, and, getting back to the Oracle one gigawatt data center, I mean you’ve got Oracle, Microsoft, Amazon, Apple, Meta, you name it, the list goes on in terms of these companies that are firing up these AI data centers. I don’t think the momentum is going to ease up. So there is a disconnect. I still maintain further to the podcast that we had Rob West, there’s a major disconnect brewing between now and the end of the decade.
Jackie Forrest:
Well, you know someone who is excited, Peter, is investors.
Peter Tertzakian:
Who?
Jackie Forrest:
So Constellation, which is the public utility that signed this deal with Microsoft to restart the Three Mile Island, their stock price has more than doubled this year.
Peter Tertzakian:
Sure.
Jackie Forrest:
And actually if you look at top performing stocks this year, some of these utilities that are potentially going to grow so much in their demand are doing really well.
Peter Tertzakian:
Oh, the utilities, of course. Right, and I think it speaks to natural gas power generation because the only type of power generation that you can build relatively quickly is natural gas-fired power generation. But even so, that requires gas turbines and all the other heavy infrastructural-
Jackie Forrest:
Transformers and grid.
Peter Tertzakian:
… transformers and grid. And there’s a huge backlog, from what I understand, for those things. In fact, we should probably get someone on the podcast to talk about that.
Jackie Forrest:
We’ll do that and let’s talk a little bit more about Climate Week. So another a topic I noticed, a theme, was disappointment that we’re not really delivering as much as we thought we were in terms of greenhouse gas emissions reduction. So a recognition, which I think is actually a good thing. Instead of just sort of believing that we’re on track for these lower emission scenarios, there were a lot of speakers that were disappointed in the UN climate meetings and the fact that emissions are going up. So for example, John Kerry, former Secretary of State for the US, “We’re just not seeing the transition away from oil and gas as committed to in the last meeting.” And he said, “The demand,” as in the oil and gas demand, “is crushing now.”
We also had Al Gore making similar comments, the UN Secretary General pointing out the countries are still exploring for oil and gas and so they are not really committed to, last year, their agreement to phase out fossil fuels. Also, we had the IEA boss, Fatih Birol, speaking at Climate Week saying, “Oil and gas is not spending enough to reduce their greenhouse gas emissions,” finding that they only spent about 4% of their CapEx on reducing emissions. So generally there’s just this recognition that emissions are growing and not going down as everyone expected, and oil demand keeps growing.
Peter Tertzakian:
Yeah, I really don’t know why this comes as a surprise. I mean, we’ve been talking on this podcast about how difficult it is to displace the incumbent and how difficult it is to displace an incumbent that has compelling utility. I mean oil as a source of energy has got compelling utility except on one dimension and that’s the emissions dimension. So I feel like there was a huge sense of naivety over the course of the last 10 years and that naivety is now starting to come to reality. And I think rather than look backwards and belabor that point, I think we have to think about what’s coming next because this turmoil and anxiety about not hitting emissions targets is going to amplify, I would argue, over the course of the next year. Just wait until COP, that’s actually in a couple of weeks, because it’s on the eve of the ten-year anniversary of the Paris Agreement and the realization sets in that after 10 years when emissions were supposed to have gone down substantially globally, they’re still going up.
Jackie Forrest:
In fact, the IEA estimates that emissions increased last year in 2023 by 1.1%. While advanced economies are seeing decline, new economies keep growing and it’s expected then in 2024, we’re going to continue to see growing emissions. So we haven’t even been able to plateau the emissions. Forget about declining it.
Peter Tertzakian:
No, admittedly in some regions like Europe and the United States and other areas, Canada’s relatively flat, the emissions have just really not gone down by nearly as much as was conjectured, expected, anticipated, whatever word you want, by now, relative to 2015 when the Paris Agreement was signed. And so that-
Jackie Forrest:
Yeah, I think we’re down about 7% relative to 2005 when I think our 2030 goal is to be in the range of-
Peter Tertzakian:
In Canada?
Jackie Forrest:
Yeah, in Canada.
Peter Tertzakian:
But if you look at the time series in Canada, it’s got a lot of chatter in it. I would argue it goes up and down.
Jackie Forrest:
Depends on your baseline, yeah, where you start from.
Peter Tertzakian:
Depends on the baseline, looks relatively flat. Europe is down convincingly. Globally, we were supposed to have been down, I don’t know what by now, I can’t remember the number, but it was substantial. On the road to 2030, I think we are in a period of turmoil the next two, three years. And what’s going to necessarily have to happen is some sort of plan B, a new type of strategy has to emerge because the plan A is not working.
