In the Headlines: Alberta Budget and Renewables Moratorium, LNG, and IEA Backlash

In the Headlines: Alberta Budget and Renewables Moratorium, LNG, and IEA Backlash

Produced by ARC Energy Research Institute | March 5, 2024by ARC Energy Research Institute

Peter and Jackie discuss the latest energy headlines and policy announcements on this week’s podcast. Listed below are the topics covered:

The Alberta Government is lifting the moratorium on new wind and solar project permits, a policy that was enacted in the summer of 2023.
The Alberta Government introduces its 2024 fiscal budget. Before the budget announcement, Premier Danielle Smith made the case for rebuilding the Alberta Heritage Savings Trust Fund to help eliminate the revenue roller coaster that results from volatile oil and gas prices. The budget also included Carbon Capture and Storage (CCS) funding and a registration tax of $200 per year for each electric vehicle.
Qatar announced it will add more LNG capacity by 2030. Given Shell’s recent projection of more than 50% growth in global LNG demand by 2040 and that the US will supply 30% of total demand by 2030, what are the implications on LNG markets and the Canadian opportunity for LNG exports?
The IEA has been criticized for prioritizing climate advocacy over energy security.

Content referenced in this podcast:

Alberta Government’s News Conference to Lift the Renewables Moratorium “Renewed path forward for renewable energy – February 28, 2024”
Alberta Government’s Budget 2024
Blake Shaffer Tweet on the flat road tax for electric vehicles
Shell LNG Outlook 2024
Robert McNally’s Wall Street Journal Op-ed on the IEA “Climate Politics Neuters Energy Watchdog”
A New York Times article on the development of white paints to cool the planet by scientists at the University of Purdue

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Episode 231 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. Welcome back from a snowy weekend here in Calgary. I was shoveling snow. Meanwhile Jackie, you were down south in Sin City.

Jackie Forrest:

Yeah, in Vegas. So, I missed all the snow, sadly. Although I had to deal with when I got home, ’cause my car was at the airport. But yeah, I got to see Madonna. Madonna was like the Taylor Swift of my childhood. So-

Peter Tertzakian:

She was high energy.

Jackie Forrest:

It was pretty fun.

Peter Tertzakian:

Yeah.

Jackie Forrest:

Yeah, it was really, really good. And I didn’t lose too much money.

Peter Tertzakian:

You’re not a gambler.

Jackie Forrest:

Not a gambler. I think I lost 20 bucks on the blackjack table, but it took me a long time to lose it, so I was proud about that.

Peter Tertzakian:

What was the temperature like? What was the weather like?

Jackie Forrest:

It was like 15 to 20, but it was very windy. So not the time of year to sit outside by the pools. They’re not even open. So, you had to kind of stay inside-

Peter Tertzakian:

Did you see the Sphere? Did you see the Sphere?

Jackie Forrest:

I saw it from the outside. In fact, U2 was playing this weekend, but Madonna tickets were quite a bit cheaper than going to the U2 Sphere.

Peter Tertzakian:

I can imagine. Yeah, that’s what I want to do. I want to go see the Sphere. I think that thing looks really cool.

Jackie Forrest:

Yeah, it’s incredibly large, for sure.

Peter Tertzakian:

Yeah. Good. Well, let’s bring it back home.

Jackie Forrest:

Yeah, there’s been so much news we thought we’d dedicate this podcast to talking about all of the kind of relevant news.

Peter Tertzakian:

What’s top of the list here? Shall we kick off with the Alberta renewable ban unban?

Jackie Forrest:

Yeah. So, February 28th last week the moratorium was lifted. Now some people say it’s not lifted. Some people are calling it a second soft moratorium because there’s still a lot of details. But I thought I would go over some of the key elements, not everything, and there’ll be a link to the actual details in the show notes for those that care.

One of the big areas was land use. So, renewables are no longer permitted on class 1 and class 2 agri lands.

Peter Tertzakian:

So, these are new projects. These are new projects …

Jackie Forrest:

Oh yes.

Peter Tertzakian:

That are going proposed for development.

Jackie Forrest:

Only ones that are not got their permits. So, if you have a permit and you’re on that land, it’s okay. So, I think class 1, apparently there’s almost no class 1 land. Class 2 there are lands but remains to be seen because what does it mean to be used for crops or livestock?

Peter Tertzakian:

What are you saying, like I now have to be farm expert to understand renewables. So, there are certain, I’ll call them properties, quarter section sections of land that are designated as being of such high arable agricultural quality that you can’t cover it up with renewables. Is that what it is?

Jackie Forrest:

Well, as long as you can prove that it’s used. So, I think for wind it probably has little impact because most of the land is still used for agricultural. The question is more solar, and could you still have sheep grazing or other uses? And so, there’s questions there. But also, how much class 2 land is in the areas where renewal development may happen.

So, to me it’s yet to be determined how impactful that is because we don’t really know what the strictness will be or exactly how many lands are impacted.

But it could have been worse. I mean there were rumours that it would be broadly all agricultural land and no flexibility. So, I think wait and see how restrictive that is, but I think maybe it could be workable.

Peter Tertzakian:

So, what you’re saying is that you are allowed to propose development of say, a solar farm on class 3, whatever that-

Jackie Forrest:

Yes, that’s no problem.

Peter Tertzakian:

For sure. No problem. Class 2 is a maybe to be determined. And class 1 of which there are not a lot of class 1s, which I’m surprised to be honest, because there is a lot of high-quality arable land.

Jackie Forrest:

Yeah, I think that’s such a high bar. I was looking at a table and it looks like there’s very, very little, if any. But for class 2, which would be some of our best agricultural lands, you need to prove. So now what is the regulator? How are they going to interpret that?

And by the way, just broadly we’ll go through this, but all of these rules are to be determined. So yes, they lifted the moratorium on February 28th, but I think if you look at some of the commentary of what people have commented on, there’s so much uncertainty with the details that I think there’s still more or less a moratorium.

And we’ll get to it. There’s two other big processes going on right now in Alberta. One is how they’re going to deal with transmission costs, and they may change that. As well we talked about it earlier that this looking at the market is the type of market we have today the right one for the future? So, to me, all of these need to be resolved before we see a lot of investment. But these details associated with the rules that were set out on Feb 28th also need to be clarified.

Peter Tertzakian:

Okay. So okay, stay tuned on that.

Jackie Forrest:

So that’s that one.

Peter Tertzakian:

And just for clarification is, if I’m a landowner, rural landowner, which I’m not, but would I know if my land is class 1, 2 or 3, or that is yet to be designated?

Jackie Forrest:

No, I think there are …

Peter Tertzakian:

Designations.

Jackie Forrest:

I think that is out there. I’m not sure that everyone knows what land is, but I think that’s part of what probably people will be doing over the coming weeks to understand that. There is going to be a consultation process around these details, and I think there’ll be a process there.

I wanted to talk about this viewscapes thing because I think that’s a very curious requirement. It says buffer zones of around 35 kilometers of minimum will be established around protected areas and what is considered to be pristine viewscapes.

Nobody really knows what that means. And that wind projects will no longer be permitted within these 35-kilometer buffer zones around protected areas. That’s kind of clear where the protected areas are. But what is considered a pristine viewscape is really not understood, and they would send someone to do a visual assessment to understand does this have a pristine viewscape?

So, there has been some, I’ve been listening to some of the responses. What other industries have this? We drill oil and gas wells right into the Foothills right up to the protected area. Why are we doing that? Why is renewables having to have this very unclear requirement about whatever a pristine viewscape is? So, I think there’s some concern about that and how it will actually play out in reality.

Peter Tertzakian:

Yeah, the whole idea of viewscapes or viewshed is very subjective. It also depends where you are viewing from. But-

Jackie Forrest:

I mean, look at the west side of Calgary. If you get to the edges of Calgary, you can have a nice view of the mountains. Is that pristine landscape? So, this is part of the problem. How will that be defined and how much potential land could be sterilized because of that? And so that’s a concern.

All of this when it comes to investing dollars in Alberta, adds risk, uncertainty. Will your project actually get approval? It’s just the uncertainty around that’s gone up.

They also did some things around reclamation, which I think is probably a good thing. More transparent agreements with landowners and minimum requirements. Now they do say that you have to post a bond and there’s been some commentary. Well, oil and gas doesn’t have to post a bond. So why does renewables?

And oil and gas, I did some more work. It looks like if you don’t meet some sort of financial hurdles, you might have to post a bond in oil and gas, but it’s very rare I think. So, I think that’s fair, like why the bond. And how prohibitive the bond is really depends on how big it is. And we don’t have any details on that either.

