Is the Strait of Hormuz Closure Accelerating Clean Energy?
This week on the podcast, Jackie and Peter are joined by Marcus Rocque, Vice President of Research at the ARC Energy Research Institute. This episode focuses on how the oil and gas shock from the closure of the Strait of Hormuz is reshaping the outlook for clean energy, including how governments are rationing oil and gas use through policies such as work-from-home measures and lower speed limits. There is already evidence of increasing sales of alternatives, including EVs, heat pumps, and electric cookstoves.
The shortage, however, is also expected to increase demand for coal as an alternative in countries like India and China, which have abundant domestic resources that provide energy security. The podcast discusses whether this could change long-term demand for oil and gas and the implications for Canada.
They also consider some of the latest news in Canada, including last week’s visit to Ottawa by IEA Executive Director Fatih Birol, and reports that the federal government is proposing to reverse the order of environmental approvals, allowing cabinet to green-light projects prior to the completion of technical assessments and approvals, along with implementing a maximum one-year review period. Finally, Premier Danielle Smith also traveled to Ottawa last week and left with a confident message about the delivery of the MOU.
Content referenced in this podcast:
- Globe and Mail, “Canada should accelerate new energy infrastructure as market shifts, IEA chief says” (May 4, 2026)
- Latitude Media, Jigar Shah, “This isn’t demand destruction. It’s rationing.” (April 24, 2026)
- Premier Danielle Smith’s post on X regarding her positive meeting with Prime Minister Mark Carney on the MOU agreement (May 8, 2026)
- FT, Spencer Dale, “Why the Iran war might not spur a faster transition to low carbon energy” (May 4, 2026)
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Episode 326 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, and welcome back. Well, it is Monday, May the 11th at 8:00 in the morning if you’re Mountain Time. And I’m not Mountain Time. I’m actually overseas, so it’s in the afternoon. So I have the benefit of seven hours of news that you don’t have.
Jackie Forrest:
Well, Peter, hopefully you’ll make it back. I hope there’ll be jet fuel for you over there.
Peter Tertzakian:
So I have the future oil prices that you’ll see at seven hours. No, just joking.
Okay. So the price of oil, Brent, which I’m right next to is just over $100 U.S., and the WTI prices in North America about 96. We have a peace proposal that has been read by the United States and completely categorized as unacceptable by the president. So we shall see where things go.
Meanwhile, more and more of the strategic petroleum reserves are being eaten up. And so we shall see where things are going. There are definitely shortages. We want to talk about all of that. But first, I think it’s time for a long weekend, don’t you think, Jackie?
Jackie Forrest:
Yeah. Yeah. I think it’s been a busy year. Do you feel that way? I feel like since January we’ve just been running.
Peter Tertzakian:
I think it’s only May and it feels like November, but yeah.
Jackie Forrest:
Yeah. Yeah. So we are going to take a bit of a holiday for the May long weekend, but we will be back the following week.
Peter Tertzakian:
Right. Okay. So today we’re going to talk about things Canadian. We’re going to talk about things related to the Iran war, particularly the fallout from the situation because although we don’t feel much of the situation here other than high gasoline prices and maybe higher airfares, but certainly on the other side of the world, we’re starting to see some really big changes, certainly here in Europe and particularly in Asia. So we’re going to talk about the impact of high, or even scarce petroleum products, and its impact on the adoption of alternatives all the way from coal to renewables. So we want to talk about that, right?
Jackie Forrest:
That’s right. And to do that, we have our special guest today. We’re inviting Marcus Rocque. He’s a VP with myself and Peter at the ARC Energy Research Institute. I don’t know how many times you’ve been a guest, Marcus. I’ve lost track.
Marcus Rocque:
I believe this is my third time. So it’s great to be back.
Jackie Forrest:
Okay.
Peter Tertzakian:
It’s the third time. Well, we need you for your numbers and your brain to be able to make sense of the situation. But why don’t we talk about some of the things that happened over the last week. We’ve had visit to Ottawa from the IEA. Why don’t we start with that?
Jackie Forrest:
So Fatih Birol, the head of the IEA, visited Ottawa last week. I have to say finally he’s starting to make some sense. We’ve talked about him a number of times over the last few years, especially in 2022 when he had a message and warned that more investing in new oil and gas plays was not something that you should be doing. But yet he comes to Canada and he says, “Canada needs to accelerate energy infrastructure. Oil and gas aren’t the only two commodities now missing from the world markets.” He also said trust and predictability are missing. And that’s where Canada comes in. And we have a once in a generation opportunity, but we have to be careful. Sluggishness will hamper our success. We need to get a move on. Countries will choose their energy partners very carefully. And he believes in this energy hungry world, Canada is needed more than ever.
