Looking Back on the Key Energy Themes of 2023
On this week’s podcast, Jackie and Peter review the final takeaways from COP28. Next, they discuss the key energy themes that shaped the past year. The 2023 top themes include:
- Artificial intelligence (AI) becomes mainstream
- Investors now understand the clean energy interest rate nexus
- 2023 will be the hottest year on record
- Affordability issues slow the uptake of clean energy technologies
- Policy-driven energy transition led by the US Inflation Reduction Act (IRA)
- Oil and gas markets shrug off geopolitical risk
- Big year for Canadian policy development – some opportunity and some frustration
- Canada has two CCS wins in 2023 – Air Liquide Net Zero Hydrogen/Imperial Renewable Fuels and Dow Chemicals Zero Emissions Ethylene Cracker
- IEA appears to switch into climate advocacy mode
Content referenced in this podcast:
- December 13, 2023 UN COP28 Global Stocktake
- December 6, 2023 CNN “2023 will officially be the hottest year on record, scientists report”
- December 15, 2023 The Hill “NOAA: Almost 100 percent chance 2023 will be the hottest year recorded”
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Episode 223 transcript.
Speaker 1:
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.
Speaker 2:
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. And that may be the last time I say welcome back in 2023. It’s the end of the year.
Jackie Forrest:
It’s gone so quickly.
Peter Tertzakian:
I know. You blink and the time goes by, although it’s been, well, I’ll call it an action-packed year. It’s been so many events around the world, even locally. Let’s talk about some of the things that happened this year and think about them as we head into 2024.
Jackie Forrest:
Our tradition for our last podcast is to look back on the year and we will do that today. Before we get to that though, just some final thoughts from that COP28 meeting. When we recorded last week, we thought that the wording about fossil fuels would not be there, but it was put in shortly after we recorded. I just wanted to do an update on that. The wording is, “Transitioning away from fossil fuels in energy systems in a just, orderly and equitable manner, accelerating action in this critical decade so as to achieve net-zero by 2050 in keeping with the science.” And I will put a link to the final text. It’s about 21 pages, actually quite readable. But now, the UN article that came out with this said this was the beginning of the end for the fossil fuel era because it was included for the first time.
Peter Tertzakian:
Well, I would shy away from the hyperbole of what it actually is going to do, not because I’m negative on it, I actually quite like the changes they made. And then the statement I think appeals to me more, why? Because the original text said phasing out of fossil fuels, whereas this one says transitioning away from fossil fuels and energy systems. And I think that nuance is very important because when you say phasing out fossil fuels, the emphasis is overwhelmingly on the supply side. And we’ve talked on this podcast many times that if all you do is try and shut down the supply side, we’re not going to get very far because for every oil producer you shut down, there’s another one that is just going to replace and take market share. Whereas if you say transitioning away from fossil fuels and energy systems to me that statement implies, or more than implies, it suggests that consumption has got to be a part of the transition solution.
And saying energy systems means it’s from beginning to end. And transportation, say from well to wheels or from well to heating systems. I think that the language actually in the front end is quite a bit better.
Jackie Forrest:
What it says in a just orderly and equitable manner, which implies some sort of slower transition.
Peter Tertzakian:
I agree. But the thing about the overall language, and I know they have to be careful to appease 160 countries, all of whom have individual views on how this goes. But these are vague terms. These are vague adjectives just for whom orderly, how much chaos are you willing to tolerate to make the transition equitable? Again, equitable to whom? And I know they got to capture in one sentence, and they have to appeal to everyone, but there’s enough vagaries in the language that it’s just quite watered down.
Jackie Forrest:
And when you look at the whole thing, it’s funny. There’s another bit of text that says the current national determined contributions would reduce emissions on average by 2% compared with the 2019 level by 2030. I find it interesting that the whole world focuses on this sentence around fossil fuels and forgets the wee little problem that none of this stuff is on track for the kind of reductions that are being talked about. I just think the focus on this was quite a big distraction. I did want to quickly mention too, there was some disappointment on that Article 6. Apparently, the decision was stuck at COP and they didn’t agree on this framework. I would just say that, hey, this has not been a good year for carbon markets. Do you remember we had Dirk Forrister, president, and CEO of the International Emissions Trading Association? He came in January and at that time, carbon markets were already facing some controversy because of quality. I think that they had some more issues even after Dirk came on.