Peter Tertzakian:

Right. Right. Okay. So, the moratorium is off, and it is subject to these new rules, be it the quality of the land for agriculture or otherwise, the viewshed and the bond that has to be put up-

Jackie Forrest:

Yeah. And there’s other things too-

Peter Tertzakian:

… for reclamation at the end of life of these projects.

Jackie Forrest:

Yeah. The other big thing, remember when we had Jason Schneider on, the Reeve of Vulcan County, they are going to give people like him, the reeve, and the municipalities a greater say in these processes, which is what he was asking for. So, there’s other details, but yeah, that’s kind of the big ones.

So, what I have to say is this adds more red tape restrictions and uncertainty, and we’ll have to wait and see how it all plays out, as well as these other two major policies, the transmission, as I said, and the review of our market design.

The one thing I want to say is that it was Alberta was the place for renewables in Canada. 2.3 gigawatts of wind and solar and energy storage was added in Canada in 2023 according to CanREA. 92% of that was in Alberta. I actually think that’s shifting. There’s huge opportunities across Canada. There’s big procurements. We heard about it in Ontario last week with Energy Minister Todd Smith, but Nova Scotia, New Brunswick, Quebec, Manitoba, Saskatchewan, BC. These provinces are all expected to have large procurements for renewable. So, considering the situation in Alberta and considering how much opportunity there is across the country, I predict in a few years Alberta won’t be the market leader for renewables.

Peter Tertzakian:

Okay. Well, I predict the other provinces will have to write rule books on renewables and how best the land is allowed to be put to use. I think that this is a growing trend and that any nascent industry that uses a lot of land has to necessarily evolve and that regulations are part of the infrastructure. It’s not physical infrastructure, but it’s part of the rural infrastructure.

When the oil and gas industry started up at the turn of the last century, there were almost no rules. And then all the rules and regulations and then the fiscal policies like royalties, et cetera, came in and now you’ve got the equivalent of binders of rules and regulations. And I think that’s coming here too. As it permeates more and more into society as it goes into other provinces, I mean necessarily you’re going to see more rules and regulations or as you called it, red tape.

I’m not saying it’s a bad thing. I mean I just think there has to be boundaries on any kind of development.

Jackie Forrest:

Well, and as it gets larger, the footprint gets larger, and it gets a bigger target on its back because it’s having a bigger impact. I think it was pretty naive to think that we could get this all sorted in six months. I predict that it’s probably another 12 to 18 months when all these pieces are understood, and investors now have full certainty.

And you’re right. As renewables grows in other provinces, there’s going to be more constraints over time, I think. If you think about how much investment risk there was before all this, there was investment risk because of these issues. So hopefully in 18 months actually Alberta is a better place to invest because the regime is more sustainable, and people will have a better idea sort of what is a sustainable set of rules that they can move forward with in terms of investing. The pause is not just going to be for six months.

Peter Tertzakian:

And by the way, I mean further to what I said and what you just said, don’t expect that these guidelines that have been put in place are the last ones. There’s going to be more. I mean that is just the way regulation works. As you said, the more it starts to impinge upon society and there’s nothing in energy that is void of environmental issues. So as it grows, there are going to be more and more rules that are put into the regulatory infrastructure.

Jackie Forrest:

Right, there’s always that risk I guess for investors as things grow that things change and that’s true to any industry. I mean think about the oil sands. When they were a million barrels a day there was a set of rules. Then, as they grew, we started to look at cumulative limits to how much water can be used, how much land can be used.

Peter Tertzakian:

Exactly.

Jackie Forrest:

The rules did change as they grew.

Peter Tertzakian:

That’s right. What’s next?

Jackie Forrest:

Let’s talk about topic number two. Alberta released their budget and there’s a number of topics we could talk about within that. I think one thing that’s interesting is prior to the announcement of the budget Danielle Smith, our premier, she had a televised thing. I don’t think you watch cable news the way I do, but I watched it.

Peter Tertzakian:

I saw it. No, I saw it.

Jackie Forrest:

It was basically saying we need to save more for the future. If we had kept the Heritage Fund back from the ’70s, how much money that would be today to the province and how much income we’d be generating off that. She said that, “Going forward, we want to put more money into the Heritage Fund.” The budget that came out about a week later didn’t put too much money into the Heritage Fund because it turns out the surplus, which was supposed to be about $2 billion in the last update, was actually quite a bit smaller. It was 367 million, not much going into the Heritage Fund this year. That’s a combination of lower oil prices, things costing more. There was some increase in spending too, but if you look at their projections, they show that maybe around $2 billion or more would be surplus in coming years. The test will be will the politicians be able to put that away as there’s always a lot of temptation to spend?

Peter Tertzakian:

I was around in the Lougheed era when he started the Heritage Fund, and everybody was pretty much on board thinking it’s a great idea. Then, it maxed out around $20 billion as subsequent governments basically took the interest or even took some of the principle during the rainy days. Indeed, I mean the Heritage Fund was supposed to be a rainy-day fund and, in many ups, and downs, especially the downs, it served that purpose. To bolster that now seems like a good idea. People say, “Well, why don’t we have a big sovereign wealth fund like Norway,” which is now one point, I don’t know how many trillion dollars.

There’s big differences between Norway and Alberta. I mean first off; Norway’s oil and gas industry is dominantly state owned. The state has much more control and say in where the cash flows and up. Second of all, I don’t know anything about Norway’s constitution, but here we are a federation of provinces, and we have all sorts of federal commitments and transfers and so on and so forth. It’s just not comparable. I mean that’s the way I would characterize it. Do not compare Alberta to Norway because the circumstances are completely different.

Jackie Forrest:

Being a province versus a national entity and a national oil company, which I think makes it different. I would say an interesting thing in Danielle Smith’s cable TV address, she talked about if we had just kept that initial principle and grew it that today it could be providing about $15 billion of income each year and just not coming out of the principle, but just in terms of the earnings from investing.

She talked about being off the resource rollercoaster because when we have great prices we spend more. Then, when the oil prices go down we have to cut back our spending or increase our debt. It would’ve created a cushion that that income could help offset those bad years.

Peter Tertzakian:

Should have, would have, could have, I think Alberta is still in great shape. I think we have to think about going forward and how we’re going to manage the resource revenues given that there is ultimately a limited horizon on those revenues. I think that’s what she’s addressing.

Jackie Forrest:

No, I thought it was good at least to put it out there as a goal. Let’s hope that they save some money over the coming years. Now there was a couple of other energy related announcements I wanted to talk about. One was help for carbon capture and storage, about over 200 million from TIER, which will help get-

Peter Tertzakian:

TIER is the provincial carbon tax?

Jackie Forrest:

Yeah, the large industrial carbon tax, this is money that people pay when they emit too much carbon. They pay into TIER and that money is now going to be redirected to help with CCS projects. I still believe that we have billions of dollars of investment opportunity in this province. We have it all. We have the regulations below ground. We have infrastructure like one of the world’s largest CO2 pipelines. We have the geology. We have the people that know how to do it.

We have the liability framework set up and we have four working projects. But one thing that this budget doesn’t address is the volatility of the carbon price, which is to me the biggest barrier to why money is not being spent. We had the Canadian Growth Fund back one company here right around Christmas. We’ve talked about that already. There are groups like the Business Council of Alberta that were hoping that the province would do a contract for difference and that would be a real catalyst for investment. I actually think that’s a smart thing to do as well.

Peter Tertzakian:

Let’s back up a second. The contract for difference is basically a guaranteed price for a ton of carbon should the price of carbon fall below a certain level.

Jackie Forrest:

Right, that gives the person who’s putting in a multi-billion-dollar investment that has a 20-year payback some certainty that they’ll get paid over that period.

Peter Tertzakian:

Right, the carbon tax is expected to rise to $170 per ton by the end of the decade. Currently, the notional price is $65 per ton. What is the contract for difference floor price expected to be under these proposed CFD or contract for difference prices?

Jackie Forrest:

We only have the one example today and it was $86.50.

Peter Tertzakian:

$86?

Jackie Forrest:

Now I think it would depend on the project and it may not be the same price for each project, but right now the federal government has offered $7 billion for that type of thing. There’s one deal been done so far, but what we’re saying is actually the Alberta government could be providing similar certainty. I would actually argue that it’s going to be financially a lot lower cost for the Alberta government to offer it because the Alberta government also controls the carbon offset market. There are levers they could use to keep the price from falling too far to protect their financial exposure to offering a firm price to certain projects.

They can increase stringency. Today when you emit too much you have a choice to pay a portion of it as tax and a portion of it buying offsets from others. You can increase how much is allowed for offsets. I think the Alberta government, because they’re controlling the large emitter program, I think it makes a lot of sense. I think the dollars could go further. We could support more projects if they were backing these. Of course, we didn’t see that in the budget, but I hope we see that in a future budget.