And he came to Ottawa, he talked to Minister Hodgson and our prime minister with that message of like, “Move faster.”
Peter Tertzakian:
Right. Well, I’m pondering the words trust and predictability, Jackie, because I get the sense that like many international institutions, the IEA has lost trust for sure given that it was so anti-oil and gas only a few years ago and very much in the “renewables are the only way.’ And now he’s coming back a complete about U-turn. So it’s just kind of hard to wrap your mind around such a big U-turn. What do you think is going on?
Jackie Forrest:
Well, a couple things. There’ve been a lot of pressure from the Americans actually, which even threatened to pull their funding of the IEA to say, “You need to get more realistic.” And Chris Wright, he’s the Secretary of Energy for the U.S., he put a lot of pressure on the IEA to put out that current policy scenario. They had this message that in all scenarios, oil demand’s just going down and sometimes quite rapidly. And then this year they came out with a scenario that said, “Actually, with the policies that are currently in place, oil demand’s going up.” So he’s certainly changed his tune. I think he’s much more realistic and pragmatic and not in that ideological… Really, the IEA had turned into more of a climate advocacy group. He’s back to the core of the IEA, which is thinking about energy security and making sure we have enough supply.
So it’s good to see the change. And hey, maybe it’s having some influence. Interestingly enough, later on last week, our federal government proposed to reverse the order of environmental approvals, allowing cabinet to green light projects prior to the environmental review and saying that we should get these reviews done in one year. Before, we were talking about two years. So I was very mad at the IEA. I like the way they’ve changed the messaging. And maybe they are influencing people like our prime minister and our political leaders that we need to move faster.
Peter Tertzakian:
Well, I’m a little more skeptical. I mean, certainly the IEA and Mr. Birol had influence over our previous prime minister, Justin Trudeau, and our ECCC ministers, but I’m not sure they exert that much influence anymore. I think that the MOU and the situation with Alberta and the imperative to fast track these sorts of infrastructure projects in the face of the current world situation is far more influential. And I think that the federal government was going to come round to making these sorts of statements regardless of whether the IEA came into town or not.
Jackie Forrest:
Yeah. Maybe, because it was pretty short turnaround. But I will say, let’s complain a bit more about the CBC. The coverage was, I think, a little biased on this one-year review period because it really focused on environmental groups and how they were like, “This is not good.” I’d like to see some polling of Canadians who seem to support things moving quickly. And this idea of greenlighting the project before companies spent hundreds of millions of dollars going through the environmental review, and in the past, this took five years. Let’s hope it’s one year, I think that’s a necessary change, something we’ve talked about in the past because companies don’t want to spend $500 million only to get a no, right? So we need that political decision at the end was a real risk for investing in Canada. So I see it as a really positive change.
Marcus Rocque:
And I think the point about the political decision is a really important one because the environmental review is still going to happen. They’re still going to look at the impacts of the environment and make sure that the project is responsibly done, but you’re not going to get to the end and then have a politician, who perhaps is at a different party than when you started, just say no for political reasons.
Jackie Forrest:
Which we happened what? Let’s say gateway. Quebec Saguenay LNG Export Project was rejected by Ottawa and the province after the proponent pushed that forward and spent a lot of money. So yeah, that’s a huge political risk for investing in Canada.
So Marcus, we also learned at the end of last week that Alberta Premier Daniel Smith, she actually went to Ottawa, met with Prime Minister Mark Carney and she put out a messaging. And there was even a Twitter message that I could put in the show notes talking about significant progress on this carbon pricing and West Coast pipeline. Of course, the carbon pricing is one of those things in that MOU that has not been decided and is quite delayed now, was supposed to be done on April 1st. And she’s feeling a lot more confident. So what were your thoughts when you saw that?
Marcus Rocque:
Well, I think it’s good that we’re getting some positive signals. As you mentioned, the process has been a bit delayed. We were supposed to find out kind of the major four parts. All the agreements were supposed to be struck by April 1st. We got two of the four, so progress on those. But any positive signs on these discussions are really constructive. If we can get to an agreement between the federal government and the provincial government, I think it’ll really reduce investment risk going forward and hopefully give us line of sight to actually getting that million barrel a day pipeline to the West Coast.