And to me, not having progress on this UN system actually hurts all carbon markets, including the voluntary, which could have piggybacked on some of these rules and systems to become more legitimate. Now, there has been some positive things that groups that are looking at quality have come out with some recommendations, and I think they’re trying to fix their problems, but it’s a bit of a setback once again for carbon markets, I think, in 2023.
Peter Tertzakian:
I think in ’24, we need to revisit the carbon market issue, particularly in Canada because if we don’t get the carbon markets working properly, if we don’t get them more transparent and liquid and real time type data, it’s not going to work. The carbon market-
Jackie Forrest:
Those are the compliance ones, not even the voluntary ones.
Peter Tertzakian:
And the quality, as you say, of the voluntary ones is paramount.
Jackie Forrest:
Well, let’s move on to our big themes for 2023 looking back, and we’ll start with number one. And the number one is the artificial intelligence becomes mainstream. I actually have this memory of my very first business trip. It was the first week of January of 2023. Our CEO was like, “Check out this website, this ChatGPT,” and we started asking it fun questions like, “What’s the future of oil demand?” Or “What’s the history of Houston?” And of course, soon after that, even within a week, you couldn’t even access that website because it had just taken off and everyone was aware that these types of things were available to answer questions.
Peter Tertzakian:
I think it’s a really megatrend. Mega, megatrend. And indeed, we’ve even had guests on the show that have talked about it.
Jackie Forrest:
We had Cory Paddock, president and co-founder of GBE Energy. He joined the podcast. We talked about how AI could change the electricity markets, and there was a number of ways like helping to shift demand, rating transmission lines dynamically, getting more generation and transmission by optimizing them. I think we really haven’t seen, in my view, a lot of this impact the electrical markets yet. Maybe it’s happening behind the scene, but I think over the next few years, there’s going to be a lot of change.
Peter Tertzakian:
There’s going to be a lot of change in the commodity trading of units of energy, units of carbon, things like that, so electricity, we need to follow this much more carefully. I would say the biggest impact of AI is that it’s going to create a lot more noise. The ability to manufacture articles and news releases, some of which are fake, many of which potentially are fake, and it’s already happening, just creates even more noise out there, which then is going to further deteriorate what I would call trust. What do I trust in terms of what I read, what I hear, what I see, with the fake videos and things? These are not healthy trends, and I think will be detrimental to everything from elections to solutions for decarbonization to everything. What the consequence of that is that this asset, I’ll call it because I’m in the financial world, so I call it an asset, but it is an asset called trust is going to be valued much higher as we go forward.
Jackie Forrest:
Well, you know what? There is positives too, though. I was actually at a conference recently and there was a bunch of companies that had software developers and they were talking about developers being two or three times more productive because they’re using this copilot, which is an AI assistant that trains on your own source code and then makes your developers more efficient, so that’s good, but it can have negative too if it puts people out of work. And of course, we had in the mainstream media a lot of controversy with this Sam Altman, 38-year-old CEO of OpenAI who was fired and then rehired. But one of the concerns was apparently according to media, that he was moving too fast with this stuff. And anyway, so I think there’s going to continue to be controversy, but there’s a big promise. Footnote, some investors in AI have done very well this year. I don’t know if you’ve looked at this chip company, NVIDIA, it’s up 200% this year. Microsoft is up 50%. Investors in AI have done well this year.
Peter Tertzakian:
They sure have. Okay. Well, they’ve done well, and we know that the markets are also dependent upon interest rates.
Jackie Forrest:
Yes. The second theme is about interest rates, specifically how clean energy is so tied to interest rates, maybe we’ll call it the clean energy interest rate nexus. I don’t think investors fully appreciated when they were investing in clean energy, that they were also investing in an asset class that was so impacted by interest rates. They certainly appreciate that today.
