Policy Discussion: The Only Certainty Is Uncertainty

Policy Discussion: The Only Certainty Is Uncertainty

Produced by ARC Energy Research Institute | by

This week, Peter and Jackie discuss the latest news on the Canadian federal election, including takeaways from the leaders’ debate on April 17th and the platform released by the Liberal Party on April 19th. The Conservative Party of Canada (CPC) had not yet released a full platform document at the time of recording.

Next, they provide an update on investment in clean energy.  Equity values of publicly traded clean energy companies have fallen for the past four years (as measured by WilderHill Clean Energy ETF). At the same time, based on research by BloombergNEF, the sector registered an increase of 11% in new investment in 2024. The market is becoming bifurcated, with investment in mature and profitable technologies growing, and investment in emerging technologies, which are more dependent on government policy support, declining.  Peter and Jackie also discuss China’s dominance in clean energy technology manufacturing and the impact that US tariffs could have on clean energy globally, considering China’s strong position and outlook for continuing expansion.

Content referenced in this podcast:

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

Check us out on social media:

X (Twitter): @arcenergyinst
LinkedIn: @ARC Energy Research Institute

Subscribe to ARC Energy Ideas Podcast
Apple Podcasts
Amazon Music
Spotify

Episode 281 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian and welcome back post-Easter weekend. It was pretty busy out there, Jackie.

Jackie Forrest:

Yeah. Yeah, I went skiing on Friday and there was a massive lineup at the Banff Gates. I couldn’t believe how many people were going out to the parks. But then the next two days were really quiet, but I think it’s because we had really nice weather out here-

Peter Tertzakian:

Oh, Friday.

Jackie Forrest:

On Friday.

Peter Tertzakian:

Well, Friday was beautiful, but the highways were nuts. I’ve never seen them that busy.

Jackie Forrest:

And then it wasn’t as nice the other days, but actually it was still really nice. So should have come out the other days, all those people waiting in line but-

Peter Tertzakian:

Yeah. Well, we need high-speed rail, but we’re going to maybe talk about that. It’s part of some political platforms anyway. Where do you want to go-

Jackie Forrest:

So markets are still not great, the oil price is still in the low 60s and a lot of volatility in the equity market, still down quite a bit from that whole Liberation Day. This whole risk of a US recession and beyond, I think is weighing the market’s down. But I find it interesting that Yale has estimated, and they have a really interesting page, which I put a link to in the show notes, but every time Donald Trump changes a tariff policy, they recalculate the effective tariff on all the goods coming into the US, and now they think it’s about a 16% effective tariff rate on the US when you consider they have these high China tariffs, but lower tariffs, like 10% on the others. So that’s still a pretty significant, I guess, tax on everything coming in from other countries. So we’ll just continue to monitor the situation. But obviously with that type of tariff, there’s still concerns in what that can mean for the economy.

Peter Tertzakian:

As we’ve mentioned in prior podcasts, to me, the tariffs are part of a much bigger issue here. We’ve got potential for a recession, the poly markets, predictive markets are showing now greater than 50% chance of a recession. But to me it’s much more than a recessionary framework here, it’s really a reordering of the global financial economy, repricing of risk, particularly repricing the risks of American Treasuries. It’s just a massive reordering of the world’s financial system that’s going to take a while to sort out the volatility indices. We talked about that in the last podcast, I expect them to stay high, and so the uncertainty is the only certainty that we can go forward with for the next short while.

Jackie Forrest:

Yeah, the Bank of Canada, I don’t know if you caught that last week, they actually put out two scenarios, and I think that’s the first time they’ve done that. That just highlights, it has a scenario of tariffs going away and one where tariffs are there and one is a recession and one isn’t.

Peter Tertzakian:

Well, we’ve gone beyond tariffs, it’s beyond tariffs. You could probably have to run 15 different scenarios and each one has merit. But anyway, what are we talking about today?

Jackie Forrest:

Well, did you catch the debate last Thursday?

Peter Tertzakian:

I did.

Jackie Forrest:

We want to talk about that, and there’s been some platforms come out from some of the parties, but we wanted to also talk about clean energy investment. We haven’t talked about it in a long time, just like a whole energy equities are down, but clean energy’s really struggled and we wanted to just give an update in terms of how investing in clean energy has changed really quite rapidly over the last year or two. We can highlight that.

Peter Tertzakian:

Yeah, I think it’s important because it’s very difficult to raise money, period, but raising money for clean energy is especially difficult, so we want to talk about that.

Jackie Forrest:

Okay, so did you watch the debate, Peter?

Peter Tertzakian:

I did. I did from beginning to end, believe it or not.

Jackie Forrest:

But I checked the polls last night and it didn’t look like there was a major change, still showing liberals at 43% and conservatives at 38. So I think that the polls would show there wasn’t a major change in voter sentiment. How did you feel?

Peter Tertzakian:

Well, I felt like it was a good debate. There was some good discussion. We can get into some of the nuances. I didn’t feel there was any knockout punches, and so I’m not surprised that the polls haven’t changed that much. I think that Mr. Poilievre showed a lot of confidence and conviction, clearly a debating pro. I think Mr. Carney came across confident, but at the same time, there was some vagaries, at least from the energy perspective that we can talk about. Mr. Blanchet or Monsieur Blanchet I should say, was also very confident and convicted in his positions. And Mr. Singh kept trying to change the channel as far as I could see, but let’s talk about it.

Jackie Forrest:

Yeah, I agree, Pierre was definitely stronger at debating, but Mark Carney didn’t make any major errors or anything either. But the one thing for me that was unsatisfying in terms of Mark Carney is it still was not clear to me if he supports oil and gas, especially we had this flip-flop where he comes to Alberta and says that he supports oil and gas pipelines and he goes to Quebec and says around pipelines, “Not necessarily pipelines, but maybe pipelines. We’ll see.” So that was the framework going into the debate. And so I was listening really carefully to hear does he support oil and gas industry?. He did say things like he wants Canada to be a clean energy superpower. He talked about carbon capture storage, nuclear energy, hydrogen, and he talked about the goal of making Canada oil and gas low carbon and even mentioned the Pathways project, but he didn’t clarify that for me. And there was even a pipeline section where it came up. Would you support pipelines?

Peter Tertzakian:

Right, right. Well, that was interesting and I want to talk about actually Mr. Blanchet’s position from Quebec because there was something he said in there that I think is quite revealing and that can be extrapolated, and he basically said, look, we don’t want individual Canadians strapped with thousands of dollars of payments for building an East-West pipeline. Mr. Singh, as I said, kind of deflected and said, I want to build electrical power grids, but implicitly said, we don’t want to pay for it. And Mr. Carney effectively said that we will sanction pipelines that are in the “national interests, which can be interpreted in a number of different ways. Mr. Poilievre clearly said that we want to have oil and gas export facilities built. Why I found Monsieur Blanchet’s position interesting is that there’s an implicit assumption that the taxpayer has to pay for all this, and even in the liberal plan and the platform that we’re going to talk about, there’s sort of this implication that the taxpayer is going to have to foot the bill for a large part of this.

Well, I don’t know where that assumption came from because as a taxpayer myself, I’m not keen on paying for a whole bunch of infrastructure. The trick to building infrastructure, which we have been successful at doing in this country is to say, Canada is open for business and then get investors to come and pay for a large part of it and make the policy regulatory, the overall business environment conducive for investment. So basically we do the, in financial jargon, OPM thing, use other people’s money to build our infrastructure, and not one of the candidates actually stood up and said, “Canada is open for business.” The closest person that comes to saying that it actually is Pierre, he’s saying he’s going to create energy corridors six-month approval periods and then let open competition decide which pipeline company or which infrastructure company is going to build it.

Jackie Forrest:

Yeah, he’s focused on getting that private capital here.

Peter Tertzakian:

But again, it is just not to me, I want to see the next step. I want to see it like we are open for business. And to me that was the most revealing thing is again, I’m going to sort of repeat that. There’s sort of this implicit assumption, at least three out of the four of them that the taxpayer has to foot the bill for all this infrastructure. I saying, but actually if you just said Canada’s open for business, we’re going to make it conducive for investment to come in. Actually, a taxpayer does not have to foot the bill that if we’re clever about it, we get other investors to pay for it and we prosper from it.

Jackie Forrest:

Right, yeah, because the issue now is we have a system, and we’ve heard from some of our most recent guests, we had Petronas and TC Energy say the system doesn’t attract capital.

Peter Tertzakian:

Exactly.

Jackie Forrest:

So we could fix that. Now, that did come out in the liberal platform documentary we’ll get to, and Pierre Poiliev of the CPC have talked about these five points that they want to scrap the C-S69, do six-month project approval. So he’s talked about that, but it didn’t really come out on the debate. But I do want to go back to this support for oil and gas and just look at some of the quotes. Mark Carney said when he got the question, do you support the pipelines? Well, it goes back to where we started, which is we’re in a crisis and we need to have maximum force. He says, “We need to have a process and a consultation, but a consultation with a purpose, which is to identify those projects that are in the national interest.” So again, I’m still not clear on his position here, what are projects that are in the national interest? It’s not clear to me that it’s oil and gas. He goes on to say they need to support our long-term competitiveness, which necessarily means lower carbon. So again, doesn’t sound like too supportive or a hundred percent supportive.