Peter Tertzakian:

I think we need to talk about this some more on a later podcast because-

Jackie Forrest:

Yes, I think we should have a carbon-

Peter Tertzakian:

It’s a very complicated subject, but it’s super important. The Canada Growth Fund is a federal agency, and it is expected to put $15 billion towards contract. Is that what it is?

Jackie Forrest:

The whole thing is 15 billion, but they’ve earmarked 7 billion towards these contract for differences. Now they’ve already made one announcement. The 7 billion sounds like a lot of money, but when you’re backing something for 20 years and you don’t have any control of the market, I actually don’t think it will back up that many projects. It will do some and I think it will really kickstart CCS in Western Canada, but I think the Alberta government could play a role here and we could see even more projects go forward.

Peter Tertzakian:

I’m going to tell you my opinion on contract for differences and then we’re going to table it for a subsequent podcast. I’m very skeptical about contract for differences. Why? Because it’s effectively a put option in financial parlance. In option theory, somebody has to pay for the put option and in this case basically the taxpayer is funding the put to keep it at $86 in this case.

Notionally, there’s all sorts of subsidization that sounds okay. However, I think the solution lies in constructing a better carbon market because the whole carbon markets are in shambles in my opinion. They’re not transparent. They’re not liquid and they’re not fungible. In other words, many of these carbon markets, you can’t trade between the markets.

Jackie Forrest:

Yes, they’re too small.

Peter Tertzakian:

Before we start guaranteeing floor prices like a put option using the public purse, why don’t we think about harmonizing and cleaning up and making more transparent our existing carbon markets? Otherwise, it’s just layering more. I don’t know. It’s just a complex mechanism, which may or may not run out of money depending upon whether the carbon price goes below 86 bucks or not, in which case we’re left holding the bag as taxpayers.

Jackie Forrest:

I totally agree with you. I think one thing that could create a lot of stability is just being able to trade carbon credits across this country because then now it’s a bigger market, but we can’t even figure out how to trade widen with BC. I don’t know if we’re going to figure out how to do carbon credits.

Peter Tertzakian:

That’s what we got to do before it is just, “Oh, hey, the carbon markets aren’t working.” Duh, they’re not working because they’re opaque. They’re not liquid and they’re not fungible.

Jackie Forrest:

They’re tiny markets.

Peter Tertzakian:

They’re tiny markets. Let’s clean that up before we start guaranteeing prices. It’s shocking to me this whole patchwork quilt of policies that don’t seek to, first of all, just optimize what we have and then think about how to make them operate more effectively.

Jackie Forrest:

No, I think it’s a really smart idea. Let’s have another conversation. Let’s not wait too long. I think we need a whole podcast on this, but let’s go on to-

Peter Tertzakian:

We’ll bring in an expert too. I think we’ve got some ideas for some experts. Next?

Jackie Forrest:

Next topic, part of the budget and this came out. It was a little controversial, the announcement that all EV drivers are starting in 2025 going to need to pay $200 a year for road tax. Just for context, today if you had a gasoline consuming vehicle, combustion engine, you pay about 13 cents a litre. It’s called the Alberta Fuel Tax, but it’s more or less a road tax. There was a bit of a holiday where we didn’t have to pay all of it, but it was generally about 13 cents a litre.

Peter Tertzakian:

Does that include the federal portion, which is I think about 10 cents a litre?

Jackie Forrest:

No, that’s the provincial portion. Basically, there was some articles that was ideological. Alberta government is against EVs and now they’re putting this tax on EVs. What do you think about this new policy, Peter?

Peter Tertzakian:

I think it’s needed. I think so. Here I’ve actually done a calculation to tell you why.

Jackie Forrest:

It was a snowy weekend.

Peter Tertzakian:

It was a snowy weekend. The average vehicle in Canada travels how many kilometers per year?

Jackie Forrest:

I think they’re about 15,000, 16,000, or something like that.

Peter Tertzakian:

No, it’s up to 18,000 now. The average combustion vehicle has a mileage or a kilometerage or whatever you call it, of nine litres per 100K, which means in a year the average vehicle will consume 1,620 litres. And basically, if you multiply it by the excise taxes, which are largely a road taxes, because that’s what they’re meant for, whether it’s the federal highway number one or whether it’s the provincial highways or whatever, you lump it all together, the total tax on the average combustion car road tax is depending on variability in these numbers, is about 300 to $370 per year. Base.

So that is what the average consumer is already paying for road tax. If you plug your vehicle in, as you and I do, there is no road tax on the electricity. So, is it reasonable to have to pay a road tax to fix the potholes and maintenance and expansions and what? I think so. And $200 is still a bargain. What I don’t like is the way that this thing has been communicated and positioned as if it’s something unique to your electric vehicles and electric vehicles are heavier and blah, blah blah, whatever.

Anyone who drives should have to contribute to the upkeep of the roads. It’s currently done at the gas pump. It’s between 300, 400 bucks a year. $200 a year is a bargain.

Jackie Forrest:

I think you’re right. And what I like about the current system on combustion engine vehicles, if you drive a lot, you pay more. If you drive a little, you pay less. I do think that weight does matter in terms of how hard these vehicles are on the road, but we don’t have any factor today that shows you that.

First of all, it’s a blunt tool. Like unlike you Peter, I was busy in Vegas all weekend, so I had to look at Blake Schaeffer’s X because he’s always a reliable source of information. And he had some interesting tweet, and I can put a link to it in the show notes, but that it’s not a fair … “It’s a blunt tool,” he said. So, for example, if you had a Ford Lightning and you drove it 20,000 kilometers a year as a side note-

Peter Tertzakian:

Well, and it’s a real bargain.

Jackie Forrest:

Well, it costs $200, so it’s only 12 cents a litre. And if you’re a Leaf driver that drives 10,000 kilometers a year, it’s 25 cents a litre equivalent.

Peter Tertzakian:

There you go. Yeah.

Jackie Forrest:

So, it’s too blunt of a tool.

Peter Tertzakian:

It like we’re coming at it the same way. Yeah.

Jackie Forrest:

But the reality is we have a hard time tracking how much electricity is actually-

Peter Tertzakian:

Yeah, sure.

Jackie Forrest:

Being used by the car because in your home, you’ve got lots of sources. But these are smart vehicles. I think over time we could get more sophisticated.

Peter Tertzakian:

Yeah. I think you can get more sophisticated and I think that the burden of the road tax should be on the larger vehicles. So, if you take in the combustion world, if you’re driving a big SUV, it’s a heavier vehicle, the mileage is less. In other words, the fuel consumption efficiency is worse, so you will consume more gasoline and pay more road tax. If you’re driving a very small vehicle, your fuel efficiency is much higher, and you don’t pay as much road tax. So, there is fairness in that, and I agree with Blake because there is no fairness. But overall, I would argue that the 200 bucks a year on average is a bargain compared to what the average vehicle pays, so.

Jackie Forrest:

Hey, as a side, I got my first drive in a F-150 Lightning in Vegas. It was like an Uber vehicle. I was driving those Uber vehicles. Very nice, very smooth, totally quiet and acceleration. Anyway, not probably the most efficient Uber vehicle. He’d probably do better with a smaller vehicle, but it was fun.

Peter Tertzakian:

But hey, it’s Vegas, right?

Jackie Forrest:

All right. So, we’re okay with EV tax. You’re not going to be protesting at the legislature about tax.

Peter Tertzakian:

Well, no. I just think it needs to be communicated more effectively. That’s all.

Jackie Forrest:

All right. Well, another topic. Let’s switch topics to LNG. So, there’s a couple of things that I wanted to talk about. One is that every year, Shell puts out an outlook for LNG they did about last month. I’m going to put a link to it in the show notes. So, I want to talk to you a little bit about that. But then we’re going to talk about this news that Qatar has announced they’re going to really add a lot of capacity, but I think it’s good to have that context of how much we already have.

So, their report was that we’re going to grow something like 50% in the demand for LNG between now and 2040. Some people would say that’s not true. If you look at those IEA forecasts, they show natural gas demand is flat in steps and actually going down in the other-

Peter Tertzakian:

Are they forecasts or scenarios?

Jackie Forrest:

They’re scenarios, sorry. Yes, those are scenarios. Let’s get into that. That’s something going to be a topic to finish off with because the IEA has come under some controversy with these scenarios. But they’re saying realistically, when you look at the situation of how much coal there is in China, here’s a fun fact, did you know how much of the Chinese emissions, CO2 emissions are coming from coal today?

Peter Tertzakian:

No, I don’t, but I would say more than half if I had to guess.