Peter Tertzakian:
Well, let’s dive into that a little bit because it’s important to recognize that higher interest rates or interest rates in general have two impacts on clean energy. One is for the upstart companies that are championing new technologies. These are very risky by definition because they’re early stage. When interest rates go up, people basically say, “I’m not going to risk as much money putting my money into those kinds of stocks. I’m going to put it into a 5% GIC.” The other impact it has is on the big infrastructure projects, because most of those are heavily, heavily leveraged, which are dependent upon interest rates. Let’s just say 80% of the project is financed by debt. When the interest rates go up, it’s hugely material. There’s been a little bit of an impact and slow down on big projects as well.
Jackie Forrest:
I mean, I think the interesting thing about clean energy, which is not even for the big projects only, is it’s much more CapEx focused than OpEx. So, for example, if you’re going to build a power plant that’s a wind or solar farm, all the costs are upfront. And then you operate it for 20 years with very low cost because you don’t have fuel, it’s just sort of maintenance and the vast majority of the moneys upfront. So that’s why you need the debt, and the debt financing really impacts the cost of the project.
If you look at a natural gas power plant, much cheaper upfront, but then you have ongoing op costs to buy natural gas over the next 20 years. And so, they’re less impacted because they don’t use as much debt on the upfront piece.
Even EVs, they tend to be more money upfront. So, EV sales are not doing as well this year. They’re still growing, but not growing as much as people expected. And I think a lot of that is, relative to a combustion vehicle, there’s more upfront, now you save because you don’t have as many op costs, you don’t have to buy as much fuel, but the interest rates affect you more in terms of the economics.
Peter Tertzakian:
So speaking of interest rates, as we speak the interest rates have leveled out. The signals from the US Federal Reserve are that they’re going to level out and the expectation in ’24 is that they’re going to come down, and already some of the clean energy stocks are reflecting that. In fact, the market as a whole, there seems to be an early migration of capital back from fixed income to equities again, including some of the riskier equities. So, we shall see, and we’ll give our outlook for what we think, spoiler alert, in 2024.
So what else was cool?
Jackie Forrest:
Well, you can’t miss these articles. You’d have to be living in a cave. The hot temperature for this year, a lot of articles saying that this year will be the hottest year on record. And so, I was just looking at some reporting. European Union’s Climate Change Service found that this year’s global temperature will be more than 1.4 degrees C warmer than pre-industrial levels, close to that 1.5-degree threshold in the Paris Climate Agreement, and beyond a level which scientists say humans may struggle to adapt. And there’s also reports from the NOAA, the US Climate Service, kind of a similar vein, being the warmest year. Especially November. They think November is the warmest November ever on record.
Peter Tertzakian:
Well, certainly warm here on this side of the planet, but on the other side of the planet, Beijing and parts of Russia are extremely cold. So, we’ll see how it averages out from a global perspective. But the thing is that it’s a variability of the temperatures. And there’s a lot of chatter, it goes up and down. Did we break through the 1.5 Degrees C momentarily I think actually in one of the months? Regardless, it’s something that certainly is of concern.
Jackie Forrest:
Well, actually November the month was roughly 1.75 degrees warmer than pre-industrial levels. And that is a global average.
Peter Tertzakian:
That’s a global average.
Jackie Forrest:
So, we also had those wildfires of course in the summer of 2023. Canada obviously had them quite badly, but other places too.
Now, the interesting thing is, of course we have all this concern around climate because of the warm weather, but I don’t think that really got much happening. For example, at this UN meeting, COP 28, it was about as efficient as ever. So, I think a lot of people believe that these types of temperature patterns are going to create a lot more momentum to reduce emissions and to get on track with this. I haven’t seen the evidence quite yet.
Peter Tertzakian:
Evidence that it’s creating momentum?
Jackie Forrest:
Yeah. Well, countries are still not meeting their goals or consumers aren’t necessarily choosing to buy cleaner energy. We’re seeing that sales for EVs and clean energy are actually slower than people expected. So, the warm weather hasn’t resulted in people changing.