Jackie Forrest:
Okay. So do you think we’re going to get news in the next two weeks? What are the odds?
Marcus Rocque:
Yeah, I think two weeks is probably the right over under, and I’d probably take the under, but just barely.
Peter Tertzakian:
Okay. Well, we’ll stay tuned and abreast of all those things, especially after we come back after the long weekend.
But now, Marcus, why don’t we talk about what’s going on globally, particularly the impacts of the higher oil prices and in fact the scarcity of petroleum products in the world. Sort of what’s the after effects of all that? So you’ve been doing some research on that. What do you see?
Marcus Rocque:
Yeah, I definitely wanted to take a bit of a look at some of the bigger picture impacts. A lot of the focus in the last several weeks has rightfully been on the Iran conflict and the impacts on kind of the petroleum market, oil and gas. But wanted to look at what impacts there’s been on sort of the energy transition and other systems and how countries around the world are really thinking about their energy mix going forward.
But before diving into the changes, I think it’s helpful to look at what was going on kind of right before the conflict. And fortunately, you guys had the February 3rd podcast where we kind of talked about the energy transition. And sort of a reminder of some of the facts that came out of that, just to set the tone. In 2025, energy transition spending was at a record $2.3 trillion. So still increasing year-over-year, very significant amounts of spending that’s across the energy system from renewable energy, purchases of electric vehicles, it’s biofuels. But what you two had flagged was that there was a bifurcation in where that spending was going. Less and less spending on kind of the higher cost, more policy dependent areas, and a lot more spending on the technologies that have come further down the cost curve and maybe don’t mean need as much government support.
So that was one really big trend and a lot more of the spending going to meet kind of the extreme power growth that we’ve started to see in the last several years. For the last couple decades, we really haven’t had much power growth, but now with the rollout of more electric vehicles, with industrial electrification, and really importantly with AI, there’s a really big growth in power demand expectations going from relatively flat to 2% per year plus. So that’s where we were prior to the conflict.
As you’ve covered in the last several weeks, obviously this conflict has been incredibly disruptive. Everyone’s familiar with the numbers. About 20% of oil and LNG flow through the Strait of Hormuz. Large portions of that have been disrupted. There’s been some workarounds, but maybe 13 million barrels a day of oil supply offline around that 20% of global LNG. So it’s caused huge price increases and impacts in spot markets.
So if we look what’s been happening in the very near term, we’re starting to see some early data about how countries are responding. As I said, it’s still early, but we are seeing some data on EV sales, particularly in Asia and Europe are really starting to surge. The March numbers, we saw 115% year-over-year increase in Australia, 89% in Japan, 145% in Korea. Now, some of these have idiosyncratic policy factors, but for good overall headline number, European EV sales in March were up 37%, this March relative to last March. So we are seeing consumers really start to move to some of these other technologies as they’re managing the shortages of energy.
Jackie Forrest:
Now, I would just argue that some of these are from a low base, right? So it’s easy to get a 115% increase if you’re only selling a smaller number of cars, right?
Marcus Rocque:
For sure. Definitely.
Jackie Forrest:
I will just share a personal story. So Marcus and Peter already know this, but our family has gone 100% EV. You might not know this, Peter. The combustion engine vehicle was sold last week, so we’re all EV now. So we bought our second EV. And we’ve been looking at these Rivian trucks, used trucks for a while, not in much of a urgent need for it. It was nice to have, but we didn’t really necessarily need it anytime soon. And we did notice in March and April that a lot of the used trucks had just been sitting there forever. In my view, priced too high. They sold. So there’s a lot less inventory of used Rivians.
I did look at Teslas. There’s still a fair amount of Teslas. And I will tell people, I think a used Tesla is ultimately the best value there is right now in the market for buying a car. I’ll be interested to see. The Canadian numbers are quite lagged. We also have an issue with not a lot of models available in Canada today, so there’s not as many options. Of course, we have charging infrastructure problems, but I would say from my little personal data point, there’s more interested EVs in the last few months here in Canada.
Peter Tertzakian:
Yeah, I think there’s more interest, but the interest is much more acute here in Europe and certainly in Asia where the numbers speak for themselves. Marcus, you just talked about the percentage rises. I think you’re going to see a lot more. And by the way, over here, they do have access to the cheaper Chinese EVs such as BYD. You see quite a few of those around here. And I think this is a real opportunity for China and it’s going to benefit greatly from this situation.