Jackie Forrest:

It’s 70% as of the 2022 data.

Peter Tertzakian:

Yeah, alright there you go.

Jackie Forrest:

So, there’s just a lot of coal that needs to be replaced and they think that there’s a lot of need for LNG in Asia. Asia’s not even including India is more than half of the world’s emissions. Coal is a big driver of that. So, they’re saying we’re going to get this 50% growth. And they looked at, even with all the investments coming in the US over the next four to five years, the US is almost doubling their LNG exports. This was prior to the Biden new permits, and it doesn’t affect that. Those are projects that already had their permits.

Peter Tertzakian:

Those are still going ahead. Yeah.

Jackie Forrest:

Yeah. That even with all that new investment, this was prior to Qatar’s most recent announcement, but there was still a lot of growth from Qatar and those numbers that actually as we got into the 2030s, we would actually be short maybe in the range of 50 million tons annually. So, it’s like even with the investment we have today, they were predicting that a tight market would be available. Now what changed after their report came out, February 27th, Qatar announced that their expanding from 77 million tons per annum to 142. So basically doubling. And they want to do this by 2030.

Now they already had a lot of growth plans, so this part was lost in the announcement. It was only an additional 20 over what they’d already announced. But regardless, Qatar’s adding a lot of new supply fast. And what are the implications for Canada?

Peter Tertzakian:

Well, the implications are that there is going to be a lot of gas and when we start up our LNG operations, which is very small compared to the global situation, but it will be feeding into a global market where the price of natural gas is likely going to be much lower than expected.

Jackie Forrest:

And I think the interesting thing is that as we get into the mid-2030s, I think you will need new supply. But there’s the potential with so much coming on from the US and if the Qataris actually meet this 2030 number, that there’s just going to be a bit of an oversupply and low prices. So that has implications. And Qatar by the way, is such low-cost supply. I was looking at a Reuters article that basically said their lifting costs like the production of gas is about 10% that of North America, it’s cheaper for them to build these LNG facilities than it is for us. The labor costs are a lot lower there. And, of course, they don’t need net zero by twenty-thirty. We’re in BC layering on all these requirements that are making our facility costs very high. So this is the lesson we keep talking about. If we put costs make our gas projects too expensive, somebody else will just produce the gas, right, with higher emissions.

Peter Tertzakian:

Yeah. So, Qatar is really following an MBA 101 playbook here, which is if you’re the low-cost producer, you’ve got scales, then you’re going to make a sprint for market share. And it’s not worth billions. It’s not worth hundreds of billions. It’s worth trillions to even the Qataris over many years. And so, it’s a basic business strategy what they’re doing. And they’re also trying to flush out the high-cost producers taking advantage of the Western development bans, so on and so forth.

Now what that means for emissions is up for debate because notionally it is good. Well, more than notionally, combusting natural gas is far cleaner, less CO₂ emissions, less volatile or organics less, all sorts of nasty things coming out of the smokestack than coal. However, there is some renewed debate even recently that the whole methane supply chain from wellhead to liquefaction and transport and regasification, so on and so forth, emits a lot of methane, which is far more of a greenhouse gas than CO₂. So, I think we don’t get to get into the details of that, but I do think that also should be tabled as a future podcast that we should talk about.

Jackie Forrest:

For sure. If you’re going to have a lot of leaking of the methane that it’s not as clean of a gas, I hope the industry and they are working to make it lower and lower. And I think that’s such an important thing for it to be a fuel of the future.

I do want to say the one thing that Canada does have going for us, other than lot of policy and higher costs is security of supply. I think there’s a lot of countries like … Europe has learned you don’t want to have all your supply coming from one country. Qatar may not be the country you want to rely on for all of your energy. So hopefully there’s still rule for Canada even at higher costs.

Peter Tertzakian:

Yeah. It’s not just the Qataris that are growing their LNG capacity. There are other-

Jackie Forrest:

Yes, there are. Yes, there’s other competitors out there. African countries.

Peter Tertzakian:

It’s just the technology and the ability to transport at lower costs are all feeding into the global market share grab for the incremental jewel of energy, whether it comes from LNG or renewables or hydrogen or whatever.

Jackie Forrest:

Well, and it’s … I think a reminder to me when we just had Ellis Ross on the podcast talking about how … He talked about policy; industries being killed by policy. While we can’t compete against some of these jurisdictions, if they’re moving forward with business, pro-business, trying to get this gas out into the world, and then we have requirements that our competitors don’t have like net zero by 2030. All right. Should we change topics?

Peter Tertzakian:

Sure.

Jackie Forrest:

So, I’ve been interested in this IEA backlash. I know in our 2023 look-back podcast, we had said that one thing that we noticed over the year is that the IEA was becoming more and more a climate advocate and less balanced in terms of their data and information around energy and how polarizing these different scenarios are because politicians look at that net-zero scenario and say that’s possible. But the reality is it’d be very, very difficult, I think almost impossible to practically get your emissions down that low. And so, we felt that they needed to get back to the facts and kind of help people understand what’s an actual possible scenario and let’s plan for that. And it may be a future where we burn more hydrocarbons, but I think it’s good that we know that.

So other people have been writing about that. There was a series of articles around that. I wanted to highlight one from Bob McNally from Rapidan Energy. He called the IEA out for its imaginary net-zero scenario. I thought that was a good way to describe it actually. It kind of is imaginary when you do modeling of vehicle fleets and how fast you can substitute out the combustion engine machines. It is an imaginary scenario. I don’t know. There’s no practical path to get there and said that they were bowing to climate activists and ask that the agency restore its credibility and that its long-term forecast cannot be trusted. I called them forecast, but I guess they would call them scenarios.

Peter Tertzakian:

Right. Well, the history of the IEA I think is important to keep in context. It was founded in 1974 as a response to the ’73 oil price shocks. And it was a club of, I don’t know how many countries, but if I had to guess 25 to 30 western countries. And the whole intent was to ensure the security of oil supply, which also included agreements on strategic petroleum reserves and the release of strategic petroleum reserves in the event of other geopolitical issues. And the IEA grew to be a trusted agency that monitored worldwide supply and consumption of barrels of oil, cubic feet of gas, and then they migrated into tons of coal and …

Jackie Forrest:

And clean energy, eventually.

Peter Tertzakian:

And clean energy, eventually, and so on, and that was the mandate. But I would agree, as someone who has followed the IEA since, honestly, I think it’s like the late ’80s, early ’90s, that they have definitely swung their bias to the following the energy industry from the lens of environment rather than from the lens of energy security from which it was originally founded.

Jackie Forrest:

Yeah. Well, and to me, there’s a risk that if you put out these–I’ll use Bob’s quote–“imaginary scenarios,” and everyone believes in them and they start doing things like not investing in oil and gas, which we’re already seeing today. But the reality is hydrocarbon use has to be higher. There’s no kind of physical way to reduce it at that pace. We set ourselves up for an energy shortage.

Now, I did want to be balanced in that not everyone agrees. These articles came out around the 50th anniversary of the IEA, and they actually had a big event, and Bloomberg Green wrote an article titled “IEA Ignores the Haters”. And in this 50th anniversary event where politicians from around the world came, they only had good things to say. And I’ll just give you a quote from French President Emmanuel Macron. He supported their change of focus. He said, “The IEA has been able to profoundly shift its mandate from an agency dedicated to managing strategic oil reserves, it has now become a global hub for the debate and collective action to meet our challenge of the energy transition.” So he sees it as a positive.

Peter Tertzakian:

Yeah, I don’t agree with him because I think there are plenty of very credible institutions and organizations that follow the carbon, as I like to say. In other words, they are experts in environment, climate change, and the interrelationship and environment and energy. I think the International Energy Agency should stick to following the joules, which is giving us an unvarnished view of the business and geopolitics of how the joules flow, not how the carbon flows, and that there are other agencies can therefore, typically in government, that can marry the two together. And then we can get a much more balanced view of affordability, energy security, clean energy, decarbonization, et cetera, et cetera.

So, I don’t think this is a good, because now we don’t have an agency that just focuses on following the joules and keeping track of energy from a security perspective. Do you know? Who do you turn to now to get credible forecasts, unless you have to pay a lot of money to specialize consultants?

Jackie Forrest:

And if it’s not a public transparent outlook or prediction or forecast, then it doesn’t serve the purpose of helping with these conversations. Now, I agree with you, we’re kind of sticking our head in the sand in denial saying, “Oh, this net zero is possible.” If you really care about climate, you should look at what’s actually a realistic scenario. How much hydrocarbons will we use? And then let’s think about, “Okay, what do we need to do around the climate threat in that realistic future?” And to me it would be things like massive research and carbon removal. The DAC we have today takes a lot of energy, but there are some new technologies coming that would be less energy intense. We should be pouring money into that, pouring money into nature as a way to absorb carbon, and I’ve talked about geoengineering before.