Peter Tertzakian:
No. Well, that is the challenge, the consumer behavior ultimately. And as I like to say, the decisions made around the kitchen table are as important as the decisions made around the boardroom table, that people need to feel some sense of urgency to replace their furnace or even just buy a bag of insulation and insulate. And that impetus is happening to a certain degree, but really not quickly enough.
Jackie Forrest:
Yeah. Well, we actually should have this as a theme of the affordability issues are not helping. People are having a hard time just getting by, so the idea of putting a bunch of upfront capital cost towards something at times when interest rates are high to save energy is not high on people’s priority lists right now, despite the warm weather.
Peter Tertzakian:
And even if interest rates fall next year, they’re not going to fall by that much probably. And the amount of, I’ll call it personal fiscal damage, that has happened, people have had to dip into savings. It’s just not going to be a high priority to personally make big capital expenses and make changes. So the ability of broad society to make contributions to the problem is going to be challenging.
Jackie Forrest:
Well, maybe we could add that as another theme here, but basically affordability issues slow the consumer uptake of some of these clean energy technologies.
All right, let’s go to the next one, which is, you’ve been talking about this, that this is a policy-driven energy transition, I think you’ve coined the term. And of course it’s been led by the US IRA. Why do you call it that? Why is that different than past energy transitions?
Peter Tertzakian:
Well, past energy transitions have been dominated by geopolitics, which drive a sense of urgency to change. We saw that in 1973 to ’79, those oil price shocks, and policy followed. A lot of energy transitions have been technologically, and I’ll call it business driven. There was no policy putting taxes on kerosene lanterns and candles in the late 19th century to go to light bulbs. There was nothing that said going from wood to coal, there was no policy.
So you look at historical transitions, policy driven transitions are more of a recent phenomena. And this one is overwhelmingly policy driven. Overwhelmingly, a lot of the companies that are getting back to the IRA, that are benefiting from the IRA, their business plans and their cash flows are overwhelmingly dependent upon the existence of this policy. So this is a policy driven transition. It’s not the same as previous transitions where there was strong technological components or other impetuses to drive society from one state of energy systems to the new state of energy systems.
Jackie Forrest:
Now, I would correct you. I think there’s some areas that would do okay, wind, solar, batteries that use… Heat pumps.
Peter Tertzakian:
When solar batteries have come down the cost curve, but the ones that are more difficult to come down the cost curve, those particularly I would say, like in the hydrogen world, heavily, heavily dependent upon policy.
Jackie Forrest:
Biofuels.
Peter Tertzakian:
Biofuels, heavily dependent on it. And it’s not clear to me though, even some of the ones you mentioned, Jackie, that they would be able to compete with the status quo systems if you took all the policy off.
Jackie Forrest:
I think some of them would. They probably wouldn’t grow at the same rate, but there would be growth.
I think you’re right, the duration and the magnitude of the policy in the US, but other countries, Canada is one of them, have added even additional policies to try to keep up, Europe as well, Australia. So I think that this really is very unique that way.
I will say there’s been a lot of uncertainty around many of these policies still. And even the IRA, even in the last month, we’re still getting the details. For example, just today I read the biofuels will get the IRA tax credit for sustainable aviation fuel. We just learned about what will qualify as Chinese content and therefore affect the EV credits. We’re still waiting on rules around green hydrogen. And of course, here in Canada, we’ll get to it, we don’t have certainty on all of these announcements as well.
So, still coming together, I think, in terms of what it all means and making it investible.
Peter Tertzakian:
Still coming together and still uncertain. Still, the people at boardroom tables struggle with how to quantify the risks of policy, how to quantify the risk of say political change, and if there’s a new government that comes in a Western democracy, whether they will be supportive of the existing policies that have been put into place or whether they’re going to shred them.
Jackie Forrest:
The other thing about the IRA, it is creating a lot of competition amongst jurisdictions like Canada and Europe versus the US.
And just as a reminder, we had Paolo Maccario, President and CEO of Silfab Solar, join the podcast to talk about how the incentives in the US for manufacturing solar panels and cells were so much better in Canada that he could not compete for manufacturing solar panels here.