Marcus Rocque:
Yeah, I think that’s exactly right. And there were some interesting numbers that came out of BYD. This year, a lot of Chinese subsidies for their domestic market have rolled off. So they’re selling less in the domestic market, but they’re starting to sell a lot more internationally because of the crisis. In April, BYD reported that their sales outside of China were up by 71% relative to a year prior. So just kind of validating what you’re seeing there, Peter.
Peter Tertzakian:
Yeah. I think it’s definitely not surprising that people are going to migrate to something that’s not petroleum-based given the spike in the oil prices. But we need to be cautious because electricity isn’t cheap either in a lot of these places, including here. So the value proposition isn’t exactly like it was before the war. There’s elevated energy prices at large. And so we shall see how all this plays out, but right now for sure there is a migration to alternatives. Those alternatives are much more accessible than they were even, say, when the Russia-Ukraine war broke out and there was price spikes three years on. There’s a lot more models. I think there’s something like 400 models that are out and available here in this side of the world.
So it’s not surprising that between the combination of greater models, incremental improvements in batteries and range and comfort, the cheaper models from China, that we would probably have seen this trend anyway. It’s just that the situation with the oil price spike is just accelerating it.
Jackie Forrest:
Yeah. Well, and I would argue even if electricity prices were to triple from here in North America, you’re still way better off compared to $100 oil in terms of the cost to fill your tank. So maybe they’ve got a huge fuel cost savings. And the maintenance savings, by the way. We can go on and on about my love of EVs, but my 120,000 kilometer Tesla has had almost no maintenance.
One listener did actually call me out on that. They were like, “You’ve done nothing, not even changed your windshield wipers?” And I’m like, “Yes, we’ve done stuff like that. We definitely changed the tires, but nothing compared to the maintenance you need for a combustion engine vehicle.” So there’s been other changes like heat pump sales are been moving up, big increase in electric stoves in India because they have a shortage of LPG. And of course that’s a structural change. Once those people get their new induction stove, they’re not going to be using the LPG as much or at all. And of course we’re seeing lot less flights, a lot of flight cancellations. Hopefully not yours, Peter.
Peter Tertzakian:
Yeah, no, no. But this is all temporary, right? The flight cancellations and stuff, whereas some of the migration, like once you buy an EV, then you’ve made a permanent switch from one energy system to another.
Jackie Forrest:
Yeah. Or you got a heat pump, then you’re not going back, right? So now it was interesting, we will put a link to an article from Jigar Shah. For those that don’t know Jigar Shah, he’s a well known influencer, I would say, in clean energy circles. He’s a podcast host. He was heading the DOE loan program under President Biden. He was the founder of SunEdison, a solar company and generate capital, a clean energy investment fund.
Jigar put out an article, and we will put a link to it, talking about that, “Actually, the reason price isn’t going up is demand destruction is happening via rationing because governments are just mandating that you can’t use the stuff and we don’t really need high prices and that actually when we come out of this, everyone’s just going to switched over to the clean energy thing and oil prices are not going to be high because demand is going to change very quickly because we have all these solutions that exist today and are able to sort of substitute as we’re seeing.”
What do you think about that, Marcus?
Marcus Rocque:
Well, I think to give him credit that there has been some evidence of rationing on the parts of governments for sure. And particularly in Asia, we’ve seen countries like Vietnam, Pakistan, Thailand, the Philippines issue directives around flexible work arrangements. So kind of getting back to some of those COVID practices. There’s been countries that have brought in, you can only fill up on odd days of the week, for instance, South Korea, Myanmar. We even saw Germany debating speed limits on the auto bond. I think that one is maybe a bridge too far for them and it doesn’t look like it’s going to pass, but governments are certainly thinking about how they can ration.
What I would say though is I don’t think that the impact of those activities, at least in the near term, are anywhere near the size of the outage in the Strait of Hormuz. I mean, in April, the IEA came out with a number that I think it was essentially between two or three million barrels a day of demand that had been destroyed. That’s compared to the 20 million barrels that normally flows through the straight or the 13 that are actually shut in. So it helps address the issue, but it’s not fully offsetting the crisis for sure.
Jackie Forrest:
Well, and a lot of those aren’t structural. But back to Peter’s point, I mean, as we found out with COVID, if you tell people to work from home or have certain speed limits, whatever, whenever this ends, people go back to what they did before.