I was even reading, there’s these white paints that are being developed that can reflect sunlight and reduce heat absorption, and this can really cool buildings and reflect a bunch of heat back away from the earth. There’s a professor at the University of Purdue, there’s a New York Times article. I’ll actually put a link to this. It’s very interesting. It says, this paint can make surfaces as much as eight degrees Fahrenheit cooler and reflect 98% of the sun’s rays away from Earth. We should be putting a lot of money into things that will help cool the earth in a scenario that we use more hydrocarbons, but are we? No, we are continuing to believe that the net zero reducing hydrocarbons at an unrealistic rate is a plausible scenario.

Peter Tertzakian:

Well, and using less energy and efficiency was also the mandate of the International Energy Agency, whether you use paint or insulation or what have you. I’ll stand by what I say is just the International Energy Agency should stick to reporting supply and demand numbers, and doing credible forecasts that are pragmatic and what they see actually happening rather than philosophizing about what may or may not happen, and being unduly influenced by one dimensional effects of the environment when there are many dimen- this is a multidimensional issue because energy permeates the veins of the global economy everywhere.

Jackie Forrest:

All right, well that’s, I think, a good way to end it. Yeah.

Peter Tertzakian:

I mean, it’s just like stick to what you’re good at.

Jackie Forrest:

Well, and stick to things that are realistic and balanced so that people can kind of trust the data, right?

Peter Tertzakian:

Well, this is just a massive trust deficiency right now. And we have lost trust in a lot of numbers out there, including, I believe, from the International Energy Agency because a lot of people don’t trust the numbers anymore.

Jackie Forrest:

Yeah. Especially when it comes to those. I would say their data on history is very trustworthy, but it’s just sort of those projections of forecasts or scenarios and what’s realistic and do we need to be investing in oil and gas or not? Those sorts of things.

Peter Tertzakian:

Okay.

Jackie Forrest:

Well with that, we covered a lot of different topics. Got through them all. So thank you to our listeners for joining the podcast. If you like this podcast, please rate us on the app that you listen to and tell someone else about us.

Speaker 3:

For more ideas and insights, visit arcenergyinstitute.com.

UNCATEGORIZED

March 4, 2024 Charts

Produced by ARC Energy Research Institute | March 5, 2024by ARC Energy Research Institute

S&P/TSX E&P Index up 7% W/W; Alberta oil sands production down ~350 MB/d M/M; US crude oil imports from Canada remain strong

Interview with Ontario’s Energy Minister Todd Smith

Produced by ARC Energy Research Institute | February 27, 2024by ARC Energy Research Institute

Subscribe: Spotify | iTunes

On February 16, 2024, Environment and Climate Change Canada (ECCC) announced some proposed changes to the draft Clean Electricity Regulations (CER). Initially released in August 2023, the draft legislation requires electricity production in Canada to be net zero by 2035. Peter and Jackie start the podcast by reviewing the recently proposed changes and discuss whether these changes are enough to win over the provinces that object to the proposed CER, including Alberta, Saskatchewan, and Ontario.

Next, they introduce this week’s guest, the Honourable Todd Smith, Ontario’s Energy Minister and MLA for the Bay of Quinte in Ontario. Since the Conservatives came to power in 2018, Todd Smith has held various cabinet positions.

Here are some of the questions that Peter and Jackie asked Minister Smith: When the Ontario Conservatives first came into power, renewable electricity projects that were agreed to under the Liberal government’s feed-in tariff (FIT) program were canceled, yet now Ontario is procuring new capacity for wind, hydro, biomass, and solar generation, why the change? Is Ontario having a nuclear renaissance? What are the plans to expand nuclear electricity? Where will Ontario source the enriched uranium for the new nuclear power plants? Is it realistic to see nuclear plants operating in other parts of Canada, such as Saskatchewan and Alberta? What is the role of natural gas for power generation and residential heating in Ontario? In November 2023, the Ontario IESO wrote a letter to the Federal Government on the proposed CER, saying, “The CER as drafted is unachievable by 2035 in Ontario…the policy would cause a resource shortfall”; what are your concerns and do the changes announced on February 16th improve the situation? Are you working with any other provinces that oppose the CER?

Content referenced in this podcast:

– ECCC’s Proposed Changes to the CER (February 16, 2024)

– The Ontario IESO’s letter to the federal government on the proposed CER

Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/    

Check us out on social media:

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LinkedIn: @ARC Energy Research Institute

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Episode 230 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 and welcome back. Well, we’ve said on this podcast before that the energy transition that we’re experiencing is dominantly a policy driven energy transition. In other words, that policy is really trying to force a rapid change in our energy systems in the pursuit of decarbonization. Not a week goes by without some policy news.

Jackie Forrest:

Yeah, we do have some news. February 16th, the federal government, as part of Environment and Climate Change Canada Department, issued an update to those proposed regulations to make our electricity system net zero by 2035. We’ve talked about this quite a bit on the podcast.

Peter Tertzakian:

The Clean Electricity Regulation.

Jackie Forrest:

Yes, yeah, the Clean Electricity Regulation. Of course, the draft was first put forward in August. People put in their feedback, and they’ve proposed some changes. So, I’m just going to quickly go over my take on some of the changes. I’m not going to go over everything. This is just the highlights. Now, the document actually had a summary of what we heard, which is kind of interesting because not everything that was a concern was addressed, but so it’s probably worth reading that, but I’m just going to go over some of the changes. They’re considering slightly extending the end-of-life provision. So, in the original, it said that a unit like a natural gas generating power plant could only run 20 years before CCUS was required. Carbon capture storage. They said it could be slightly longer, but no information about what that means. Like, is it five years, 10 years?

Cogeneration acknowledged that there were concerns that a unit that is… just to remind people, cogeneration unit is one that exists as part of a refinery or in the case of the oil sands, as part of the oil sands and the heat is being generated as part of the process anyway and they just make free electricity off it. The original draft said that if they want to export to the grid, they would have to be net zero around that generation of the electricity if they wanted to do that, which would mean places like Alberta, something like 40% of our power generation is from cogen and I think they would just stop exporting to the grid. So, they said there that they are going to consider different treatment for cogens for a limited period. Again, no details on what that means, but some flexibility. They are going to provide some limited number of offsets. So, before it was just like a hard rule and if you couldn’t make it, you just shut down. Now, there’s some limited amount of offsets if you have to go over.

Peter Tertzakian:

So, you’ve used this word limited about four or five times. Is there any clarification on what that word means, limited?

Jackie Forrest:

I’m glad you mentioned that, Peter, because language does not give me a lot of hope that they’re willing to make big changes. Things like slightly extending the end of life, limited time period, limited of offsets. It’s throughout the draft that these implying kind of small changes. I do want to say one more thing about a major change. They’re talking about pooling emission limits. So before, every different facility had a very strict limit. Now they’re saying at the company level, as long as you stay within your carbon emission allowances, you could have some units go over and others go under, and you can optimize within your own portfolio.

Peter Tertzakian:

Let’s just explore this a little bit more. Pooling by whom? So, if I’m a utility in Alberta, I can pool with another utility or pool within my fleet of power generation assets?

Jackie Forrest:

I think it’s the latter that you can pool. And so, if you have a whole bunch of units, you could optimize a little bit. Now, if you’re someone who just has a couple of facilities, that’s not great and in fact it may give an advantage to the big guys. And the other thing I wanted to quickly say is there was a lot of feedback that the 450 hours a year for a peaker was not nearly enough.

Just so people have some context, I did some research. In Alberta, the average peaker in 2022 ran seven times more hours than that. So, a lot of concerns around that and they didn’t address that they could make more hours for the peaker. Instead, they said it could be part of this pooling thing. So, with lots of devils in the details.

Peter Tertzakian:

Yeah.

Jackie Forrest:

One other change I think that’s positive is they said they would consider for emergency situations that if the electrical system operator says it’s emergency, then the generator can run without worrying about deciding after the fact if it truly was an emergency. So, I think people, that’s one thing that was more clear and I think would be a relief for some people.

The other thing that’s worth mentioning, only three weeks for feedback on this. To me, that’s pretty short. So, when I consider the language and I consider the three weeks for feedback, I’m going to go back to my 2024 prediction podcast, Peter, which was that they’re not going to make many changes to this. That’s my feeling. Now maybe I’m wrong and for sure if they, depending on the numbers-

Peter Tertzakian:

So, what are you saying? Are you saying that the quantification of these vague words like limited is going to happen in three weeks?