Peter Tertzakian:

Well, there’s a lot of caveats in all that. When I’m talking about investment and caveat-free investment I think you’re exactly right. If you think about the guests, the corporate guests, the corporate CEOs that we have had on this podcast, not one of them has said, “I want government money to build my projects.” They’ve all said, “Hey, we’ll bring the money, just make it more conducive for us to build it.” And I think if we were to bring other CEOs from other industries, whether it’s port authorities, electrical power or power generators, we’ve had them or we’ve had transmission lines, rail, nuclear power. Again, nobody’s saying, “Give me taxpayers money and we’ll build it for you.” The overarching refrain is make it easier for me to attract capital to build these projects.

Jackie Forrest:

Which is ultimately what we need to increase our economic growth, our productivity, and also keep up with the large debt levels we seem to be acquiring.

Peter Tertzakian:

That’s not to say that taxpayers’ money can’t be used to seed the projects or backstop the projects and so on, but it just disappoints me that not one of the leaders actually stands on stage and says, “When I’m Prime Minister, I am going to make sure Canada is open for business and we are going to build this great country, so.”

Jackie Forrest:

In separate areas like whether it be their policy documents or some of the other conversations, I think both Pierre Poilievre and now Mark Carney with that liberal plan, we’ll get to that, but there is some kind of move in that direction. But I did want to highlight one thing before we get off this topic. There’s no doubt Pierre Poilievre had a very clear support for pipelines. He actually went on to talk about the fact that we’re making a mistake by not exporting more LNG or liquefied natural gas because if we send our gas to India, it will displace some of their demand for electricity from coal and we’ll actually reduce emissions. And he used a number, two and a half billion tons, which is three times of the total emissions of Canada if we could just really maximize our gas to India and avoid them using coal. So I think that’s a good argument. It doesn’t always resonate with everyone, but I thought that was interesting that he thought that was important enough to put out in debate.

Peter Tertzakian:

Yeah, I think it’s a good argument. I think though, as you said, it doesn’t resonate with everyone because the average Canadian’s eyes glaze over because they’re not really going to care about an issue unless it hits themselves in the pocketbook or benefits them directly or indirectly through say, greater taxes that pay for things that are important to them here in the country. So talking about things that happen on the other side of the planet, yeah, that’s good for people who understand it, like you and me and others, but I think that there’s a bigger argument that can resonate here, and that is we’re open for business where a great country will put your capital to work and be one of the leading and most responsible suppliers of any commodity, whether it’s critical minerals or agriculture or oil, gas, you name it.

Jackie Forrest:

Yeah, I know your point on that one. But I guess the thing is we have this discussion in this country that’s so focused on our domestic emissions. So there is this uncomfortable thing that big part of the voting base does want to see emissions to come down, and if we open up for business, we’re going to have emissions go up. So I do think that that is an argument that helps people understand that we can have emissions go up here domestically, but overall still be contributing in a positive way to climate. Maybe you don’t need all the details, but I think it’s-

Peter Tertzakian:

What do you say, like the polls would actually show when ask what are the most important things that matter to Canadians? I mean, emissions and climate change has fallen, I think way to the bottom of the list or certainly I think it’s like before the Trump issue and the tariffs came up, it was number seven had fallen. If I don’t even know

Jackie Forrest:

Well even think so in this debate though, a Singh went on and on about how Canadians care about reducing emissions because we’re having all the extreme weather, and he talked about the forest fires, and that’s why we need to reduce emissions, which I think is really misleading because we could reduce our emissions to zero and we’d still have climate change because it’s being caused by emissions from other countries. But anyway, I agree with you Peter. It’s probably not-

Peter Tertzakian:

I don’t know why.

Jackie Forrest:

Canadians, but it was on the stick.

Peter Tertzakian:

Maybe that’s Singh’s polling so low, to be honest with you. It’s just not hitting the mark on what’s important. I mean, I think healthcare, he brings that up. Fair enough. That’s important. Certainly important to me. He brings up some other good points, but right now the average Canadian is interested in being Canadian, not having a US passport. They’re interested in putting food on the table and a whole bunch of other things ahead of the emissions issue. So prosperity is important to people right now and it’s going to become more important, even looking at the markets as leading indicators over the course of the past week. Yeah, we’re likely going into a recession, so the pocketbook is going to be the dominant issue for whomever is the new Prime Minister.

Jackie Forrest:

Before we leave this political topic, I did want to talk about this liberal platform document. The NDP and the Liberals did issue shortly after the debate, before people hit the polls. There is early voting right now, documents that had their full platform and it was costed out. So Canadians would know, yeah, you’re promising a lot of things, but what’s it going to cost us? And so for those that did the pre-voting this weekend, they had that information. We’re still waiting on the conservative plan. That hasn’t come out yet. And actually I looked back in the last election and the Conservatives had issued a plan about two weeks before the election. So to me, it seems a bit late and I hope they get it out soon. As of recording, I checked right before and it hadn’t come out yet.

Peter Tertzakian:

It needs to come out certainly before voting, advanced voting starts. It should have come out before the debate started. So I do think they’re late to the party.

Jackie Forrest:

Yeah. Now, there was some quotes this weekend from Pierre Poilievre saying 95% of it is already out there. He’s put out press releases and things like that. So there’s some information that way, but having it costed is important because actually this plan right now is quite expensive, the liberal plan. It’s talking about increasing the debt even more over the next four years, and I think it’d be interested to see if the conservative plan would be more fiscally responsible in terms of not growing the debt.

Peter Tertzakian:

Right. Well, again, I’ll come back to it. If we say we’re open for business and look for investors from abroad, which can help to build their infrastructure, we don’t have to go so far into debt. This seems maybe like a novel idea, but it isn’t because over the course of the last century, much of our infrastructure, certainly our energy infrastructure, and especially our oil and gas infrastructure has been overwhelmingly financed from multinationals and sources from sovereign wealth funds and other funds from abroad.

Jackie Forrest:

Well, we have to find projects too that are attractive to those people because some of the things in the liberal plan are things like building a lot of Arctic infrastructure. I know we talked about that last week, but some of it may make a lot of economic sense for a private company. Some of it may be more in the national interest than from the private company.

Peter Tertzakian:

And things that are really in the national interests and overlap heavily with national security. Yes, that should be state funded, state built, state owned. Obviously military facilities, northern facilities likely, but there’s a lot that can be done on other people’s monies and offer them a return and in return to us, it basically fuels our economy and our prosperity for the generations to come.

Jackie Forrest:

Yeah. Well, so I’ll be looking, I think the numbers I would look to a CBC article was something like 200 billion of additional debt the next four years under the Carney plan. So we’ll see what the conservatives have in terms of their platform and what it costs. We maybe talk about this, but I did want to, of the 67-page document from the liberals, which we will put a link to in the show notes. There was a couple of things worth mentioning. This was something new I hadn’t seen before. Committing to a new major federal project office. Now I’m not sure that concept is new. I think that’s been an idea before, but they say a two-year timeline maximum to render a decision for a project much faster than the current five-year one. So that’s a big change, so recognizing we need to get things done quickly and attract capital to your point. So I thought that was positive. I like Pierre Poilievre’s six month one better.

Peter Tertzakian:

I mean, I think there’s a sense of urgency here that’s required. And also what about the notion of one approval per a corridor or a region so that companies don’t have to go back over and over again and start the process from square one?

Jackie Forrest:

Yeah, I mean the part of this office, it talks about the fact that they’re going to work with all the layers of government and come with a process that just gets to that point. There’ll be one process for each project, but easier said than done, we’ve found that you’ve got to go right to the municipal level or the county level at times for some of the permits that are required for some of these projects, but.

Peter Tertzakian:

This is not just about federal thing. I mean, whomever again, becomes the prime minister really has to work with the provincial governments because it’s one thing with a federal overlay. But because we’re a federation, so much of the challenges still lie within the provinces, even between provinces, take Alberta and BC, for example. And so whomever is the prime minister is really going to have to be a leader, make a commitment to work with the premiers in a constructive way. Because even with providing these sorts of federal level things, which are essential, it’s not a sufficient condition to still get things built. Then we have to go down to the next layers, the provincial layers, and then of course the regional layers. So there’s a lot of work to do.

Jackie Forrest:

It takes a lot of effort.

Peter Tertzakian:

And it takes a lot of leadership.

Jackie Forrest:

We’ll have some more time to talk about the election as we lead up to the end of April, but let’s switch topics to clean energy investment. And we touched on this the last week, that the tariffs are really impacting the cost of clean energy in the US, especially for batteries and grid components, which are both areas that US still imports a lot from China, and also manufacturers even in the US of clean energy products do use a lot of things from China ’cause China is actually where most of the manufacturing capacity is, whether it be for critical minerals or processing minerals for clean energy. So the Trump changes are already having an impact on the energy sector, and that was a sector that actually has been struggling already. The Wilder Hill is down three years in a row after peaking in 2021.