Jackie Forrest:
Yeah, we’re not achieving the reductions, that’s for sure, because oil demand keeps going out. I don’t know. Interesting, OPEC released their new long-term demand outlook for oil also the same week as Climate Week, not at Climate Week, but for three additions in a row, OPEC has continued to increase their outlook for oil demand, and now they’re saying that we’re going to have 120 million barrels a day of oil demand in 2050. I think this year we’re going to end up around 103, with the potential for it to be higher now. So there’s always this debate around oil demand, but that definitely correlates very directly with what happens with emissions. In contrast, Minister Wilkinson, our Minister of Natural Resources said last week on C-SPAN, “Oil and gas will peak this decade, in fact, oil is probably peaking this year.”
Peter Tertzakian:
Yeah, I don’t believe that and nor do a lot of other people. But having said that, there are many people in the camp that believe oil demand is peaking. It’s certainly slowing down in its growth, but don’t confuse that with substitution because we’ve got the Chinese economy that is sputtering on the other side of the planet. The Chinese consumption has really slowed down. But the IEA numbers, the actual numbers show that oil demand is still going up. Now, I don’t actually buy into the scenario that OPEC is painting of 120 million barrels a day by 2050. I do think oil consumption is going to roll over. It’s just not as soon as people think and certainly not today. I think it’s somewhere in the mid-2030s.
Jackie Forrest:
And I guess the trajectory of how does it go down slowly or quickly at that point is another point of contention.
Peter Tertzakian:
Yeah.
Jackie Forrest:
Okay. Well, let’s move on to what was missing at Climate Week. If you go back three, four years, all Climate Week was was news flow around big corporate greenhouse gas emission commitments. People saying they’re going to be net neutral by 2030 or reduce all their emissions by 2040. You certainly didn’t hear that this year. And I think we haven’t heard this much yet, but I think we’re going to see maybe over the next couple of years, especially as we get up to 2030, more companies retreating on their goals. And we’ve seen some examples. BP and Shell have both weakened their 2030 targets. Those are oil producers, though I think we’re going to see definitely some of these IT companies have to reinstate their goals to be less aggressive because their emissions are probably going to be going up.
Peter Tertzakian:
There are two dynamics actually contributing to that. The one dynamic is I do believe the realization that the targets were unachievable to begin with, that given all the other factors that are now happening in the world, the energy and security, the de-globalization-
Jackie Forrest:
The growth too.
Peter Tertzakian:
… growth, the affordability issues, that the targets are really not achievable because the amount of money that has to be spent is quite enormous. But the other dynamic we’ve already talked about is the enormous growth in these data center demands. And so the companies that have typically been committing to these sorts of things are the big tech companies, but the big tech companies now are also realizing there’s no way they can commission all these data centers without power sources like natural gas-fired generation.
Jackie Forrest:
Right. So more to come on that for sure. Okay, well, let’s switch to Canadian electricity markets. There’s actually been quite a bit of news federally and at the provincial level, but I want to start on the federal level. We of course, are awaiting the clean electricity regulation, if that comes out before an election is called. But another thing that caught my attention that maybe a lot of people aren’t aware of is Canada is reviewing adding tariffs to Chinese solar panels and batteries. Now, we already saw that 100% surtax on EVs that was announced over the summer, but now Ottawa has opened a consultation to see if we need to add that to modules, semiconductors, batteries, battery parts. And we expect this probably would mirror the US and it would increase the cost of solar and battery storage.
Now, there’s two sides to this. The people that want to produce these things in Canada would like this because it provides domestic manufacturers the opportunity to compete because they don’t have to compete against cheap Chinese products coming in. However, in the near term, because we don’t produce very much here and it can take a long time to build this supply chain, it’s going to mean that we’re going to potentially have to pay more for all of these modules and things like that. And it’s going to make putting solar, either utility scale or even home solar potentially more expensive than it was before because we’re going to have to have a big surtax on anything coming from China.
Peter Tertzakian:
Yeah. So what is the size of the surtax, do you think? And how would that ripple through?
Jackie Forrest:
I don’t know. They didn’t put that in the consultation, but I think it could be pretty substantial, maybe in the range of what we see on EVs.
Peter Tertzakian:
Yeah, well, whatever it is, it ultimately trickles through to the, well, I don’t even think it trickles. It actually pours through to the consuming and the purchasers of the solar panels. And certainly that means rooftop solar prices would go up.
Jackie Forrest:
Now there may be a workaround like in the US where the Chinese just moved all their production to other countries and it was able to come in anyway, but the Americans stepped in and stopped that too in the last year or so. So that may be a helpful thing, but-
Peter Tertzakian:
His is the whole thing I talked about, I just made mention of it at a couple minutes ago, the deglobalization and the putting up of tariffs and blockading imports of competitive goods dominantly from China. This tends to raise the price of all the manufactured goods, including solar panels and all sorts of other things that relate to clean energy that go up. And therefore when prices go up, the adoption slows down. So I think this is one of the contributing factors to the realization that the targets that we thought were achievable are probably not achievable because not only were the targets extremely aggressive to begin with, but it’s going to cost a lot more because of all the global dynamics of tariffs, et cetera.