Jackie Forrest:

Well, people have three weeks to give feedback on this document, which we will share a link to.

Peter Tertzakian:

Okay, and then-

Jackie Forrest:

But my feeling is that’s not a lot of time. If you wanted to make a bunch of changes, you probably would have a longer time period.

Peter Tertzakian:

It’s not a lot of time because I think as our audience can feel, there’s a lot of jargon. There’s a lot of complexity. I mean, I’ve said this numerous times on the podcast, Jackie, you and I live and breathe this stuff on a day-to-day basis, and it still makes my head hurt and understanding a singular policy, let alone all the policies that work together. So three weeks I think is woefully inadequate for something so consequential to a northern latitude country that really depends in many regions, particularly the Prairies on natural gas fired power generation, but not exclusively the Prairies, including of course the Maritimes and even Ontario. And we’re going to come to Ontario in a minute.

Jackie Forrest:

Yeah. Well, and I mean another question people have is will these changes be enough so that some of the provinces that we’re taking issue with this are going to like it? I think no matter what they do, some provinces are going to see that this is not federal jurisdiction and I think there are still going to be concerns and there’s not enough details here to really know if it will address the concerns.

Peter Tertzakian:

So, shall we phone a friend?

Jackie Forrest:

Yes.

Peter Tertzakian:

Okay. I think we should phone the Honourable Todd Smith who’s a member of the Legislative Assembly, MLA, in the Ontario Bay of Quinte riding in Ontario, and he has been energy minister of Ontario since 2021. So welcome Minister Smith.

Minister Todd Smith:

Thank you, Peter. Hi, Jackie. Great to join you today.

Peter Tertzakian:

Well, let’s talk about the impacts of this proposed Clean Electricity Regulation on Ontario and your thoughts on it. But before we do that, why don’t we just get to know you, have our audience get to know you a little bit. So, tell us about yourself and how you got into politics and how you find your job as an energy minister.

Minister Todd Smith:

We’re going way back, all the way back 2011, that’s when I was elected for the first time to the Ontario legislature. Prior to that, I was working as the news director for a small radio company out of the Belleville Trenton area in Ontario called Quinte Broadcasting. I was hosting newscasts and talk shows and doing play-by-play for Belleville Bulls games in the Ontario Hockey League, but was covering the careers of our local members of provincial parliament and our members of parliament and local council meetings and was very, very engaged with local politics at the municipal and regional level across the Bay of Quinte region. I was approached by the PC Party, Tim Hudak was the leader at the time. I of course was fair and balanced as a newscaster, but some people thought that I had maybe a little bit of a conservative tinge to me, and so they wanted me to run in that riding in 2011 and my wife and I and family made the decision to run in the election and fortunately for me, I won in 2011 and I’ve been representing the Bay of Quinte now since then.

So, four elections and I’ve really enjoyed my time most recently enjoyed as the Minister of Energy. Now, one of the longest serving energy ministers in the country and we’ve been able to make some substantial changes here and plan for the future in Ontario and that includes building all kinds of energy generation but with a real focus on nuclear and it’s been five plus years now that we’ve been the government of Ontario. I spent the first seven years as an opposition member and energy was a big reason why I was elected in 2011. And of course, we had lots to harp about as opposition MPs during that 2011 to 2018 period. And quite honestly, I believe one of the biggest reasons that we won the election in 2018 was because of failed Liberal energy policies here in Ontario.

Jackie Forrest:

Okay, well, we’re going to come to that because a lot of that was around the FIT program and now we’re looking at new renewables in Ontario. But before we get to that, I wanted to quickly ask you about the responsibility of your office. Is it the Office of Electricity? Are you responsible for other sources of energy in Ontario like refined products or natural gas?

Minister Todd Smith:

Yeah, unlike Alberta and some other provinces where there’s been a bit of a separation of parts of the energy sector, I’m responsible for all parts of the energy sector. So we’ve rolled out, as I mentioned, a lot of nuclear plants for the future, but I’m also responsible for rolling out transmission, which we’ve been doing over the last little while. We unveiled a hydrogen strategy and there are many pilots that are underway for hydrogen. I’ve got legislation that I’m going to be introducing here at Queen’s Park on natural gas expansions and ensuring that we do have the natural gas. We need both for generation of electricity to ensure we keep the lights on across the province as a peaking utility, but also for home heating and economic development, which is really happening fast here in Ontario. And part of the reason why we need to be adding these new electricity generation facilities like nuclear, new hydro, new renewables, non-emitting resources across the province.

Peter Tertzakian:

Well, those are a lot of energy related words, electricity, hydrogen, natural gas, nuclear, hydro, and renewable. If you were to summarize Ontario’s energy policy in one sentence, what would that be?

Minister Todd Smith:

It’s got to be reliable, affordable, clean, and safe. The fact that we have a clean grid here in Ontario and it is 90% clean, it’s one of the cleanest grids in the entire world as a matter of fact has been a real selling point for our premier, Premier Ford, for our Minister of Economic Development and Trade, Vic Fedeli, in acquiring a lot of the investment that we’ve seen over the last year and a bit, particularly in the electric vehicle and EV battery sector. Those companies want to set up shop in a jurisdiction that has a clean grid and we have a very diverse and very clean grid here in Ontario.

Jackie Forrest:

Well, let’s talk about people coming to Ontario because they like your clean power, but are you getting concerned with demand growth when you consider the EVs and the industrial load? What’s your expectation and is that a concern when you think about how fast supply can come on?

Minister Todd Smith:

We’ve got a good plan now. I’ve been insured by our Independent Electricity System Operator, the IESO, that we have the power that we need. We’re adding for the future because they’re anticipating electricity demand to continue to grow at a much faster rate than it was previously. We, for 15 years, saw electricity demand either stay the same, flat, or even reduce as manufacturing jobs were leaving for other jurisdictions.

Since really 2022, we, for the first time, have been experiencing electricity demand growth in our province. And that demand growth is expected to continue as people adopt electric vehicles. As some of these large, large investments start to come online, the EV battery facilities use a lot of electricity, electric arc furnaces are going into our steel making facilities in Hamilton and Sault Ste. Marie, Ontario. Those electric arc furnaces are going to be replacing coal-fired furnaces and they’re going to require a ton of electricity. Just an interesting stat for you, the three big EV battery facilities that we’ve acquired, and those two electric arc furnaces are going to increase our industrial electricity demand by 25%. Just those five projects are going to increase our load by that much. So, it’s really important that we continue to build out our system.

Peter Tertzakian:

Over what time period?

Minister Todd Smith:

Those are supposed to come online by about 2028.

Peter Tertzakian:

Wow. So, in the next four years, it’s going to grow by 25%. I mean, can your grid handle that?

Minister Todd Smith:

That’s just the industrial demand, but still, yeah, we have a number of projects that we’ve unveiled. Obviously, the small modular reactor that we’re going to be building at Darlington or we are building at Darlington is going to play a major role, but we have unveiled the largest battery storage procurement in North America here in Ontario to make better use of the non-emitting, the renewables that we have. We’ve got about 5,000 megawatts of wind capacity in the province now that simply isn’t producing at times when we need it, and this will allow us to store that electricity and then use it during peak times, usually in the summer and usually later in the afternoon or evening.

Jackie Forrest:

Well, let’s get to the supply side. We’ll talk about nuclear, but first I wanted to talk to you about renewables. So as you already mentioned that a big part of why your government got in was the Feed-in Tariff Program from 2009 to 2019 and the issues that that had. And then we learned December of 2023, Ontario’s announcing its first major renewable procurement in over seven years with a plan to have five gigawatts of new renewable sources, wind, hydro, biomass, and solar. So why now? Why are you procuring all this renewables considering the history?

Minister Todd Smith:

Yeah, so the previous government had the Feed-in Tariff Program as you’re aware of, which was offering over market price for the generation from wind and solar. It’s not new to anybody listening in Ontario, but solar was coming on the grid for 80 cents a kilowatt-hour, wind was coming on for 22 to 25 cents kilowatt-hour when our hydroelectric facilities were producing green, clean, reliable hydro for 4 cents and our reliable, affordable nuclear power, which is emissions-free as well was 7 or 8 cents a kilowatt-hour. What it did was by bringing on thousands of megawatts of renewables at over market prices caused chaos on our electricity grid and on people’s electricity bills. Our electricity prices tripled here in Ontario during that time period, and one of the first things that we did when we became the government was to cancel 800 more projects that were in the queue to go on the grid at over market prices as well, which only would’ve made the situation worse.