Peter Tertzakian:

So that’s the ETF, the exchange traded fund for a basket of the leading clean energy companies in the world. And I’ve looked at the companies in that, and they are representative of fairly pure play clean energy companies all the way from hydrogen to solar manufacturers to installers and so on.

Jackie Forrest:

Electric car manufacturers-

Peter Tertzakian:

Electric car.

Jackie Forrest:

Yeah. Yeah , it’s a real bundle of everything you would consider clean energy. So it’s been very hard for companies to raise money. It seems to get worse every year, but I thought I would highlight a report that Bloomberg New Energy Finance puts out every year. We’ll put a link to it in the show notes. The big report is for their clients, but there is a free version, a smaller version of the report that anyone can download. So I’ll put the link there. But interesting, despite all the negative news around clean energy, it is still growing. It reached $2 trillion of spending in 2024, which is a big deal. By the way. That’s almost two times the amount of spending on all fossil fuels. So that includes not only upstream oil and gas and coal, but also power generation and everything in the whole Supply chain.

Okay. Time out. I think this is hugely misleading. It’s got in those numbers, the money spent on electric vehicles.

Yes, it does. Yeah.

Peter Tertzakian:

Okay. So to be fair, you would include spending on combustion vehicles to have an apples to apples comparison.

Jackie Forrest:

Okay, well, that’s fair.

Peter Tertzakian:

So sorry. You need to take the EVs out and I haven’t done that, but we should do that.

Jackie Forrest:

We should do that. But it’s still show growth, but you probably, honestly, EVs are such a big part of it, you’d probably have it a bit more balanced with oil and gas.

Peter Tertzakian:

Let’s do that calculation and we’ll come back to it, say in a future podcast. But even with what’s left over after you take out electric vehicles, the market is still highly selective, right?

Jackie Forrest:

It is. By the way, I just wanted to add too, that growth year-on-year is 11%, and even if I took EVs out, I actually think I’d probably see growth in that range. But this is the thing. We’re actually kind of seeing a bifurcation of the market, and Bloomberg talks about this. They’re calling it mature sectors, power grids, electrified transport, renewable energy and energy storage. Those are still really growing.

Peter Tertzakian:

Can I offer a different word to mature?

Jackie Forrest:

Okay, sure.

Peter Tertzakian:

Okay. Because to me, it’s a bit euphemistic to call it mature. I would call it profitable.

Jackie Forrest:

Yeah, that’s another way.

Peter Tertzakian:

Makes money. And that really is what differentiates what’s growing and what isn’t. Whereas four or five years ago when it was very easy for clean energy companies to raise capital in the equity markets, and that Wilder Hill index of companies was 10 times the value, it’s a drop by 90% from the peak. And back then the sentiment was, okay, it’s a horse race. Let’s see who can make money, who can’t. And now it’s four or five years later, it’s very clear who’s making money. Actually, it’s more like four years ’cause the peak was I think February ’21. So it’s clear solar panel operators and others can make money, but there’s a whole constituency of companies, especially early stage companies that aren’t making money. They have some cash in the bank, but they’re running out very quickly because they don’t make money and they can’t raise any more money.

Jackie Forrest:

That’s right. But the mature sectors, these ones that make money are actually the vast majority of the market. They’re like 95% of the market, and I’m including electric cars in that too, of that 2 trillion. These emerging sectors are actually about 4% of that total. And they’re spending year-on-year declined, 23%. So people are spending less money than they were a year ago on things like hydrogen, carbon capture and storage, decarbonization of industry, electrified heat was in that bucket as well. And so these are areas that the economics generally are a bit more challenged, right? Small modular reactors. And we’re not seeing the money go into them. And I believe that if we go out next year, the spending in this emerging sectors as they’re calling it, maybe you’ll have a different name, I think it’s going to be worse.

All of this stuff requires policy. And although many of those policies are still in play, for example, in the US, the Inflation Reduction Act, it still exists. There’s a lot of concern that at some point the Congress is going to make changes there that will reduce those subsidies. Even here in Canada, we know that the liberal government, they did have it in their document, will support things like our investment tax credits, but we’re uncertain if the Conservatives get in, if they will. So that’s causing people to just not invest as they wait and see.

Peter Tertzakian:

Yeah. Well, when you say policy, you’re basically alluding to government subsidies and grants.

Jackie Forrest:

That’s right.

Peter Tertzakian:

For the clean energy sector. So if we look at the sources of, for these companies to ultimately enter into what you’re calling the mature or the profitable world. So if we look at the emerging companies, they don’t have cash flow because typically they are not profitable. They’re losing money in the absence of say, government policy. So if you don’t have cash flow, you don’t have profits to invest back into the company and into the manufacturing lines and what have you. So government subsidies and grants are critically important. They’re under siege, I would argue. I think you’re arguing too, that they’re going to be increasingly under siege, particularly if we go into a recession and there’s cutbacks, so that leaves raising money in the equity markets, but the cost of capital, because these stocks have fallen so precipitously in some cases, like 95 to 99% for some of these emerging companies, nobody’s going to buy their shares or they’re going to be able to do a share issuance. And if you don’t have cash flow, getting debt is near impossible.

Jackie Forrest:

Yeah. There’s also carbon markets.

Peter Tertzakian:

And the carbon markets-

Jackie Forrest:

Which I say are a little different than subsidies because they’re usually polluter pays, but though the carbon markets are looking a little bit more uncertain as well, we’re seeing the potential in Canada to not have the carbon markets.

Peter Tertzakian:

Well, I think you’re being kind. I mean, look at the Alberta carbon markets. What is the tier carbon pricing has fallen from? What’s the headline price supposed to be right now?

Jackie Forrest:

It should be around $95 now with the increase.

Peter Tertzakian:

$95, and it’s trading, last I checked about a couple of weeks ago it was $30.

Jackie Forrest:

Yes. Yeah, I’ve heard that too.

Peter Tertzakian:

And now what’s the California market doing?

Jackie Forrest:

I don’t know if you caught it ’cause there’s so much news coming from the White House, but there was an executive order a couple of weeks ago saying that all state level policies are illegal if they target greenhouse gas emissions. So things like reducing your greenhouse gas emissions, carbon pricing, low carbon fuel standards. So the federal government wants to challenge the states for their ability to even have those types of policies. So we’ve seen some weakness in those markets as a result of that.

Peter Tertzakian:

That’s an extreme manifestation of what’s going on in the United States. But here in Canada, we also have freezing up of the carbon markets. As I said, the 30 bucks for an Alberta carbon credit when it should be 85 or 90 or 95, generally speaking, the carbon markets in this country have frozen up. And so too, they are not a source of financing for clean energy companies.

Jackie Forrest:

Yeah. And that was an important source.

Peter Tertzakian:

So I mean, this is something, I mean, we’ve talked about it ad nauseam on this podcast, but again, the new prime minister is going to have to deal with our, at last count 11 carbon markets now, none of which seem to work properly or are deeply depressed and illiquid.

Jackie Forrest:

And because that was a key way of paying for all of these emerging sectors, or I think what we’re going to see, which is happening globally, is there’s just a lot more money and clean energy is going to go to these profitable, as you call them, sectors. Sectors that don’t need the government’s support.

Peter Tertzakian:

Well, and that’s not a bad thing. I mean, the market is discriminating and the capital markets are ruthless at ultimately discriminating between which companies should be financed and which shouldn’t. The market speaks. And until such time, some of the upstarts can demonstrate they’re going to make money, there is no money.

Jackie Forrest:

Well, and I think another big challenge, even if you had money right now is we’re in this changing situation where we have the legacy policy still around, but there’s a lot of uncertainty. The risk associated with them is so high that people can’t really count on them. So they’re discounting the value of them. And we’re transitioning, I think, to some new policies, maybe more industrial policy focused, maybe more focused on energy security, and it’s still uncertain how that will play out. But those things may incent investments in clean energy focused on new goals. Before it was all focused on reducing emissions and climate change, but there’s some new goals that could support clean energy too.

Peter Tertzakian:

There are, but we’re in a policy blizzard, that’s what I call it. We’ve got the legacy policies that had already been clouding the situation and reducing my visibility, and now we have fiscal policy with the tariffs. So we don’t even know how these tariffs are going to manifest themselves in global trade, for example, even for solar panels and all these sorts of things. So it is just between environmental climate and fiscal policy, it’s a policy blizzard, and this is going to need to be dealt with certainly in this country where the policy blizzard, I would argue, is more acute than even in other countries.

Jackie Forrest:

Well, and I think all of this is leading a lot of people to say net-zero by 2050 is not happening. It’s going to look different. The view of how energy transition will happen is changing. And I wanted to highlight just a couple of articles on that. Dan Juergen had an op-ed in foreign affairs. I will put a link to it called the Troubled Energy Transition. And the subtitle was How to Find a Pragmatic Path Forward. And he just basically lays out the case that everyone’s starting to wake up to the fact that it’s going to take trillions of dollars of investment and no certainty who’s going to pay and that we’re probably going to be moving more to an additive. He calls it energy transition. And that’s actually how historic energy transitions have typically happened. When we found a new energy type, we didn’t just replace the old one, we just added new energy, right.