Peter Tertzakian:
Yeah. Well, and to be clear, some of these policies that are being instituted can be reversed over time. We have precedent for that following the 1979 oil price shocks where the United States introduced, as well as other countries, policies that restricted the use of oil and natural gas at that time in power plants. The U.S. introduced the Fuel Use Act, but within a decade the policy was reversed and it’s basically back to the old regime of using more oil and gas.
So this is all interesting to discuss but should not be interpreted as the end of oil and the end of natural gas by any stretch. I think it impedes the demand for both commodities potentially for a few years, the growth of both commodities for a few years. I think it certainly accelerates the introduction of alternative systems like electrification and transportation, but by no means is it a major impact on the colossal use of oil and natural gas, which are still I think over 80% of the world’s fuel mix.
Jackie Forrest:
Well, and I think the thing is with Jigar Shah’s view is that, yeah, there’s stuff that’s ready today, EVs, I’m a big fan of them. We’ve got renewables, we got three to four hour battery systems, but we can only build so many in a year and it just doesn’t even put a dent in the energy system. So it can’t just be replaced overnight.
But since you did mention 1979, I want to come back to that oil shock because that certainly did create some adjustments. I went and looked it up. In the 1979 oil shock, we had four consecutive years of a drop in oil demand. The cumulative loss was over six million barrels a day or about 10% over that four-year period compared to the pre oil shock demand levels.
But I would argue that that was a kind of a unique time. There was low hanging fruit of electric power switching where you could just say, “We’re going to shut down this big power plant that consumes oil or we’re going to turn it into consuming natural gas or coal or whatever.” So you could have these big lumpy pieces of oil demand that you could bring out of the system quickly. Today, let’s come back to the EVs. I bought the EV, but then I sold my combustion engine vehicle and it’s going to be on the road, I’m sure, another eight years or more. And so while EVs are going to slowly start chipping away at that huge inventory of combustion engine vehicles, it can’t happen overnight. And it’s not like a step change like it was during the 1979. I mean, there are no step changes out there that I can see.
Peter Tertzakian:
Well, you bring about an important point that we’ve mentioned before on this podcast, Jackie, is that the rate of adoption of electric vehicles is one metric, but an equally important metric is the scrappage rate, which is the rate at which old vehicles are basically sent to the crusher. And that scrappage rate has been dropping fairly dramatically over the course of the last 20 years, especially for combustion engine vehicles, because the reliability and the robotic manufacturing of these basically makes them last a lot more time. So you probably sold your vehicle to someone who’s going to drive it within Calgary, but the next sale may be to someone who purchased it offshore overseas, maybe it goes to Africa and continues to run for another 50,000, 100,000 kilometers or more because these things are built now to run much longer. And so until such time as the scrappage rate of old vehicles also starts accelerating, the use of oil and petroleum products and transportation is not going to wane anytime meaningfully soon.
Marcus Rocque:
Okay. Well, I had a question. As we think about countries wanting to maybe move to some of these technologies in the near term or maybe do it in the long term, do you think consumers or taxpayers are going to be willing to pay sort of the premium that’s required for energy security? Famously, we saw polling around the climate change issue that while voters thought climate change was a serious issue, they weren’t willing to pay an incremental $100 a year to fight climate change. Do you think that the same sort of willingness to pay issues are going to exist around energy security or do people think about it differently?
Peter Tertzakian:
Well, if you want my view, the answer is no, because most people are going months to month paycheck to paycheck. So they’re trying to put food in the table. And now with inflation and more inflation on the way, in my opinion, as a consequence of all this, the notion of having to pay more for a nebulous concept for which most people don’t really follow, I think, is going to be difficult.
Jackie Forrest:
I would say that governments might be willing to pay for it. So we may see governments make strategic agreements. Talking about our West Coast pipeline, if it is built and we hope it is built, or I hope it’s built, we may see that governments put money to support the development of those things that maybe don’t turn into higher prices for their citizens, but the government will put money into things that ensure their energy security.
Peter Tertzakian:
Yeah, I think that is the role of government. Definitely it’s the role of government to make these calls for society from a long-term basis. But if you were to actually conduct a poll, which I think would be kind of a meaningless poll, are you willing to pay more for energy security? I think it would deliver a meaningless result.