So that’s the other dynamic that’s come out of all of these policies, is that there’s unlevel competition between different countries now.
Peter Tertzakian:
All right. Well, where are we going next?
Jackie Forrest:
Well, the next one has to be oil and gas. We came off 2022 with the energy shock where WTI oil was over $120 in June and gas prices were through the roof, especially internationally. And this year, oil has averaged $78 for the full year, and it’s near $70 now. In fact, in December it’s been in the high 60s at times. So prices are much, much softer.
Natural gas, I don’t know if you’ve looked at North American natural gas prices, they’re near $2.50 per MMBtu. So that’s very, very low prices.
Yet we have two wars. We’ve got the Ukraine-Russia War, which will in February of next year will be two years. We have this Hamas-Israel War started on October 7th. But despite the geopolitics there and even geopolitical tensions in other places of the world, oil price, gas prices are shrugging it off.
Peter Tertzakian:
Yeah. Well, I would say the Ukraine-Russia War, which is now approaching two years old, is the world’s supply chains of energy have adapted, whether it’s LNG and so on. And we also know that in the United States, the growth of the LNG export business has been quite staggering. So, the Russians have been able to export their oil regardless of the sanctions. So really, we’ve adapted to that.
Now, the Israel/Hamas one is more concerning to me because it’s unresolved and there’s missiles being fired over the Red Sea. Already companies, actually, the news out today is that the shipping company, Maersk, has paused journeys of its ships through the Red Sea, and I think that this raises the cost of insurance for tankers and all sorts of things behind the scenes. So I wouldn’t say that the geopolitical risk premium is zero by any stretch. I would say the price of oil would be considerably lower, maybe $10 lower were it not for the situation in the Middle East. And actually even the situation in Russia with the sanctions and so on. I mean, there are knock-on effects from that.
Jackie Forrest:
Yeah, well, it would certainly be lower too if we didn’t have these OPEC cuts and the situation with OPEC, their latest meeting in November created a lot of confusion. They released individual country cuts. There was a delay in the news, and generally there’s just some uncertainty on compliance. But if anything changes in the OPEC situation where the group decides they want to open up the valves here, then of course that will cause lower oil prices too. So, the bottom line is with this backdrop of sufficient supply, lots of OPEC, spare capacity, these events, they may be having some effect, but not as much as maybe as you would think.
Well, let’s switch to Canadian policy. I’ve been obviously spending my whole life and my career in energy in Canada, and I can’t think of a bigger year for Canadian policy development. Some of it brings opportunity for sure, but some of it brings frustration, confusion, and as we talked on last week’s podcast, probably less investment than would be otherwise. So let’s just quickly just go through the laundry list here. There’s the ITCs announced in the spring budget.
Peter Tertzakian:
Invest in tax credits. So can you describe that a bit?
Jackie Forrest:
So you get basically a 30% break in terms of the total capital cost of your project. You will get 30% of that as a tax credit that you can apply to your future taxes or maybe even get paid back directly. Now there’s still some unknowns, but there actually, you might’ve missed this. December 4th, there was a Fall Economic Statement Implementation Act put forward. It should be passed soon in parliament. So we might actually have certainty on those rules very soon here, but we’ve waited since the spring budget for that. We had the Alberta government giving a 12% additional for carbon capture storage projects. So you would get 50% that CCS is the one area where you get a 50% investment tax credit from the feds. You’d get an additional 12 as a grant from the Alberta government. That was news.
The Canadian Growth Fund is another area that we keep hearing about, and we heard in the fall economic update that $7 billion of this $15 billion fund will be set aside for these contracts for differences which continue to be like, I guess the mythical unicorn here in the whole CCS that we’re not quite sure what they are or what they do or how they look, but we keep talking about them quite a bit.