Peter Tertzakian:

It’s a different expectation.

Jackie Forrest:

So he talked about things like even in Europe, because the real focus now is on secure and affordable that some of the green policies that are making energy maybe less secure or less affordable, are starting to face, he calls it a green lash, like a backlash, but a green lash.

Peter Tertzakian:

Yeah, I’ve heard that term.

Jackie Forrest:

Even in Europe, in places where their carbon markets I think have been around since 2005 and are viewed to be very stable and people would invest in them, I think there’s even some uncertainty on how they may evolve over the next several years. So I don’t think you can invest on these policies. I think everyone’s waking up to fact that you’ve got to look at the profitable areas. And then this other dynamic that’s coming, which is this idea that not only do we need to have clean energy, but we need to all produce it at home. Like the Americans really wanting to create more supply chains within the US.

First of all, it started out with the IRA trying to create incentives for domestic manufacturing. Now we have big tariff walls going up, trying to stop, for example, Chinese goods coming into the US. I’m hoping that will result in more investments in clean energy. And I wanted to highlight a bit about China because I actually question, I’d be interested in your opinion, if these tariffs the Americans have put on, do you think that’s going to help people want to invest in domestic manufacturing in the US for clean energy?

Peter Tertzakian:

No, I don’t think so. Not right now. There’s just too much uncertainty. I just talked about the policy blizzard, and when you have a policy blizzard and the specter of recession hanging over your head, when you go to a boardroom discussion, it’s generally we’re going to be much more pragmatic and frugal with our spending. So in the near term, no, I don’t expect a flurry of manufacturing lines pop up for solar panels and electrolyzers and all sorts of other things in the United States because of what’s going on.

Jackie Forrest:

And I think it’s because too, it can change all the time. So how could we make, think of the idea to build a new manufacturing plant in the us That’s probably a couple year at least process. And so if you think the policy may change next week or next month, it doesn’t create that longevity of the policy that’s needed to support capital investment either.

Peter Tertzakian:

Well, this comes back to the distinction. I think we talked about it on a podcast or two ago between uncertainty and certainly there’s a lot of uncertainty and stability, and they’re are two different things. If you have stable uncertainty, at least you can quantify the uncertainty and make some investment decisions. It’s just that you price your project differently in what you’re willing to pay to build a project and invest in it. But if you have the combination of uncertainty and instability, that’s when I freeze up, and that’s where we’re at right now. It’s unstable. We don’t know what’s coming tomorrow. We don’t know how the world’s capital markets are going to shake out. Even what’s called the risk-free rate, which is pegged to the US Treasury is no longer considered to be risk-free. So uncertainty plus instability, or maybe it’s uncertainty times instability, is going to lead to a lot of freezing up of decisions around the boardroom.

Jackie Forrest:

Well, and that leads to maybe a slower economy that maybe it’s a self fulfill.

Peter Tertzakian:

Well, because a key part of the GDP formula is investment. If there’s no investment, it basically leads to recession.

Jackie Forrest:

Okay. Well, on that happy note, I did want to talk a bit about China because the Americans are really trying to keep China out in terms of the 145% tariffs. But there was some interesting data, and this is from that same Bloomberg New Energy finance report. It showed the investment in global clean tech factories, and it’s stunning, but in the last couple of years, the Chinese have been putting anywhere between 90 or over $100 billion annually into clean energy investment. And the rest of the world is less than $20 billion.

And you could argue at this point, the Chinese have put so much capacity in that we’re actually oversupplied in many product categories like solar, battery, electrolyzer, battery minerals. All of these have very low prices right now because there’s too much capacity. But yet, according to Bloomberg, their forecast, they actually think that the Chinese are going to continue over the next three years to put anywhere between 80 to $100 billion more in clean energy. And so they’re going to be the dominant force in this. And when you get the scale and expertise that they have really gotten to now where they are putting out batteries at a scale that’s totally different than everyone else, they’re advancing the technology now, they have a skilled workforce that’s huge that knows how to do these things. I just think that’s probably very hard to see how China doesn’t continue to dominate in the supply of all of these

Peter Tertzakian:

Well, China has what we need is a long-term vision. It has a strategic imperative. It has, I would say, is industrial policy rather than climate policy. Industrial policy actually is above climate policy. Their view is to dominate certain industrial sectors, many of which are in the clean energy electric vehicles, batteries associated with electric vehicles.

Jackie Forrest:

Solar.

Peter Tertzakian:

Solar, you name it across the spectrum.

Jackie Forrest:

All the upstream minerals, the critical minerals.

Peter Tertzakian:

The critical mineral processing-

Jackie Forrest:

The processing, yeah.

Peter Tertzakian:

For which there’s a massive deficit in the Western world.

Jackie Forrest:

And that’s only going to continue to strengthen. Even in this scenario, they still continue to build capacity. And you may say, “Well, where are they selling it to?” Because the Americans are keeping them out now. The Europeans actually were putting in more restrictions. Just like us, the Americans asked them to put tariffs on electric cars to keep the Chinese electric cars out. And we did the same. We paid a price for that, by the way, because now we have more tariffs from China on some of our grains and things like that. But the interesting thing is in the areas where Europe and the US have tried to keep China out through tariffs, and I will send a link to this as well. This is research from Nat Bullard. He puts out a large-

Peter Tertzakian:

Yeah, it’s great.

Jackie Forrest:

Slide deck. It’s great. Yeah, 300 slides. I will point out the slide that this is in, but it shows that as the sales, for example, of solar ramped down in Europe and the US, they skyrocketed up in the global south, which he considers to be Africa, Asia, South America. So all you’re doing is forcing those products into other markets that aren’t tariff, and you saw a similar situation with the electric vehicles. As those new tariffs came in, sales came down in Europe and they just shot right up in the global south. And for batteries, you haven’t seen that yet, but that’s going to happen this year because we didn’t have big tariffs on batteries coming into the US but we do now. And I think you’re going to see a real surge up in those batteries going to those areas.

So the good news is from a climate perspective, that the Chinese are building all this capacity. They’re making it cheaper and cheaper and cheaper, and they’re selling it to the global south who is now going to decarbonize and create energy systems that look very different than the developed world. And so from a climate perspective, it’s really good. But I guess from the American’s perspective, I see it as risky because their companies may fall behind, they’re being protected by these tariffs, but at the same time, the Chinese continue to grow, advance the technologies, sell them to the rest of the world, and the US may lose out on that opportunity of having leading companies that can sell to the rest of the world.

Peter Tertzakian:

Yeah. Well, there’s a lot to unpack in all the geopolitics that you speak about in terms of what’s going on in the global south. I would just say that it’s not really decarbonizing. It’s actually because a lot of these economies didn’t even have carbon-emitting energy sources, so.

Jackie Forrest:

True, yeah.

Peter Tertzakian:

They’re just

Jackie Forrest:

Building for the first and growing new energy.

Peter Tertzakian:

Building for the first time and growing energy needs in a different way than we have, following the industrial revolution. So it’s a different dynamic. And frankly, it’s easier to do that than to substitute legacy incumbent infrastructure.

Jackie Forrest:

Right. Well, and now the Chinese are producing it at a way where it is cheaper than some of the alternatives too for these countries.

Peter Tertzakian:

They’re the masters of process innovation. And in the West, particularly in the United States, they’re the masters of creative product innovation. In other words, creating new innovative products. But then the Chinese are the masters of being able to produce it with manufacturing lines that are highly efficient and bringing down the costs.

Jackie Forrest:

Yeah. And doing it at a scale that allows them to do that.

Peter Tertzakian:

At scale.

Jackie Forrest:

Yeah, so we’ll wrap that up. I mean, there are other positive trends for investing in clean energy. The other one is just this trend towards electrification. No matter where you look, there’s outlooks for growth in electrification that are higher than historical, sometimes twice or even four times as high. And so I do think, to wrap it up, that there’s a lot of opportunity still in clean energy, but where the opportunity is is shifting. I think it’s going to be, as we say, on these affordable, or some people say mature sectors where they don’t need the government subsidy as much around areas of electrification, or there’s going to be a lot of growth in terms of electric brands.

Peter Tertzakian:

I agree. I think though, that being objective about this, the reality is that things are slowing down economically, and when things slow down, spending slows down. We’ve talked about that. And when that happens, there’s just a pause and more resistance to change. So if it’s new markets where you don’t have to change the way you do things, fine. But in existing markets, I think it’s going to be quite difficult. Not forever, but until, as I said, the instability clears and we get back to some more stable sense of uncertainty that we can quantify the risks and get investment going again.

Jackie Forrest:

Well, with that, we’ll wrap it up.

Peter Tertzakian:

Great. Thanks. That was a good discussion.

Jackie Forrest:

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

Announcer:

For more ideas and insights, visit arcenergyinstitute.com.