Jackie Forrest:
Okay. Well, let’s talk about what technologies are real winners out of this. I mean, you talked at the very beginning, Marcus, that it’s those mature technologies that we’re growing. And by the way, $2 trillion annually is a huge business. It’s not just a fleeting thing. This is a business that’s going to be around for a long time. What are the areas where we’re going to see the most adoption?
Marcus Rocque:
Yeah. Well, I think one obvious winner is solar and particularly if you pair it with storage. I think for the audience’s benefit, solar is already a very mature technology and being deployed at scale. About 63% of global electricity capacity additions in 2025 were solar. Now, of course, that operates at a lower capacity factor, so it’s not necessarily apples to apples, but it is the majority of new capacity that comes online.
In 2026, the view was that with some of those Chinese solar subsidies rolling off for their domestic market, that there might be a bit of a pullback. I think with higher costs though, that there’s a big case for deploying it in the rest of the world. And the solar market is dramatically over capacity. China has really built up its domestic infrastructure in significant excess of the actual demand. Globally, there’s about a thousand gigawatts of solar capacity relative to about 600 gigawatts of demand. So there’s a lot of scope to to kind of increase that. And it’s something of a strategic reserve in itself, the global overcapacity of Chinese solar. So I think that could get deployed on an increasing basis.
Jackie Forrest:
Especially because there aren’t a lot of energies where we have that. Most energies have long multi-year waiting lists, right?
Marcus Rocque:
Yeah.
Jackie Forrest:
And solar as one of the things where you can get it right away, and batteries actually as well.
Marcus Rocque:
Yeah. And so batteries are similarly, they’re oversupplied. And because of that, but also because of innovation, they’ve really come down the cost curve and they help to sort of make that solar a more durable and kind of secure resource. Of course, it’s not completely apples to apples with the fossil sources that you’ll be attempting to displace in that it’s not dispatchable over seasons or over weeks. You have those shorter time periods of batteries, but at the margin, it can help you to displace some of your oil or gas imports.
Jackie Forrest:
Okay. Well, let’s talk about LNG. So of course it’s been hit by the conflict. It’s not talked about quite as much, but the Qatar Energy is saying about 17% of their LNG capacity will be out long term. About 20% of capacity in general is out right now because of the closure of the Strait.
And there was an interesting article by Spencer Dale, who was the former chief economist of the BP, and he basically said… Everyone’s saying, like you are, Marcus, that this is going to create solar wind batteries and this is a great opportunity for clean energy, but he’s saying, “Hey, China and India together account for about 70% of global coal consumption, and the switch to domestic energy just may lead them to want to use more homegrown coal. We’ve learned we don’t want to be dependent on LNG, which comes from the Middle East or Russia or wherever.” And so energy security may come at the expense of sustainability and that his view is that renewables and batteries, they do improve energy security. You’re dependent on China when you buy them, but once you get them in your country, they’re secure. No one can stop the wind from blowing or the sun from shining, but they’re not baseload. And these countries think that energy security also includes things that produce power 24/7 and that coal is going to be king in that respect.
What do you think about that, Peter?
Peter Tertzakian:
Well, I looked at a couple of charts recently on coal consumption trends in China, India, and Southeast Asia in general. And independent of the Iran conflict, the use of coal was skyrocketing again. I mean, it’s just literally… I think we will publish these charts. Give me a couple weeks to put them together when we get back, but the consumption is literally off the charts. And this is the hidden elephant in the room, is that coal was already making a comeback. And now I think it’s just going to be really off the charts when we look back at the 2026 numbers from a 2027 purchase to the impact.
And so yes, for sure, solar, wind, renewables at large electrification, but there’s no question that coal has nine lives, maybe it’s on its 10th life now, and is just really going to be powering a lot of these economies going forward. And they’re not taken kindly to yet another price shock. The first one was the Ukraine-Russia crisis and how Europe scrambled and paid a lot more for LNG cargoes, and those LNG cargoes were going to feed power plants. And so now it’s happening again. They say, “Fine. We’re just going to shovel coal.” And by the way, coal mining creates jobs for coal miners. So I think that you’re seeing this bifurcated transition. One is a regressive transition back to coal and one is a progressive transition to renewables and electrifications through that route.
Marcus Rocque:
Yeah, no, I think it’s a good point. I think coal will be a big winner. And I think it comes back to that energy trilemma that people have talked about where you’re trying to maximize for affordability, security, and sustainability. And that sustainability wedge has really decreased in importance in the last couple of years, but particularly in the last couple of months. So some of the technologies that happen to be cleaner but are also cheap and help you improve your energy security like solar and storage, those can win. But they’re not winning because they’re sustainable. If something like coal can offer energy security and affordability for an importing nation, they’re going to be strongly incentivized to look towards it.