Maybe we’ll get some certainty on that. Of course, we had the moratorium on renewables and we had Premier Danielle Smith on our podcast giving her perspectives on that. We also had Vittoria Bellissimo on the podcast talking from the CanREA, Canadian Renewable Energy Association’s perspective on it. On the feds we had some massive policies come through. The Clean Fuels Regulation actually went into effect this past summer, basically reducing the emissions associated with our gasoline and diesel. We had the clean electricity reg draft legislation out very controversial, and this discussion document that we talked about with the oil and gas cap, and I think there’s probably-
Peter Tertzakian:
The methane regulations.
Jackie Forrest:
… quite a bit more. Oh, methane regs, there’s probably quite a bit more. So in the opportunity camp, those investment tax credits, those are the ones we see great opportunity. But on the confusion and frustration side, obviously the moratorium and some of these federal rules are clearly in that camp.
Peter Tertzakian:
Well, you’re making my head hurt, Jackie, and I think this is the point, the sheer volume of policy and the complexity, and I’ve talked about this before. So if you back up and say, “Okay, I get 50% credit on CCS, I get another 12%,” so that’s 62% as you pointed out and say, “Well, that’s pretty lucrative. Why aren’t companies doing it?” Because if you spend a billion dollars upfront, then when your facility is built, you get 620 million over the course of the operation of that facility. So you say, “Well, that’s pretty sweet. Why aren’t we doing it?” Well, we aren’t doing it because there’s all this cognitive dissonance around all these other policies that are so uncertain because I don’t know if I’m going to make any money with all these other burdensome policies that are being imposed, including the emissions cap, and the Clean Electricity Regulations further downstream, and I mean, it’s just clean fuel regulations. I mean, you went through the laundry list.
So I think if it was just the ITC, I think you’d see quite a bit of stuff happening, but now with the introduction of all these other policies, it’s just, “Okay, wait a minute. I’ve got to just assess the whole business environment because I don’t know if I’m going to get my 62% back or I don’t know what my fiscal situation is going to be going forward given all these other policies.”
Jackie Forrest:
And it’s just going to slow investment. Now this goes to our next theme. I agree with you, Peter. Things could be going a lot faster, but we do have some good news in the 2023, and I hate to miss this one, but Canada’s carbon capture storage industry did get going this year. We had two final investment decisions around carbon capture storage projects in Alberta. Of course, it’s much slower than it could be for all those reasons you talked about. But I did want to celebrate these two wins. One was in January, Imperial announced a $720 million renewable diesel project, and associated with that Air Liquide will be supplying blue hydrogen from a facility nearby. This facility will cost 1.6 billion, and there was quite a bit of support announced by federal and provincial governments for that one as well. But hey, we had our first CCS project FID in January.
Peter Tertzakian:
There’s another one, isn’t there?
Jackie Forrest:
Yes. And then we waited the whole year, not much happened. And then November 28th, we heard that Dow Chemicals is going to build the world’s first zero emissions ethylene cracker in Alberta. This was helped by the CCS tax credit federally that we just talked about, but the province also announced almost at the same time that they would do that 12% of eligible capital cost as a grant. It’s going to be in Fort Saskatchewan. I wanted to read from the press release, Dow selected the Fort Saskatchewan site for its investment as Western Canada offers highly cost competitive natural gas relative to other regions, as well as cost advantaged ethane, a key feed stock for ethylene cracking. And at full run rates they think this site will be one of Dow’s most cost competitive in the world.
Peter Tertzakian:
I think these are great, but the emissions are further upstream, and that’s where the burdens and policies are being implemented. These are new projects that are secondary products, I would argue particularly to Dow. And so if we’re going to create carbon capture projects for the upstream for all the development that’s happened since, I don’t know the 1990s and all of the emissions that come from those projects, then we have to think a little more holistically about how to approach the policy sticks versus carrots to get those projects done.
Jackie Forrest:
Yeah, good point. I mean, the fact that we have cheap natural gases because we have ample supply. If there’s policies that curtail that supply and price goes up, that affects that. I did want to point out too, we often talk about the US being more advantaged with the Inflation Reduction Act because they have that 45Q that gives certainty to carbon price. I think it’s about $85 a ton, and you have that for 10 years. And if we had that in Canada, then things would be better here. And I don’t doubt having price certainty would be helpful for sure, but I would just point out that the US is not without risks. There are now a couple of CO2 pipelines in the Midwest that got scrapped due to issues with regulatory process. It’s very difficult to get an injection well in many states in the US to actually store carbon.