Jackie Forrest:
And the geopolitics of energy that are extending into solar and renewables. Well, the thing too is that we do want to build up this domestic supply chain. This is a new goal of the energy transition. Before, when people made these commitments back in 2015 or 16 or even after the COVID pandemic, that wasn’t one of the goals. But if we want to build a whole new supply chain here in Western countries, that’s going to make things slower. Not only more expensive, but we’ve got to build a ton of capacity. 80% to 90% of everything’s coming from China when it comes to clean energy, and so to build that infrastructure here is going to take some time.
Peter Tertzakian:
I would say the United States is on track to creating the full supply chains. Well, I don’t know if on track is the right word, but certainly thinking about it, going all the way from critical minerals through to the manufacturing all the way to the end product to create domestic supply chains that were hitherto global and sourced from places like China. And this is in the interest not only of boosting the domestic economy and creating jobs for the workforce domestically, but also from the perspective of global economic security, not just energy security. And so while the Americans are doing it, I don’t see any cohesive industrial strategy here in this country. And so we are going to be dependent upon all sorts of imports going forward if we’re going to keep the materials that we need to propel our economy inexpensive.
Jackie Forrest:
Right. And we do have some policies. There’s about $4 billion been pledged by the government towards critical mineral development. We had the investment tax credit for manufacturing clean energy here. But I think in terms of the investment tax credit for manufacturing, it doesn’t compete with what the Americans have. So you’re not seeing a lot of build out of manufacturing here. So we have policies, but I agree with you, Peter, they’re not necessarily resulting maybe in the amount of activity we need if we’re going to stop all Chinese imports, right?
Peter Tertzakian:
Well, I would call them discrete policies that are not holistic across the entire supply chain. Because for example, with the critical minerals, you have to think holistically and think about the regulations that have to be modified to enable faster uptake of the minerals like the mining and so on, the refinement of the ores all the way through to the manufacturing of primary goods and then secondary and tertiary. I mean, it’s got to be the whole supply chain. If you can’t do that domestically, then throwing up tariffs left, right and center basically just makes things more expensive for everyone and does not make you energy or economically secure.
Jackie Forrest:
Well, I think the folks that manufacture here would want those, but I agree, I don’t think we have the elements that are necessarily going to build this live supply chain.
Peter Tertzakian:
Well, I would say we have the elements. That’s the frustrating thing is we have all the resources that many other countries would frankly give their eye, teeth for. And we have skilled labor and we have infrastructure in this country. We just need to be able to cohesively put it all together. And as I’ve said many times on this podcast, our policy and regulatory constructs at the federal and provincial level are way too dense, way too complex and not harmonized. And until we solve or optimize, basically, as I said earlier, rethink all of this stuff and put it together, we’re not going to get very far. And I’ll just relate it back to the election is that the new government that comes in has to take a holistic view of the economy, not just play whack-a-mole with all the different elements of the policies. And that’s not just energy, that’s all segments of the economy,
Jackie Forrest:
Right. Okay, including these tariffs.
Peter Tertzakian:
Okay.
Jackie Forrest:
Well, let’s move on to, we are going to be building more generation, so we’re going to want to do it as economically as possible, but I just wanted to give you an update.
Peter Tertzakian:
Where are we building more generation?
Jackie Forrest:
Well, throughout the country. So here’s just some things that happened over the summer. Ontario in August is launching the largest procurement in history, up to five gigawatts in service in the early 2030s. And they’re going to do procurements for all this. The Energy Minister asked that it includes diverse sources, including natural gas, renewables, nuclear, biomass and hydroelectric. And this is an addition to the, we already talked about in Ontario how they’re going to expand Bruce and they’re going to retool Pickering nuclear plants because Ontario is seeing all of this demand growth and starting to worry is there going to be enough supply. Quebec plans to build about 10 gigawatts of renewables in the next 10 years or so, and they put out a plan for that. And then we also have BC that launched a new procurement for renewables as well. So there is new generation happening.
Here in Alberta. We had this traditionally open market and we are a leader in Canada on renewables, but we don’t have a lot of new investment in renewables. We have people finishing off the existing projects and we’re doing this redesign of our market. I am a little concerned by this, this new market redesign is creating a lot of uncertainty for new investments. And although we do have a lot of new natural gas generation that just came on and that’s helped reduce the prices. I don’t know if you’ve noticed Peter, but prices in August are down significantly from what we saw last year at the same time, they’re about one third.
Peter Tertzakian:
So what’s the retail price now for electricity?