Jackie Forrest:
Right. And 24/7, right?
Marcus Rocque:
Yeah.
Jackie Forrest:
You need some of that for sure. Peter?
Peter Tertzakian:
And all this is coming at a time with the real momentum, again, growing in the AI side. And we touched on that, Jackie, last week on the podcast a little bit about how some of these new agents, which are really multi-agents, are just now using up a tremendous amount of computational power order, if not orders of magnitude more than the early days of AI. And so the consumption of power, and I know this is largely still a North American or a Western story, but it’s not going to be long before other countries are going to be building these data centers as well, competing for the same electricity that’s needed from all the different primary sources.
Jackie Forrest:
Now, if coal starts to play a much bigger role than people thought, then that would mean the market for LNG is smaller than people thought, right? So a lot of these Asian countries that were viewed to be growth markets for LNG may not grow like we thought.
Peter Tertzakian:
Well, it’s a near term thing. I mean, the price of LNG has spiked now. It’s probably going to be higher than it was pre-war for a couple of years anyway. But the market supply chains are shifting and more gas will come to market. There’s no shortage of abundant cheap natural gas at the wellhead we know, in many countries, including our own in Canada.
So you got to think of this as long term is that these systems are all going to have to compete on price and the incumbents have a way of making comebacks and competing on price even with the renewables.
Jackie Forrest:
So you’re arguing that LNG can still grow even with this greater consumption of coal?
Peter Tertzakian:
I am.
Jackie Forrest:
That might happen in India and China and other places?
Peter Tertzakian:
Yeah, absolutely.
Marcus Rocque:
And I think one thing to think about from an LNG buyer’s perspective is they’re probably going to start discriminating a bit more in terms of where that LNG actually comes from. If you’re looking at LNG sources that are behind the Strait of Hormuz, even once this conflict hopefully resolves, maybe that’s viewed as a less secure option. But if you look to other countries like a Canada that’s trying to grow its LNG volumes, we might be viewed as a more energy secure supplier. So not all cargoes of LNG are going to be viewed the same.
Jackie Forrest:
I can’t resist quoting Fatih Birol, one of my favorite energy analysts, saying that in an energy hungry world, it needs Canada more than ever. So I think you’re right. I think even if we’re a bit less LNG growth than we would’ve thought, Canada should be pretty attractive.
Marcus Rocque:
Yeah. I think another point that he did make that I did like though is that we don’t have forever to decide and to figure this out. Countries are going to be evaluating their energy options over the course of the next two, three, four years. And if they’re looking to sign long-term contracts, we have to be ready to actually meet that demand or we could miss a bit of that wave.
Peter Tertzakian:
Right. Let’s think of it this way too, Jackie, further to the question about the long-term growth prospects of LNG. We know that about 20% of Qatar’s capability has been knocked out as a consequence of the Iranian conflict, but there are a lot of gas suppliers out there including the United States. And Canada’s got more coming on top of our 14 million tons. Potentially by 2030 we might have 50. Then there’s talks going on again in Australia from what I understand and other parts of the world.
So I think that the ability to bring the price of LNG down again and moderate. I mean, just think back how much the price spiked post-Ukraine-Russia war in Europe and then how fast it actually moderated out. And I think that’s what we’re going to see again is that the world is going to find alternative means of finding sources of new LNG and even new supply chains of oil as a consequence of a post-Iran settlement. Hopefully that’ll come soon. And we’ll move on and it’ll be full on competition again between the different energy systems.
Marcus Rocque:
Yeah. Well, I think one other thing that will support the global LNG market is that if you look before this conflict, the view was generally that we were going to be somewhat oversupplied in the next couple years with projects ramping up, particularly in the U.S. So there was a bit of a buffer. Now that still has to be made up because the volumes lost from Qatar are large. But to your point, there are sources of LNG that can meet that. We’re not going to be in that 2022 scenario likely.
Jackie Forrest:
Okay. Well, let’s wrap it up. All of this to me means in general, we got to be realistic that oil and gas demand will be a bit lower than it might have been before this Iranian war. Next year when the IEA puts their current policy scenario out, I think that oil demand in 2050 will be lower because EVs adoption, they’re going to probably take a much more optimistic outlook on that. We talk about heat pumps. Yes, LNG will grow, but coal will grow as well.