The IESO analysis said that saved electricity customers $800 million on their electricity bills and we were putting those onto the grid at a time when we had an oversupply of electricity. As I mentioned, 300,000 manufacturing jobs had left Ontario for lower cost jurisdictions. I was the economic development minister in 2018 when GM Oshawa, the General Motors plant in Oshawa told us that they were closing after 100 years of building cars in Ontario and they said, “We know it’s nothing you guys did. We have full confidence that you’re going to fix this situation and become a competitive jurisdiction again.” But they closed Oshawa. And I’m happy to say that a few years later, we’re now back producing pickup trucks at the Oshawa GM plant again, and we have expanded mandates including many EV and hybrid mandates at all five of our automakers here in Ontario.

Peter Tertzakian:

Well, I want to get back to relate this by getting back to your one sentence energy policy, which was basically providing cheap, clean, safe and secure energy to the residents of Ontario. And you talked about the historical policies of renewables and how they kicked up the price because at that time they were the marginal supplier of electricity, which was very expensive, but today they’re very cheap. So what is the situation today in terms of your thinking on renewables, how they fit into the supply stack relative to all the other alternatives that we’re going to talk about here, including nuclear?

Minister Todd Smith:

To answer your question, we are rolling out these battery storage facilities across the province. Some of these range from 20 megawatts to almost 300 megawatts of electricity and the ability to dispatch power at four-hour intervals. Having that storage was always seen to be a bit of the holy grail to make the renewables work better on our system. So, by next year, by 2025, we expect to have those couple thousand megawatts of battery storage on the grid, which will enable us to go through a competitive procurement for renewables, which is now underway, those non-emitting resources that are intermittent and work more efficiently on the grid. So those actually won’t start coming onto our grid until later in the decade, but we’re procuring them now so that when the battery storage facilities are up and running, they’ll work better.

Peter Tertzakian:

Yeah, so maybe the question is, and the way to think about it is that renewables on their own, the cost curve has come way down, so they are no longer at the top of the supply stack, they’re at the bottom, but renewables plus batteries are quite expensive from what I understand and the numbers that Jackie even you’ve talked about. So where does renewables plus batteries slot into this whole thing in terms of keeping electricity affordable?

Minister Todd Smith:

Well, we’ve undergone one procurement already for battery storage, which has actually turned out very, very positively for the system operator. They’re very pleased with the number of battery storage facilities that they’ve been able to procure and the price at which they’ve been able to procure them. Don’t want to predict what will happen with the renewable procurement that’s out there, but I can safely say we’re going to get a good deal on wind and solar projects and potentially hydroelectric as well.

Peter Tertzakian:

Yeah, well there’s no question the core renewables, the generation has become really cheap, but it’s the batteries. Jackie, didn’t you have some numbers in one of the recent podcasts about when Alberta had its near blackouts here in the -30s degree weather that the battery, if we were to replace and back up all our generation, it would be super expensive?

Jackie Forrest:

I don’t think that’s comparable. He’s talking about a couple of hours shifting.

Minister Todd Smith:

I was in Alberta when it was -42, when you were going through those electricity conservation bulletins that were coming from your system operator. We were there announcing the partnership with Capital Power and OPG here in Ontario for the small modular reactor project. So I know full well exactly what happened in Alberta. The wind fleet couldn’t turn because it was so cold. They couldn’t produce electricity because it was so cold. So it wouldn’t have mattered really how many batteries you had because they simply weren’t able to store the power because they were unable to produce any electricity because of just how cold it was. So they say timing is everything in politics. I was pleased to be out there with Nathan Neudorf, your electricity minister and Brian Jean, the energy minister, and talk about how a small modular reactor would provide that base load of power that you need.

Jackie Forrest:

Let’s talk about nuclear. There’s been many announcements starting last summer. The idea that Bruce Nuclear Station may nearly double in terms of its output. It’s already the world’s largest nuclear station. We already knew about the one SMR unit. Heather Ferguson from OPG came to talk to us about the first SMR as well as other electricity matters, but now we learned there’s three additional SMR units, each of them 300 megawatts, so the total of 1.2 gigawatts of capacity potentially from OPG. And then we just learned early this year that Pickering, a nuclear site that’s been around for a long time that was going to be decommissioned, is actually going to have refurbishment and not closed down as previously communicated. So some people are saying it’s a nuclear renaissance in Canada. In fact, I was listening to an American podcast that was saying, “Well, you should see what’s going on in Canada. The Canadians are really leading on this.” So tell us a bit about your nuclear ambitions and why investing so much in nuclear now, Minister Smith?

Minister Todd Smith:

We had the governor of Indiana in for a tour at Darlington Nuclear where we are building the small modular reactor. He invited the premier and I to come down for the Indy 500 and I told him that Ontario is in the pool position when it comes to a development of small modular reactors, not just in North America, but in the G7, in the Western world really. So we are building not just one but four SMRs, as you say, Jackie, at that Darlington site, which is enough power for about 1.2 million homes. We have a plan to build 1.5 million homes here in Ontario over the next decade. So those SMRs would look after that issue themselves, and the site is regulated and construction is ready to go.

At Bruce Power, we’re looking at adding almost five gigawatts of new generation there. The expression of interest is out and they’re looking at technologies that could potentially fill that five gigs there at Bruce Power. And then as you mentioned as well refurbishment at Pickering Nuclear while the refurbishments are going on at Darlington and also at Bruce Power as well. I like to travel around the world and tell the world that Ontario is the place where all this is happening, where we’re bringing multi-billion dollar nuclear projects in not just on time, but six months ahead of schedule and on budget or under budget, and it’s happening at Darlington with OPG and it’s happening at Bruce with their major component replacements there. So the world really is watching what’s happening in Ontario, Canada.

Peter Tertzakian:

Well, it’s really exciting because Canada was a pioneer in nuclear power generation in the ’50s, ’60s, ’70s with the CANDU Program. So it’s nice to see that we’re starting to lead yet again. I want to ask about supply of uranium. The Financial Times had an article in January, Hot Uranium Threatens a Meltdown for Western Energy Security, and what it was alluding to was that there’s a high dependence in the West for uranium from Russia, Kazakhstan, even though there are sanctions, Iran as well. Where does Ontario get its uranium from? And if you say from abroad, I’m going to ask you why doesn’t it come from Canada because we are I think the largest producer of uranium in the world, we just don’t refine it here.

Minister Todd Smith:

Yeah, I can tell you it comes from Canada, it comes from Northern Saskatchewan up in Cigar Lake Cameco, which is a great Ontario company and a Saskatchewan company, and a fantastic Canadian success story provides the uranium for the CANDU reactors.

The one sort of new challenge that’s come with the small modular reactors is CANDU, the CANDU fleet that we have in Canada right now uses natural uranium. It doesn’t need to be enriched. For the small modular reactors, the uranium will have to be enriched. And because of the United Nations’ Non-Proliferation Agreement that’s in place, we’re going to have to have our uranium, which comes from Canada, shipped to one of our allies in the UK or France or the United States to be enriched and then sent back to Canada.

When I was at the World Nuclear Expo in Paris in November, there was a fuel agreement that was signed between the companies, like Chemical and others, in those jurisdictions to make sure that we’re sharing that enriched uranium that comes from Canada. Australia is also an ally that has one of the third-largest deposits in the world.

Peter Tertzakian:

But why don’t we enrich ourselves?

Minister Todd Smith:

Yeah, this is something that would have to be changed at the United Nations. It’s something that I’ve asked Natural Resources Canada to look into, just to see how long it would take. I know there are jurisdictions in Canada that would be very welcoming to the idea of having enrichment in small town Canada to make sure there are jobs there and employment. And the one thing about the nuclear sector is that there are very, very good jobs in this sector and jobs that have lasted decades. And you look at Ontario where we have 76,000 people working in our nuclear sector, some of those same companies have been in business supporting the CANDU projects for 50 years.

Peter Tertzakian:

Yeah, I mean, it does seem peculiar that we have to ask the United Nations permission, but that hearkens back to the 1960s and ’70s where we agreed not to develop nuclear weapons and that the United States would be our protector. And well, the world’s changing, I’ll say.

Minister Todd Smith:

Yeah, let’s just say this is a live discussion that is happening between us and our colleagues in Saskatchewan are very interested in this as well because they’re looking to deploy the same small modular reactor that we’re building at Darlington in Saskatchewan as well.

Jackie Forrest:

I wanted to talk a little bit talking about SMRs in Ontario, but there is some early stage studies going on about potentially SMRs in Saskatchewan. In Alberta, we have a study right now in the oil sands and we just learned that capital power and OPG are going to look at a study for Alberta as well. What have you learned so far, and do you think it’s possible that we will see SMRs in other provinces, provinces that don’t have your history, that don’t have a nuclear background, that don’t know the regulatory process? Is it really going to happen and at what pace?