Jackie Forrest:
In August, it was about 13 cents per kilowatt-hour, where it was about 32 cents a year ago. This is mostly because of this new generation that’s been added, and I think there’s more generation coming. However, if you look out three, four years, there is a concern that we do need more investment. We have growing demand. There’s concerns that some of these older units are going to retire. And right now this new market redesign is looking like it’s going to really disadvantage certain types of generation, potentially renewables, cogen, more to come on that. And when we get the policy and more news on it at the end of the year, we’re definitely going to cover it on the podcast.
Peter Tertzakian:
And by the way, I know the provincial government is pitching data centers here in corporate groups that I know of. So it’s all it would take is five data centers at a gigawatt a piece to mop up any excess power generation that might be put into place.
Jackie Forrest:
And there’s another concern too, if you didn’t see it, the ASO is putting out a consultation about potentially adding strategic reserves where certain types of generation will be available. They’ll get capacity payments to be there to be available when the province needs them. And that’s because there’re about eight coal to gas generation units totaling about three gigawatts that are in service in Alberta that could retire due to economic uncertainty. How is that going to work with the new market redesign if you have certain players that are getting capacity payments more or less? So there’s ways to design around that, but lots of change and uncertainty that I think is going to put a pause on people making investment in the province.
Peter Tertzakian:
Well, I mean as we said earlier in the podcast, there’s the Gazette II of the clean electricity regulations and we don’t know what’s in that.
Jackie Forrest:
Yeah, so takeaway is the more I look into Canadian electricity markets, they are getting tight. That’s why you’re seeing these big procurements, demand’s going up. Our population is growing. I just learned, what do you think the population of Canada is now?
Peter Tertzakian:
45 million?
Jackie Forrest:
Yeah, it’s over 40 million. I didn’t know it was over 40 million.
Peter Tertzakian:
Is it?
Jackie Forrest:
Just over 40 million.
Peter Tertzakian:
Yeah. Yeah, I know. For years we would say 35 or something like that.
Jackie Forrest:
So population is growing and economy is growing and we are tight in terms of our power market. So we do need to build a lot of generation. And the good news is the Crown Corps are working on doing procurements.
Okay, let’s quickly finish off with the oil market. So oil prices fell from the $75 to $85 level for most of 2024 to near $65 in September. Now they recovered over $70. I think there are about $68 at the time of recording. This is WTI oil price. So lots of volatility in oil prices and the big reasons for the softening, the big one is Chinese oil demand. It’s been a rise down. In fact, the last few months, Chinese oil demand has been lower than a year before, which is very unusual for China. China has always been a big growth market for oil.
Peter Tertzakian:
But globally it’s still growing.
Jackie Forrest:
It’s expected to grow this year, but it’s about a half million barrels a day less than people expected at the first of the year.
Peter Tertzakian:
This is the thing is that the Chinese economy has been such a big driver of oil demand growth over the last 15 years, actually 20 now I would say since the early 2000s. And so any hint of slowing down definitely weighs on the oil markets, only offset by the instability of the Middle Eastern situation.
Jackie Forrest:
The IEA actually has a great chart, it showed demand growth by region of over the past decade and China has grown over 6 million barrels a day, and India is under two and the rest are just under one. So China has really been the story about why we’ve had this ongoing growth in oil demand. And so there are big concerns around its slowing and what that means for overall growth.
Peter Tertzakian:
There’s another dynamic at play though, and that is the growth in the non-OPEC oil supply. Places like, again, US shale oil production, even increased production from Canada a little bit this year.
Jackie Forrest:
Guyana and Brazil.
Peter Tertzakian:
Guyana and Brazil. And so the supply side continues to surprise on the upside, the ability to bring greater quantities at lower price, lower cost paired against easing of demand in places like China.
Jackie Forrest:
And then the one other big thing is while non-OPEC is growing quite substantially year-on-year, OPEC has been curtailing their production. And what that’s resulted in over the last couple years is their losing market share. Well, the non-OPEC group is growing. And so we saw an article last week that OPEC may be rethinking, especially Saudi Arabia, who’s left over 2 million barrels a day off the market for several years now, they may be thinking that, you know what? We want this oil back on the market. $75 to $85 oil, that’s probably too high. It’s resulting in non-OPEC growth and them losing market share. So I think another thing weighing down prices is the potential for OPEC to change their strategy on keeping back all this spare capacity.
Well, I think we’re running out of time. I did want to also say that the Chinese put some stimulus into the economy last week and oil price did react a couple of dollars a barrel and we’ll wait and see. That may start to see some growth in China and help firm up oil prices as well.
Peter Tertzakian:
Well, my head’s spinning, Jackie. We talked about federal politics, data centers, Climate Week, you name it, oil markets and demand. So I think that’s a wrap for today and we’ll look forward to our next discussion.
Jackie Forrest:
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Announcer:
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