So, here in Alberta, we have a much more advanced regulatory environment for the storage and how you do that. We have one of the world’s largest CO2 pipelines with Wolf Midstream. And so I think having that infrastructure, they talked about that in the press release too, I think is another differentiator for us. So I have no doubt, even with all this kind of mess of policy, if we got two FIDs this year, can you imagine how many FIDs we can get once we get all of this stuff cleaned up and it’s certain for people?
Peter Tertzakian:
Well, that’s it, because we do have some of the best reservoirs in the world for CCS, and after drilling 800,000 wells over the last century, we know where all the porosity in those reservoirs are, and we have all the technology and engineering expertise to be able to do it. So, technology and reservoirs and those sorts of things are not the limiting factor here.
Jackie Forrest:
So, once we get this policy sorted, I think this is going to be a huge opportunity. I think four or five years from now, we are going to see a lot of projects moving forward. This policy will get sorted. I’m confident of that because we have such a great opportunity here.
Peter Tertzakian:
The good thing about this Air Liquide and Dow projects are that they are in addition to some existing projects, and that the more you build, the more you learn, the more you bring the cost down, the more you reduce the risk, which then leads to other projects. So, we just need to optimize the policies to reduce the risks and to liberate the capital to build them.
Jackie Forrest:
Yeah. Remember, we have three projects now. We have the Wayburn, we have the Quest project in the Edmonton area, and we have a new one, the Glacier project up in Northern Alberta. We talked about that on our World Petroleum podcast where we talked about the entropy one. So, we’ve got some experience already, we are learning, and this will only help accelerate that.
Okay, next one. This is one, and there’s quite a few subpoints to this one, but I think this is the year the IEA appears to switch into climate advocacy mode from honest broker of energy data. There’s been a real change in the tone of the types of materials they put out, and I have examples of that if you want me to go into them. One is they published this oil and gas industry in a net-zero transition. The executive summary was titled, the Moment of Truth is Coming for the Oil and Gas Industry. I’ve got quite a few quotes here, but they talk about the industry cannot rely on CCUS excessively or DAC. They need to slash their emissions. They need to get on board with the fact that they’re going away over time. The OPEC actually wrote a letter in response. They said the IEA unjustly vilifies the oil and gas industry in this 200-page report.
Peter Tertzakian:
Yeah, I think that there’s something in this story that you’re bringing forward, Jackie. The word that you used is that the IEA has switched to a climate advocacy mode, and so what you’re suggesting is that the IEA should not be an advocate. The IEA’s job is to provide objective information and recommendations based on that objective information, which, certainly since inception, and I’ve used the IEA data for, I don’t know, most of my career, it has in the past been very objective.
Jackie Forrest:
It has. And because it’s mostly public, the stuff that isn’t public is very reasonable for people to pay for. It’s pervasive out there and it’s very detailed. Now, another example, and the problem is once you think that that’s what they’re doing, you start to question the materials that they come out with. I’ll give you one really good example. As you know, every year they come out with their World Energy Outlook. A lot of people look towards that. It has those three scenarios that we often talk about, the STEPS, which is sort of the business as usual, current policy, they have the announced pledges and the net-zero scenarios that come out. Well, in October of 2023 when they made their release, they had a big U-turn on their views about the investment needed in oil and gas.
In the previous years’ work, they had said that we were actually under investing in oil and gas, and they warned of a risk of underinvestment if we were on this trajectory, which was the existing policies. They even had some data about the gap between how much needs to be spent and how much is being spent.
This year, they said they got that all wrong and that now they think the world’s investing more than enough and that we don’t need to be investing anymore. I mean, you should be more concerned about over-investment. So, they were basically saying some of the reasons for that is, well, they thought Russia’s oil production would be less and now it’s higher. They now think that every dollar spent is actually going to create more oil and gas than they did before. There was a bit higher level of investment in 2023. But I guess the thing is, I start to look at that and say, is that because there are more climate advocacy here or is that a legitimate result? It’s a big change from last year, especially because the demand for those different scenarios didn’t change much.