 

April 21, 2025 Charts

April 21, 2025 Charts

Produced by wp_user | by
Ice and Opportunity: Canada’s Northern Trade Route

Ice and Opportunity: Canada’s Northern Trade Route

Produced by ARC Energy Research Institute | by

To begin this week’s podcast, Peter and Jackie recap the past week’s events, including President Trump’s tariff U-turn and the escalating US-China tariff war.

Next, the conversation turns to Canada, the upcoming federal election, and Arctic export ports. To help us understand the opportunities and challenges with Arctic ports, Chris Avery, CEO of the Arctic Gateway Group joins the show. The Arctic Gateway Group is an Indigenous and community-owned transportation company that operates the Port of Churchill—Canada’s only Arctic seaport serviced by rail—and the Hudson Bay Railway, connecting The Pas to Churchill, Manitoba.

Here are some of the questions Peter and Jackie asked Chris: What is the condition of the rail line to the port now? What types of goods are currently exported from the port, and what types are expected to be exported in the future? Is it a deep-water port? How much of the year is Hudson Bay covered by ice, preventing exports? Is it feasible to break the ice? They also discussed whether the port could be suitable for LNG exports.

Content referenced in this podcast:

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

Check us out on social media:

X (Twitter): @arcenergyinst
LinkedIn: @ARC Energy Research Institute

Subscribe to ARC Energy Ideas Podcast
Apple Podcasts
Amazon Music
Spotify

Episode 280 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian. Welcome back. Well, Jackie, is there any sense of stability out there?

Jackie Forrest:

No. Here it is, we have to timestamp still. Monday, April 14th, eight o’clock in the morning. And Peter, you called it correctly last week, you said the White House would U-turn on these tariffs and not all of it, but a big part were paused. We’ve got for non-China 10% tariff now, but of course for China, we saw a big escalation, kind of crazy. I think we’re at 145% tariff on most things coming in from China now. Of course, the president, there was news all the weekend that electronics would be excluded, but still I think massive.

Peter Tertzakian:

Well, even there was a capitulation on that one, like, maybe. They said, first of all, as if it was going to be open-ended, no tariffs on electronics. But then by Sunday morning, and then the talk shows it was rescinded in a sense that it was, well, it’s not forever, we’ll see.

Jackie Forrest:

Yes.

Peter Tertzakian:

It’s almost the statistical theories around if things become so unpredictable, they become predictable in a statistical sense. And so this is just, the unpredictability is predictable here, and so there’s going to be more toing and froing and capitulation. And I keyed in on that word stability, because a lot of people talk about volatility and for sure things are exceedingly volatile. And for those that follow, for example, the VIX or the Volatility Index, it’s just absolutely through the roof in the equity markets.

And so, I mean, it’s going to be volatile, there’s no question, but it can be stable and volatile such that you can quantify the volatility and get a sense of the uncertainty. I don’t believe we’re there yet. Our question is, what is the new norm for volatility? And I think at that point there’ll be some sense of at least stability in the financial markets, but for now, it’s going to be trying to predict or trying to get predictability in an unpredictable world. Stay tuned. We’ll see what happens with the standoff between China and the United States. What is the total tariffs now? It’s some ridiculous number-

Jackie Forrest:

It’s 145%, on goods coming from China into the U.S. and I think it’s about 125% the other direction. But I did want to just talk about the magnitude of this. This is from a Guardian report, and I’ll put a link to that in the show notes, but it was basically saying that, we’ll talk about these electronics. 90% of Apple iPhones are assembled in China. That’s what analysts estimate. The company has never really put out the actual number.

If a smartphone was 1200 U.S. dollars before, it’s now they’re estimating over $2,000. Now, maybe not everything’s falling under the 145% in that calculation. And in the same article, an analyst estimated if that same smartphone were to be made in the U.S., it would cost $3,000. This is going to really, to me, damage the U.S. economy, and maybe that’s why they u-turned on the electronics. But I was just listening to an article this morning on the New York Times where it was like, baby goods and they were saying the same thing, that it would cost three times more to produce this in the United States, if they could even do it. Because they don’t have the equipment or the expertise.

Peter Tertzakian:

Well, when you think about 145% tariff, we’re getting to the point of it being, it’s going to affect supply chains. But if you think about tariff, what is a tariff? A tariff is a mild sanction. If you think about sanctions such as they are on North Korea, Russia, Iran, and countries like that, a sanction is effectively an infinite tariff. In other words, there is no price at which you can buy this. But when you get sort of like 145… Well, let’s back up. I mean 10%, okay, that’s a mild tax, we’ll call it. 25%, all right, that’s starting to bite, but 145%, you’re basically getting into the territory that’s almost like a full sanction. We are not going to buy your goods because it’s just so expensive. We have to go somewhere else.

But, guess what? You can’t go somewhere else right away for whatever it is, inputs into baby clothes or what have you. It effectively is potentially going to affect supply chains again, certainly in the United States.

Jackie Forrest:

Well, and let’s talk about energy. This is really impacting clean energy. The U.S. imports a large amount of the lithium ion batteries, for the electric cars, for the grid equipment, from China. And there’s a whole series of things, even the stuff that’s manufactured in the U.S. for clean energy, many of the component parts are coming from China. This is going to massively increase the cost of clean energy. It’s interesting, when this all started and Trump came into power, there was a lot of concern around the Inflation Reduction Act and if that would go away and how that would affect clean energy. I don’t think anyone saw that the cost for this equipment could go up multiples and really hurt the economics of these projects.

Peter Tertzakian:

We’re not going to see this probably for a couple months because there’s still inventories. But once the inventories are depleted and people have to buy new to replace the inventories, that’s when I think you’re going to see it. And so, whether or not there’s going to be some further lessening of tariffs in during this 90-day period, I think they’re trying to do 90 deals with 90 countries in 90 days, which is, one a day. Whereas most tariff or trade negotiations, you’re lucky if they’re done in 18 months. I think that you’re going to see something or the manifestation of all of this stuff, the consequences of all of this stuff, by the end of the second quarter, it’s going to show up in the numbers and for sure the third. Unless there’s some soon a full lift or maybe back down to 10% lift of the tariffs, bring them back down to 10% or something.

Jackie Forrest:

This is the problem though, it’s hard for business people to make any plans right now. They’re just sitting there like, “Well, why should I take action? Because it could change tomorrow.” I did want to say, Canadians may think they’re being spared right now, but, for instance, I bought this small cabinet on the internet this weekend. It was from China, and it was like $400. And I’m thinking, “God, for an American right now, this would be like $700.” And like you say, I probably wouldn’t buy it. But I’m really concerned that when the Americans come to our trade negotiation, which I think there’s a better chance… I feel more optimistic that we will get a trade deal with the Americans. That we are probably going to have to adopt whatever they have on other countries.

And we saw that with the electric cars. Do you remember the electric cars last fall? The Americans put 100% tariff on Chinese electric cars, we were asked to do the same. I don’t think Canadian businesses can just sit here and think they don’t have a problem. I think there is a risk that we may see whatever tariffs on China and other countries applied to us as well.

Peter Tertzakian:

Well, I think the message is there’s many chapters to be written in this story yet, and how it’s going to affect Canada is yet to be seen. And I agree with you, the story is far from over.

Jackie Forrest:

I did want to talk about one other chapter is, I don’t know if you noticed the sell off in the U.S. bond market last week, and a lot of people… We had the sell off in the overall equity market. But usually when equity markets go down in times like this, the bond market actually does well because people see that as a safe haven, especially U.S. treasuries.

But we actually had a situation where, there weren’t a lot of people buying U.S. treasuries. The interest rates were really having to go up to attract people. And a lot of people say this is one of the catalysts is why the Trump administration put the pause on. This is an example to me of an unintended consequence. There’s a lot of things that could come out of this that we can’t even predict today. But here, we’re not going to buy U.S., well, maybe people aren’t going to buy U.S. debt either. And Japan and China are some of the biggest holders of U.S. debt. If they decide, I’m not buying U.S. debt anymore, that could have broader implications for the financial markets that come out of this. So, something to watch.

Peter Tertzakian:

Well, it certainly will have an effect on you as a vacationer, if you’re planning to go to Europe this summer. A lot of the traders have been, you’re right, selling their U.S. bonds and buying European ones. You can see that in the currency movements. The Swiss Franc is way up, the Euro is way up even the Pound. And so it’s going to cost you a lot more on that vacation. And in large part, that’s because of these shifts in the global financial markets and the, again, lack of stability in what’s going on here.

Jackie Forrest:

Well, and then the negative implications could be quite broad for the U.S. economy as a whole, right? Because they have benefited from the fact that, in all sorts of circumstances, people see them as a safe place to put their money.

Peter Tertzakian:

Well, there was the old adage for years when the U.S. sneezes, Canada catches a cold. When the U.S. catches a cold, we’ll see what happens to Canada and the rest of the world. Speaking of Canada, let’s bring it home here and talk about the chapters being written in our federal election.