Minister Todd Smith:

Yeah, this is happening. There’s more than just discussions happening. There’s actually a lot of action on the ground. We’ve been able to convince the federal government that they should be supporting the small modular reactor project as well in Darlington and supporting the Canadian Nuclear Safety Commission, the regulator for nuclear in Canada, to putting together a framework for citing SMRs. And they’ve been a world leader as well on the regulatory front at the CNSC, working with other jurisdictions like Poland and Estonia and the Czech Republic and many others, particularly across Eastern Europe that are looking for energy autonomy. So there’s a lot happening on this front.

SaskPower is our partner in Saskatchewan, looking to deploy and with the help of OPG operate these facilities there to replace the coal-fired production that they have for electricity generation now. And then Alberta’s looking at a different way of doing it with Capital Power leading the way and potentially having industrial applications for small modular reactors to lower emissions from places like the oil sand and petrochemical sector that are so important to Alberta’s economy.

Peter Tertzakian:

I want to get back to the 1.5 million homes the nuclear power plants are going to supply, I think you said the equivalent of 1.5 million homes, which sounds like a lot, but we’ve got a growing population, particularly with immigration, 500,000 people a year or something. So it’s not going to be long before this electricity supply is going to be mopped up by consumption. And then we’ve got EVs, other electrification, the electrical intensity of data processing is going up. So my sense is that the 1.5 million home equivalent that these nuclear power plants are going to provide is not that much. So now moving to natural gas, because you mentioned at the beginning of the podcast that you are also procuring natural gas fired power plants. How do you see natural gas fitting into the whole equation, especially in light of everything that’s going on with what we talked about at the front end, which is the clean electricity regulations.

Minister Todd Smith:

So when it comes to generating electricity, for the time being, natural gas is going to play a vital role as the insurance policy to keep the lights on. However, as more storage is added to our system and potentially long duration storage, which has the potential ability to dispatch electricity for 10 to 12 hours at a time will be less reliant on our natural gas fleet over time.

For home heating here in Ontario, there’s well over 70% of our homes that rely on natural gas for heat right now. We have several pilot projects that are underway in municipalities across the province to move to a hybrid electric heat pump, which is being well received in certain communities. But if we were to move, let’s say to all electricity for home heating, we would have to build several more Bruce Powers to make sure that we have the electricity that we need. And our system operator told us that in our pathways to decarbonization report that I asked them to produce for us on what it would take to get to net zero by 2050, and they said it would take 18 gigawatts of nuclear alone, but hundreds of billions of dollars in new transmission and new generation of other types as well.

Jackie Forrest:

All right, well, you did make an announcement that you are going to procure 1.5 gigawatt of new natural gas generation not so long ago, in 2022, and then after that the federal government released this draft legislation for the clean electricity reg. In the summer, we talked about it just earlier that it is definitely, its whole goal is to make producing electricity with natural gas, more difficult, more costly, and the Ontario IESO wrote a letter to the federal government on the proposed policy, that was the August version, and I’m just going to give you a quote from the letter. It said, “The CER as drafted is unachievable by 2035 in Ontario,” and it went on to say, “The policy would cause a resource shortfall.” Tell us about some of your concerns with the CER when you wrote that letter and if this new version has made you think differently about any of these concerns.

Minister Todd Smith:

Yeah, you led off the podcast talking about Minister Guilbeault’s announcement on February 16th. I actually happened to be talking to him earlier that day before the release went out on the new draft of the clean electricity regs. Obviously, the most important thing to us here in Ontario is that we have a reliable and affordable system. We’re very fortunate compared to a lot of provinces across the country that we have a clean system at 90% clean, so we don’t have as far to go as a number of provinces and other jurisdictions do to get to a fully emissions-free system.

Having said that, though, we can’t move too fast and we have to ensure that that gas, which is the insurance policy to keeping the lights on, keeps the lights on and is enabling for further investments in not just the auto sector that we’ve seen, but all parts of our economy here in Ontario. So I think the latest regs have, although there is some wishy-washy words there, and I think you touched on a few of them, Jackie, when you were doing your recap of the latest iteration of the CER from Minister Guilbeault, they have moved and there seems to be a bit of understanding that they can’t move too fast, otherwise the lights go out and the price of electricity will soar as well, which will further reduce electrification across the industrial sector, but also transportation and home heating sector,

Jackie Forrest:

Right, yeah. If it’s too expensive or if it’s unreliable, you’re not going to get industry coming here. Now, numerous provinces have provided feedback and are concerned, we’ve looked through a lot of the letters that were put forward. Are you optimistic that these changes are going to bring over all those provinces and are you working with other provinces together on this or are you working more independently from the Ontario perspective?

Minister Todd Smith:

We’re working on this more independently, I guess. We don’t have as far to go as other provinces do, but I would say in my conversations with energy ministers and environment ministers from other provinces, they all have their own plans to get to a cleaner grid. Some of them can do it quicker like we can here in Ontario, certainly Quebec can, which is also one of the cleanest grids in the world. But all of these provinces have plans to get there. Some are relying on small modular reactors to help them get there in the case of Saskatchewan.

However, if the federal government is saying you have to do one thing in the clean electricity regulations, but then is making it more difficult to get nuclear projects online because of things like the Impact Assessment Act and duplication of what the Canadian Nuclear Safety Commission already does when it comes to environmental assessments and community consultation, then they’re sending mixed messages to jurisdictions like Saskatchewan and others. So we’ve asked the IESO to look at our situation here in Ontario to ensure that we have that reliable, affordable, clean system that’s really been a marketing tool for our government.

Peter Tertzakian:

You talk about a cleaner grid, but I don’t know, about 20 minutes ago you informed us that 90% of your Ontario grid is already zero emission. So that last 10% costs a huge amount, and actually you get into the last 5% and the last 2%, gets astronomically expensive to decarbonize. Do you think you’re going to get to 100% or where’s the optimum place on this abatement curve? Because like I said, 90% is one of the cleanest grids in the world. I mean, I can think of Iceland, maybe Brazil, other dominantly hydro supplied countries, jurisdictions. You’re right up there. So are you prepared, are Ontarians prepared to pay that much money for that last 10%?

Minister Todd Smith:

No, I think 3% of the province’s emissions come from our electricity sector. That’s it, 3%.

Peter Tertzakian:

Okay.

Minister Todd Smith:

Yeah. So I mean, there are other ways to reduce emissions and this is not the way to do it. By ensuring we have that reliable, affordable system, we’ll be able to reduce emissions where the actual emissions are in our transportation, in our electric arc furnaces, in our home heating potentially. And there’s going to be new tech that comes along as well. I mean, they’re already talking about fusion for goodness sakes. I think it’s a long ways off, but they are talking about fusion as well. So who knows how fast technology continues to evolve in this sector, but I think there are other places where we can reduce emissions that will make a far greater impact. And we’re doing it with things like the electric arc furnaces and our green steel making facilities. Those investments alone are some of the largest greenhouse gas emission reduction policies that have been brought in across the country.

Jackie Forrest:

You said that natural gas is your insurance, it’s going to keep the lights on. Another way to get rid of that last 10% is to build large transmission lines across this country so that you can rely on other jurisdictions when the wind’s blowing and the sun’s shining, or they have extra capacity. But we just learned with this Atlantic Loop how hard it is to build these big projects in Canada. That one was paired back from a huge loop to a short little transmission line between Nova Scotia and New Brunswick. Do you think that we’re going to see big interprovincial transmission lines, and do you think that might be part of the solution for Ontario?

Minister Todd Smith:

Yeah, we’re certainly increasing the number of transmission lines that we have in the province and ensuring that we have better connectivity with our neighboring states and provinces. We’ve announced a number of huge transmission lines down through Southwestern Ontario into Windsor, where a lot of the auto sector operates. We’ve announced massive new transmission lines connecting the north better to the south where most of the growth is, which will actually accommodate the north to participate better in our energy sector in Ontario. So they can potentially put small modular reactors in the north. They can certainly build out wind and solar and communities that are willing host communities for energy projects. And we have better connectivity with Quebec coming in as well. So the interties between Ontario and Quebec are improved as part of our Powering Ontario’s Growth plan that we unveiled last summer. So transmission is a key part of ensuring that all of Ontario can participate in the growth that we’re seeing in the province.

Peter Tertzakian:

Well, it’s been a great conversation, Minister Smith. Thanks for joining us. So Minister Todd Smith, Minister of Energy in the Ontario government, thank you so much for joining us. I’ve learned a lot about what’s going on in Ontario and it’s certainly impressive, the progress you’re making. Thanks for joining us.

Minister Todd Smith:

Yeah, thanks Peter. Thanks, Jackie.

Jackie Forrest:

Thank you. And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.

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