Peter Tertzakian:
I think that U-turn where they were beating the drums about underinvestment and oil and gas to, all of a sudden, overinvestment, for an agency that has, I don’t know how many employees that follow this stuff very carefully, not to be able to predict that and watching the Russian barrels closely seems very peculiar, and it does put into question their motivation and their selection biases as it relates to the lead into, for example, the COP Conference. The language that’s coming out of these reports seems to be filled with much more hyperbole than in the past.
Jackie Forrest:
It does. I’m not sure that that’s helpful.
Peter Tertzakian:
No.
Jackie Forrest:
I know that they are wanting the world to move and they’re looking at the net zero and they’re looking at the climate situation and those IPCC reports and sounding the alarm that the world needs to reduce emissions quicker. So, I think that is why they’re maybe getting a bit more alarmist in their language, but I’m not sure if it’s actually helpful in terms of, we do need an honest broker where people can rely on the data, and to me it’s starting to veer away from that.
Peter Tertzakian:
Yeah, I think the most unhelpful thing the IEA has done in the last 12, 18 months is publish these scenarios as if they are predictions. And people taking scenarios and naively turning them into predictions has been really unhelpful in terms of setting the stage for common sense discussions about how to think about decarbonization.
As a broader statement, I would say that here we are, 28 COPs in, I think I said this even in the last podcast, and we’re still following what I would call plan A. Well, after 28 attempts and 7 years pushing 8, no, actually pushing 9 after the Paris Agreement, which was signed in 2015, we’re still no further ahead. So maybe we ought to think plan A isn’t working and we ought to think about plan B, and putting forth unrealistic predictions cloaked as scenarios and putting hyperbole into the reports is really not helpful, I guess, is the way I would characterize it.
Jackie Forrest:
We had Jean-Denis, the chief economist at Canada Energy Regulator, and we gave him a bit of a hard time about these scenarios on that podcast if you didn’t hear that one. But I did actually put a chart together, together, which is kind of interesting. I looked at the scenarios that the IEA has the net zero and then the one that is current policies that they call STEPS, and then I went and looked at what public predictions are there. So, it’s not scenarios, but people that actually put forecasts out there, which are OPEC, EIA, Exxon, and we did here from Thunder Said Energy, what their prediction was. I’ll just tell you, three out of four of them are higher than STEPS. STEPS assumes that demand stays fairly close to where we are today, all the way up to 2050. Three of them are higher than that, these are predictions, and one is just slightly lower. So, the reality is the world looks on track for that higher scenario and what are we doing about that is a conversation we’re not having.
Peter Tertzakian:
I think just, again, objectively, why are they higher than STEPS? Well, if you look at the data, as we said about 10 minutes ago, the data shows that consumption is rising. The only question is, by how much? So of course the people that are putting forth these projections are just feeding off of the realities of what we see today, not conjectures about what the world is going to look like in 2050 and then working backwards and saying, “Here’s my prediction.”
Jackie Forrest:
Yeah, yeah. No, there’s definitely something broken. I actually think the solution is every single one of these agencies that puts out scenarios should also be forced into putting a prediction, and then that would give some context for people.
Peter Tertzakian:
I think they should scrap the scenarios. Give us your actual predictions so we can work off of that. I think we’d be a lot closer to getting good discussions about how to actually tackle the issue.
Jackie Forrest:
Right.
Peter Tertzakian:
Well, we talked about a lot of stuff, Jackie, and we probably only covered about 10% of what we could have covered, but our time’s up and it’s time to thank our audience for listening, again, our loyal audience, we really appreciate your support. It keeps us motivated and going, and we wish all of you a very healthy and prosperous 2024, and indeed in the near term, the holiday season as well.
Jackie Forrest:
Yes, we hope everyone has a great holiday. We will be back in the new year with our first episode, which is always our predictions for the new year. So thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listened to and tell someone else about us.
Speaker 1:
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