Jackie Forrest:

And well, I wanted to talk about one of the platforms that the liberal party has, and if you go to their website, we will put a link under the Mark Carney website. He has put out a platform which he talks about his economic pillars for change. And one of them is working closely with indigenous leadership, to fortify our Arctic against enemies and strengthen our year-round land, air, and sea presence. And he also talks about wanting to have infrastructure such as deep water ports and runways. And he has told the media that he wants Arctic ports that will create direct access to Europe and Asian markets, including oil pipelines.

Peter, we had talked a little bit about this last week. You had said, “Well, other countries do it, so why shouldn’t we?” And I did do some research on this. Mainly it’s the Russians that are doing this kind of thing, but Yamal LNG project, does have special-made LNG ships that are icebreakers, so they don’t need a separate icebreaker. And according to their article I found, and I’ll put a link to it, they can break up to two meters of ice. And in that area they have ice covering seven to eight months. I don’t know. It’s obviously more expensive than shipping out of other places, but they are doing it.

And they also have crude carriers that can break up to one and a half meters of ice, without an escort vessel. However, they’re not like the very large crude carriers, but they do have crude carriers that are operating in their north. It does happen. And so I thought we should learn a little bit more about our potential for Arctic ports.

Peter Tertzakian:

Well, I think we should. Because the Russians have been doing this for a long time, so why can’t we or can we? And now that the discussion is open about building infrastructure to the north, who better to help us through understanding it than Chris Avery, CEO at the Arctic Gateway Group at the Port of Churchill? Welcome, Chris.

Chris Avery:

Oh, thank you for having me. Thank you, Peter. Thank you, Jackie.

Jackie Forrest:

Good. Well, maybe tell us a little bit about yourself and the Arctic Gateway Group, because I’m sure a lot of our listeners maybe aren’t so familiar.

Chris Avery:

Yeah, sure. Let me give you some background on the Arctic Gateway Group. First of all, the Arctic Gateway Group owns and operates The Port of Churchill, The Hudson Bay Railway, and The Churchill Marine Tank Farm. We are owned by a consortium named One North, which is a consortium of 41 First Nations, Northern Manitoba, First Nations, and the communities that we operate through. Largely Indigenous-owned organization. What we’ve talked about way before Trump was elected president was, we were about building trade-enabling infrastructure that allowed the vast resources in Western Canada, access to global markets through the Port of Churchill. And primarily those global markets are European markets, African, Middle East, even South America market. I.e, non-U.S. markets.

Peter Tertzakian:

I’ve been to the Port of Churchill, and if you haven’t done that as a Canadian, you should put it on your bucket list because that’s where the polar bears start waking up in the last few weeks of September, first few weeks of October.

Chris Avery:

That’s right.

Peter Tertzakian:

And you can go up there. It is just amazing. It’s honestly a life-changing. It was life-changing for me to see the Hudson’s Bay as it was freezing up and see the polar bears so highly recommended. But we had to fly there. There’s no roads. There’s a railway, which we’ll talk about. What is the access to the Port of Churchill? Is everything by air and summer barge or how does it work?

Chris Avery:

The access to the Port of Churchill is by rail. The Hudson Bay Railway runs from The Pas up to Churchill, and in The Pas it connects to the Class One Railways Network, particularly to CN and The Pas. It’s really connected to all of North America. And then from The Pas up to Churchill, it’s connected with the Hudson Bay Railway.

Peter Tertzakian:

The Pas, Manitoba?

Chris Avery:

That’s correct.

Peter Tertzakian:

And so there has to be some fork that goes north from the main, is it the CN line?

Chris Avery:

Yeah, it connects from the CN line to the Hudson Bay Railway and from the Hudson Bay Railway, we go north up to Churchill.

Peter Tertzakian:

Some people say that that railway is unable to handle large volumes of cargo or large tonnage.

Jackie Forrest:

I think there’s a concern. And just for history, there was a flood and it was out of commission from 2017, so maybe tell us a bit about that. But there’s also a concern that it’s built over a bog, so there’s limits in terms of the weight it can carry. I don’t know if that’s true or not.

Chris Avery:

Absolutely. Well, as with anything, what I’m learning about the Hudson Bay Railway and the Port of Churchill, there’s a lot of history. And the railway and the port has been operating for almost 100 years. And for much of its history, it was originally owned by CN, and then it was sold to American interest, and then now it’s owned by Arctic Gateway Group. Long history of trade through the Port of Churchill, including traffic of grain and agricultural products through the railway up to the port. There’s a long history and a long love of example of trade going through the Port of Churchill.

Peter Tertzakian:

The original trade was the fur trade with the Hudson’s Bay Company, which unfortunately now is in demise and a loss of some Canadiana for sure.

Chris Avery:

Absolutely. And then, after that, the access of providing markets for the vast grain, we have agricultural products we have in Canada. In 2017, the railway washed out and it was a significant weather event for sure. It was in the springtime, and the northern part of the railway washed out. It was largely because the infrastructure was neglected for decades, ironically, by American interests. At that time when the railway washed out, it stranded all the communities in Northern Manitoba cut off all any trade that went through the Port of Churchill, and in fact cut off some of the supply routes to Central Nunavut to the Kivalliq Region, where traditionally Manitoba has supplied.

It was a service stalemate for 18 months where the American company held Canada hostage somewhat, refusing to repair the railway. That’s when Arctic Gateway Group was formed to take over the ownership of the railway and the port, in partnership with the Government of Canada. That’s kind of the history.

Jackie Forrest:

And you’ve since done a lot of work to improve the railway. Is it better now than it was before the flood?

Chris Avery:

Yeah. We’ve invested significant capital into the railway, and it’s probably in better condition than it has been for almost 30 years now. It’s in great condition. And maybe to answer your question about the bog and really essentially permafrost, I would say, maybe half of Canada’s geography is in permafrost regions. And so, as a result, a lot of our linear infrastructure has to go through permafrost at some point or another. We have great people and great academia and scientists and industry in Canada, who work through permafrost, whether it’s for railways, highways, pipelines, and whatnot. What I would say is, we have great technology in this country that help us manage permafrost that we maybe didn’t have 30 years ago and maybe even didn’t have five years ago. Things like anticipating the different types of impact of permafrost to the railway and addressing it properly, whether it’s with things like thermosiphons, which help keep the ground cold, to simple things like culverts to help the water flow when ice melts, so that you can properly maintain the railway, to really frankly letting the permafrost melt and putting proper foundation down.

We’ve put down some 350,000 railway ties. Any of your listeners have done gardening work, you know how heavy those are. We’ve moved 350,000 of those. Half a million tons of ballast rock, which is, really solid rock foundation that allow water to flow through. All that to say, we have a great foundation for the railway. And then on top of that, go on a little bit. But on top of that, we have great technology to help us monitor the railway, and see what’s happening to the railway before it actually happens. We have things like, ground penetrating radars that are mounted onto our locomotives that’s taking real time data of what’s happening in the ground. We have drones flying overhead of our railway, because we have a shorter railway, we can do that. That’s measuring the geometries of the track and the levelness of the track. And looking at the lands around the tracks because the lands, culverts and beaver dams and so on, are important part of maintaining a railway.

And then we have things like computing power and AI to help us analyze what’s happening. Because in the past, someone would’ve had to look through all that footage of the drone footage or siphon through all that data. Now with GPS, AI can help us identify where the issues will be, predict where the issues will be, and then GPS will tell us exactly where that’s happening.

Peter Tertzakian:

So for preventative maintenance and ensuring that the thing is reliable throughout the year, 365 days a year. Talk about the railway access as a right of way. Is the Hudson’s Bay Railway typically there’s a wide swath carved out for the railway? Is it possible to bring other utilities including pipelines and things along this right-of-way?

Chris Avery:

Yeah, we definitely have a right-of-way all the way up to Churchill. The details around whether there’s exactly enough room for pipelines or certain pipelines, I wouldn’t say we’ve looked at it in detail.

Peter Tertzakian:

I mean, we talk to people here in the lower latitudes, I’ll call them, who basically say, “Ah, Churchill, the railways decrepit and there’s a bog and way too expensive and so on.” But what I’m hearing you say is that, that may be opinions that have been formed based on the condition of the railway, maybe even half a dozen to 10 years ago. That it’s now it’s in a different state.

Chris Avery:

One of my colleagues who’s been involved on the Churchill file for many years always tells me that we have a reputational deficit. And the railway has this history of being washed out at some points and other issues, but really, the railway is in better condition than it’s ever been. And we focused on that because we knew you need to connect the port to the railway to the southern parts of the country first, and now we’re turning our attention to the port.

Jackie Forrest:

Now it’s interesting. I think we’d have this issue anywhere we did an Arctic port. Rail is the most efficient way to get things to ports, maybe pipelines for oil and gas, but we have permafrost in our north, so we have to find a way to manage these problems. It’s not just unique to this location, is it?

Chris Avery:

No, it’s not. And in fact, we have academia working on it, and we have great partnerships with academia. And that academia ranges from University of Calgary right here, where we’re doing the podcast, to Laval, to Royal Military College. We have great people and great minds working on this and permafrost is not new to Canada.