And so what happens if next year the IEA comes out with the current policy scenario that shows oil demand is maybe flat to 2050? Which would be actually closer to their stated policy scenario. In fact, it was a little bit of a decline in their stated policy scenarios, which was the one that went from 100 million barrels a day in 2024 to 97 million barrels a day in 2050. And that included not only the existing policies, but statements that countries have made about what they intend to do, but they hadn’t put the laws in. And I would argue they’re going to actually take action on a lot of those things.
I’m going to go back to how the IEA scenarios were used by Canadian politicians. When Canadian politicians saw the IEA show flat to declining oil demand, they said, “You know what? We don’t need to build pipelines. Why are we building pipelines? Because this is a sunset industry. We don’t need to grow this industry. Let’s cap the emissions on the oil and gas. We don’t need production growth.”
Are you worried that if the IEA starts to come out with something that probably is realistic that oil demand, it’ll stay at a higher range, but not maybe grow as much as we thought, that that could change the political support for building pipelines?
Peter Tertzakian:
Mm-hmm. Well, I don’t mean this in a cynical way, actually. I’m just stating it as I think a matter of fact that a lot of international institutions have lost influence. And again, I’ll say that the international agency is one of them. So I’m not worried about what the IEA says because actually I don’t think a lot of people are listening that much anymore. We are in this new world where countries are out for themselves in terms of dealing with the economic and geopolitical warfare that’s out there.
So I don’t know, Jackie. I think it’s interesting the IEA does have a role to play in terms of disseminating information about supply and demand and all sorts of other good work that they do. But in terms of their diktats and things like that that they put out, I just don’t think they have nearly as much influence as they used to.
Jackie Forrest:
Yeah, but my concern is these politicians use them as a reason for what they’re doing. So let’s go back to that dark time. A minister will consent at the time saying, “The IEA says… Therefore we don’t need growth in this industry,” right?
Peter Tertzakian:
Just don’t think politicians are listening nearly as much as they used to. Certainly, I don’t think there’s any politician in the United States that’s listening to them. And they are still very much one of the most consequential players in the energy world. So this is a far different world. Even Mark Carney called it the rupture. It’s part of that whole thing where international agencies and institutions have far less clout and influence than they used to.
Marcus Rocque:
Maybe I would just add that regardless of where we end up on the politics, I think it’s helpful to focus on the actual numbers. And when people were quoting that we don’t need a new oil and gas investment, that wasn’t looking at a flat type scenario that you’re outlining, Jackie. That was looking at the net-zero scenarios that would get to 20 or 30 million barrels a day of demand by 2050 rather than sort of the hundred we’re at right now.
Even if you think we’re in a flat environment, oil and gas fields, they decline. If you don’t invest, the production goes away, and you need to invest to offset that. So even if we’re not in the current policy scenario of that 113 million barrels, maybe it’s a 100 by 2050, that still requires 400, $500 billion per year from the global oil and gas industry to continue to invest to offset those declines.
Jackie Forrest:
Yeah. So you still need investment in new plays. I would also say, back to the politicians, is I hope we get away from this mindset that because oil may be flat or slightly declining, that we can’t grow Canadian oil production. We’re 5% of the world’s oil supply. We’re a much smaller portion of the global LNG market today. And why wouldn’t we grow our market share even if the market is flat to declining? That’s not a reason for us to forfeit the economic benefits of growing our industry, especially because Fatih Birol tells me all the advantages Canada has and that people want our energy, so we should grow it.
Peter Tertzakian:
Well, we should grow it and we should not be scared of competition. And that means not scared to take market share away from other players that don’t have nearly the high quality features that our oil has.
So yes, regardless of what happens with the top line of oil and gas consumption, we should be seeking to take market share.
Okay. Well, that was a great conversation. Thanks again for joining us, Marcus. So we will have you back undoubtedly as all these situations play out from the MOU announcement, which we, I think, have consensus is likely to hear something in the next couple weeks to what happens in terms of any potential ceasefire or not and also in terms of how the rest of the world is adjusting to the new energy supply chain realities. So until next time, which will be in two weeks because we’re going to take the long weekend off, thanks again for listening to us.
Jackie Forrest:
Yeah. Thanks, Marcus.
Marcus Rocque:
Yeah. Thanks for having me. It was a great discussion and I look forward to talking more in the future.
Jackie Forrest:
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