Peter Tertzakian:

There’s a lot of talk about energy corridors, certainly it’s one of the platforms of the CPC to create energy corridors across the country. Does that come up in terms of a corridor to Churchill or is the corridor the Hudson’s Bay Railway right-of-way?

Chris Avery:

Jackie, you were asking about this. We were talking about building this infrastructure for a long time before Trump was even elected president. And we had it as a view because with the washout, essentially all trades through Churchill came to a halt. We think of ourselves like a startup, because building back up the business completely from almost nothing. And so we’ve been focused on things like critical minerals. We took 10,000 tons of critical minerals, zinc concentrate, that was mined in Manitoba, transported up on the Hudson Bay Railway, and then exported from Churchill to Europe last summer. We’ve been focused on things that we know we can do today. So bulk handling of critical minerals.

In fact, we are increasing the amount of critical minerals to be exported this year, this coming season, doubling that. And then we’re tripling our capacity to handle critical minerals and doing a number of other things. These are things we can do right now. And then we had in the long-term, we focus on the short-term and get the port running and the railway running and trading, the conversations around, energy products would come in the long-term. And whether that’s hydrogen to LNG, to oil and gas, we thought those conversations would be more longer term. And certainly the recent events have pulled forward a lot of those conversations that we weren’t anticipating having for maybe at least five years.

Jackie Forrest:

Do you have grain? I know historically there’s been a lot of grain going out of the port. Is that the case today?

Chris Avery:

No, we’re working on that now. We expect to have grain and agricultural products going through the port this coming season. And then we’re really, even within the agricultural industry, diversifying into different types of products. We signed an agreement with a company called Genesis Fertilizer recently, which is planning to build a $2.3 billion fertilizer plant outside of Regina. The Hudson Bay Railway and the Port of Churchill is an ideal routing for it to potentially export fertilizers to global markets, to European markets.

And the other thing that they need as a feed product for farmers in Western Canada, is phosphates. And phosphates traditionally come from Southeast part of the U.S., so we know what’s happening in the U.S., right? Another source of phosphate is from Northern Africa or the Middle East. Churchill becomes a perfect import route for this product coming from Middle East and Africa, through Churchill, and then down on the Hudson Bay Railway to Western farmers.

Peter Tertzakian:

We’ve talked about the railway and getting to and from Churchill on land. Let’s talk about getting to and from Churchill by sea or the Hudson’s Bay. I looked it up and Churchill is at a 58 degree latitude, which is actually below the Alberta Northwest Territory, the North of 60 line. And Yamal, which Jackie mentioned in Russia, is actually at 70 degrees, so it’s considerably further south. But you have to go up and around Northern Quebec as you transit out of Churchill, so there’s a considerable ice pack. How many months of the year is this route ice free? Let’s talk about the logistics of getting in and out.

Chris Avery:

No, that’s a great question, Peter. Currently, our shipping season is four months of the year from July to October. And we partner with University of Manitoba and Dr. Wei Feng, who is one of the preeminent sea ice researchers in Canada. And with his group. In fact, the Churchill Marine Observatory is our neighbor up in Churchill. We partner with him and what he tells us his data shows is that, the sea routes could actually be open for six months of the year. But really what’s stopping that happening right now is really the insurance industry. We’re working with the University of Manitoba to gather the data so that we can provide this to the insurance companies, who are working with decade old data. Once they have this data from an objective point of view, we can then potentially open up the sea lanes for even up to six months of the year, because really the premiums really skyrocket after October.

Jackie Forrest:

This is with breaking of ice though?

Chris Avery:

Nope. This is just the way it is just today, without any ice breaking.

Jackie Forrest:

That’s because they would just charge you more for insurance for the risk of icebergs and things like that?

Chris Avery:

Yeah. And because their data is from decades ago. We essentially need to provide them up-to-date data, from a reputable source, which the University of Manitoba is. We’re working on this study today, and we should have that completed by the end of the year.

Jackie Forrest:

Now in those Russian examples, they built special ships so they don’t need a special ice breaking ship out front that could do up to one and a half to two meters of ice breaking independently. How thick in the coldest part of winter is the ice that you’d have to transit?

Chris Avery:

For the sea lanes, and this is from the University of Manitoba, for the sea lanes that we operate through, the ice is single season ice, so it’s only for one season and it’s less than two meters. It’s about one and a half meters.

Jackie Forrest:

It would be more expensive to build special ships that ice break. I was actually reading about the Yamal, sometimes their capacity is limited because they only have so many ships. And apparently during that peak ice period, they go much slower. The amount of ships you have aren’t moving as much, but it is possible based on the Russians that you could break ice and move things, commodities like oil and gas. And I imagine other commodities with other specially built ships. Of course, that would be more expensive though than just moving out of an ice-free port.

Chris Avery:

Absolutely. But the study that the University of Manitoba has done is, their trends in the data shows that the sea lanes can be open for one additional extra day for every year that goes by, and that’s based on the past 40 years of data. From their projections, if nothing else changes, if current climate change conditions continue, they estimate that within the generation of our kids or our grandkids, that the sea lanes could be open 365 days a year. We need to start preparing for that, because that’s not very long.

Jackie Forrest:

Is that like 40 years away?

Chris Avery:

40 to 60 years away.

Jackie Forrest:

Right.

Peter Tertzakian:

Well, here in the now though, there’s another advantage to this and that is the northern latitude because, if we start talking about destinations for the goods, this is a polar type route. And if you look at a globe from the top down, you can see that the transit distance from Churchill to Europe and certainly Northern Europe is actually not that far.

Chris Avery:

That’s correct. We estimate it saves up to two to three shipping days of time.

Peter Tertzakian:

So when it’s slower, it’s still faster in a sense than going other traditional routes that are closer at lower latitude.

Jackie Forrest:

Another opportunity I guess would be, we’ve been talking about Canada’s lack of energy security. You could imagine we had the CEO of TC Energy, Francois Poirier, come on the podcast and he talked about how building a pipeline all the way to Eastern Canada would be very expensive. I guess another option for energy security would be to go here to Hudson Bay and then you could bring the products back around to Eastern Canada.

Chris Avery:

Sure.

Jackie Forrest:

That would be an energy security benefit of it, even if it would be maybe more expensive than going through the U.S. today, it would provide us sovereignty over our energy flows, right?

Chris Avery:

Sure.

Peter Tertzakian:

You could do that and you can also rail the oil if you had to. There’s all sorts of intermodalities and things, and once you have a port, you can start thinking about all the possibilities.

Jackie Forrest:

How deep is the port? Could it take the very large crude carriers that can carry 2 million barrels a day? Or is it equivalent to some of the ports in the world with the deepest water, or does it have some limitations that way?

Chris Avery:

In the past, we’ve had a Panama size vessel in the port, but that’s the more common size, it’s more of a handy max, it’s more the common size. The very large vessel that you’re talking about, it’s not been something that we’ve looked at. But I would say that’s as those opportunities come up, those are the things that we’re going to study. Right now we’re focused on fixing up the port that’s been neglected for decades, whether it’s the wharf face or the wharf deck, but we are also doing some planning for the future. This past season we’ve done drilling in the harbor to better understand the current conditions of the ground at the bottom of the Harbor with the aim that we then understand how much dredging we can do and how much depth we can create for vessels. As the opportunities come up, we’re ready to have those discussions, but right now there’s no need for it. We haven’t started our dredging program yet, but that is in our plans.

Peter Tertzakian:

Well, whether it’s dredging or building other infrastructure and just growing Churchill as a port, it all speaks to increased need of people and labor. Can you just talk about the labor situation? And, I mean, as I said, I’ve been up there, albeit I think it was a dozen years ago, and it’s a pretty small town, and now we’re talking about major expansion in an outpost of Canada, not as far out as some parts of the north. But, I mean, it’s not an easy place to get to.

Chris Avery:

No, that’s a good question. First off, the Town of Churchill is maybe a population of around 800 people, and the infrastructure in Churchill can support up to about 5,000 people. There’s great infrastructure already in Churchill, so we aren’t needing to build that up. From our ownership perspective, maybe I’ll pivot to our ownership perspective. One of the questions I get asked from our indigenous leaders who are owners and partners in the Arctic Gateway Group is, as we’re making these investments into capital infrastructure, and as we’re building up business, the number one question that I get asked is, how many jobs are you creating in the communities and how many indigenous and non-indigenous jobs are you creating for local rather than bring people to the region?

I think there’s a huge demand and a huge need for good jobs and good opportunities in the north. I think we’re ready for that, it’s a matter of providing the opportunities. And to be fair, I don’t think a lot of those opportunities have been available in the past. I think this is a great opportunity. I think our Premier Wab Kinew in Manitoba talks about the economic engine pulls the social cart, and so he recognizes that, as we’re building up this trade in infrastructure, that helped create economic and job opportunities for people.

Jackie Forrest:

Well, and I think another broader benefit… I want to talk a little bit maybe Peter, about my views on oil and gas shipments out of the port considering these constraints of the ice time. But I think another benefit to Canada, which is hard to quantify, but it’s just having more people in the north, having more sovereignty over our north, that’s a big push right now. And so that would be a benefit to the country that comes from this port. It certainly is going to be more expensive shipping out of a place with that much ice than other ports that we have in this country, but I think it would benefit our sovereignty over the north as well and our security of our country.

Peter Tertzakian:

This is a multi-generational project. If you start running numbers in a spreadsheet, if it’s a 20-year payback or 10-year payback, forget it. This is a multi-generational thing for the country, for the north, for our sovereignty. I think it’s a great thing.

Jackie Forrest:

But here’s the problem. If you’re a private company that needs to ship your product, why would you pay a lot more to go through this port? Because, now you have ice breaking, now you have seasonality, you have a special railway that has to deal with permafrost. This is going to be more expensive than just out of the Port of Halifax or Montreal or Vancouver. The private company isn’t going to be motivated to pay more for their transportation.

Peter Tertzakian:

I’m not convinced, and I have not run a numbers or anything, I’m just thinking gut feel here. But once you get the infrastructure built and you get economies of scale and you start getting transit on a more routine basis, there are distinct advantages to these northern polar routes, distance being one of them as Chris said, it’s a three-day advantage to Europe. I’m not convinced.

And then as I said, if you amortize this over say, 60 years or 50 years, like a multi-generational project, I think that we’ve got to think longer term in this country. If you think about how China thinks and other countries with a long-term vision, they don’t think in terms of 20 years, and, yeah, it might be more expensive to do this, they just think really strategically. And that’s what we need to do in this country. We need to think strategically about things. It’s not all about whether it costs 25 cents more or whatever. Maybe it is 25 cents more, but arguably it’s 25% less if we really put our minds to it.

Jackie Forrest:

Well, I’d argue it’s probably more than 25 cents. But here’s the thing, let’s talk about Russia. They are doing it, right? But that’s a national oil company that maybe okay with taking a higher cost transportation route because they see broader benefits for this project to the country. We don’t have companies that think that way, we have companies that need to maximize return for their shareholders. And going through a route that doesn’t have the best return is not something they’re going to want to do.

Chris Avery:

Well, maybe I could talk about what we tell the companies because, certainly when the sea lanes are open, we actually feel that we’re very competitive price-wise because of the shortened length of transport and lower cost structure. Not having to be out at sea for as long as they do going through the St. Lawrence River and going through the canals and so on. We talk about that and then we talk about the opportunities in the future as the sea lanes become open for even longer.

But the other thing we talk about is also optionality because, certainly with the U.S. trade wars today, where everyone’s looking for infrastructure to go to access other markets, and Churchill provides that. And in my mind, if it’s not the U.S. today, it’s going to be China or Asia tomorrow. For a country the size of Canada, to have a Northern Seaport option, to me, just makes sense.

And then aside from the trade piece, it wasn’t too long ago in 2021 that the Ports of Vancouver were all washed out. Access was cut off because the railways and the highways were washed out. And you can imagine, I don’t know if someone has done the math, but the impact on the Canadian economy was great because the port was completely cut off. Again, optionality I think is super important. And Churchill will never replace the Port of Vancouver or Montreal, but it’ll be an option for exports and imports for when things happen. And we’ve seen more weather events and more volatility and weather and forest fires and even labor disputes.

Peter Tertzakian:

Well, you look at the distance, getting back to the distance thing, you look at the distance from Alberta, let’s just call it Calgary to Europe, there’s a reason why when you fly to London, you go over the Hudson’s Bay. It’s because it’s shorter. Going from Calgary to Churchill, I think we even fly over Churchill to go to Europe, it’s just a far more direct route.

Jackie Forrest:

I agree with that when the ice lanes are open, but when they’re not, it’s very expensive. I put some thought into the LNG idea. I thought, okay, could we do LNG out of this port? And I had to think about it from a competitive perspective. Now the Russians are doing it, yes, but it’s a national oil company, so maybe not looking at all of the things the way a private company would. If you’re going to do a facility the size of an LNG terminal, these are like tens of billions of dollars, you need to be running 365 days a year to get a return on that investment, right? There’s no just four month a year option.

When we think about deliver to Europe, who are we competing against? U.S. Gulf Coast and the Middle East. Those are the two main suppliers in U.S. Gulf Coast, they can build those facilities cheaper than us already, because they’re sitting there on the massive Gulf Coast, they bring in the big modules. Tried building an LNG facility in this remote north, it’s going to cost more. On top of that, we’re going to have to build these special ships that maybe go slower in the winter, in order to ice break. And then our other competition is the Middle East where they build stuff cheap and they don’t have any of these issues. I just have a really hard time seeing how we can compete with our competitors.

I do think, too, the other issue is, I don’t think we can access the West Coast here. And the West Coast really is our best market for LNG because we’re pointed towards Asia. And Asia is where I think the growth in natural gas will be.

Peter Tertzakian:

Well, this is good debate. I think that we have substantial advantages if we just put our minds to it, think differently and think bigger. As a northern latitude, there’s substantial advantages for LNG in terms of the efficiency of liquefaction. Gulf Coast, Middle East, I mean you’re talking about 45 degrees C plus 45 here in Churchill, it can go down to minus 40. It’s just a different thing.

And again, I’ll just come back to the Russians. I mean, Yamal is at 70 degrees north in the middle of absolute nowhere, the northern part of Siberia, and they’re doing it. Why is it that Canada with equal resources and ingenuity arguably can’t do it? It’s just a matter of how long-term we think about this thing and how things… I’m going to be the number one salesman.

Jackie Forrest:

Peter, we’re going to disagree on this one. But I do agree if we had a national oil company or maybe some government funding or maybe some government regulation that forced companies to do it, I wanted to make one side note on totally different topic around LNG. Don’t know if you noticed, it was a quiet release talking about our West Coast LNG opportunity. But on March 21st, the B.C. Government posted an update to their policy on net-zero LNG. They’re now saying that you don’t need to be net-zero LNG by 2030, if you can’t get the electricity. And it’s not reasonably possible to do it. And the proponent has tried to get the electricity, but it’s not going to be there. And you don’t have to be net-zero until you can get the electricity. Side point, that just makes our LNG I think, that’s been a big barrier to building on our West Coast. So that is a really helpful change in policy for the B.C. Government. I will put a link to that in the show notes as well.

Chris Avery:

Jackie, Peter, could I maybe add couple more things just quickly on LNG in particular?

Peter Tertzakian:

Sure.

Chris Avery:

And like you said, Peter, it’s all in the math and we need to work through this and certainly we don’t have all the details around it. But I would say some of the things that are helpful for Churchill is clean energy. Manitoba has lots of hydroelectricity and lots of opportunities for clean hydroelectricity. So that’s a tailwind. And then the other thing is Churchill is a cold weather location. While the cold causes some problems, my understanding it also helps with the LNG liquefaction.

Peter Tertzakian:

Absolutely.

Chris Avery:

There are some things, again, as you said, it’s all in the numbers and someone has to do the math to see if it works.

Jackie Forrest:

Right.

Chris Avery:

The other thing is you mentioned sovereignty, northern sovereignty. Churchill with the railway connecting the port to the rest of North America, so rail is the most efficient logistical way to move goods. And then the Port in Churchill. And then we also have a 9,200-foot runway in Churchill at the airport there, that’s capable of handling any transport aircraft or passenger aircraft in the world. And then the town infrastructure. It’s a great set of infrastructure to help us assert our sovereignty in the north. And it can be a great supply base for all those northern bases and military bases that we need to have for our defenses. All that adds to the infrastructure and adds to the scale as we’ve talked-

Peter Tertzakian:

Well, and it adds to the argument that it’s not all about dollars and cents. I mean, there’s bigger things that play in the world today as we know, and we have to start thinking strategically for future generations of this country.

Jackie Forrest:

And today does the Port of Churchill supply a lot of those northern communities?

Chris Avery:

Yeah. Particularly the Central Kivalliq Region. We actually have a great relationship in an MOU with the Kivalliq Inuit Association and their Economic Development Arm, SACU, to talk about how we can really leverage the opportunities between Churchill, Northern Manitoba and the Kivalliq Region.

Peter Tertzakian:

Well, this has been a wonderful conversation. Thank you, Chris Avery. You’re the CEO at the Arctic Gateway Group at the Port of Churchill. Again, I encourage those who have not been to Churchill, to go to Churchill. Particularly, I think I said late September or early October, I think it’s late October, early November.

Chris Avery:

That’s correct.

Peter Tertzakian:

And I mean, it is a uniquely Canadian experience to see the Hudson’s Bay and the polar bears. But also in future, to see a hub of economic activity that I think, is essential to so many dimensions of Canada’s future prosperity and for the people of the North. Thanks so much for joining us.

Chris Avery:

Thank you for having me.

Jackie Forrest:

Thank you, Chris. 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.

Announcer:

For more ideas and insights, visit arcenergyinstitute.com.

April 14, 2025 Charts

April 14, 2025 Charts

Produced by wp_user | by