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The Year Ahead: Top Energy Themes and Trudeau’s Resignation
Peter and Jackie start the new year by reviewing their predictions from 2024: what did they get right, and what did they miss?
Next, they introduce their top energy themes to watch in 2025 and some predictions. Themes include changing governments and policy in the US and Canada – including the breaking news at the time of recording that Prime Minister Trudeau was resigning. They also predict the return of energy security and sovereignty as a growing conversation in 2025.
Finally, they discuss Canada’s Clean Electricity Regulations (CER), published in the Gazette, Part II, at the end of 2024. The final rule aims to achieve net zero electricity in Canada by 2050 versus 2035 (the target in an earlier draft).
Content referenced in this podcast:
- Donald Trump’s January 2, 2025, X post on how tariffs create wealth for Americans
- Final Clean Electricity Regulations (December 13, 2024)
- Jordan B. Peterson Podcast interview with Pierre Poilievre (released January 2, 2025)
- The deadline to provide a “Notice of Objection” on the oil and gas cap is January 8, 2025. Email the objection to PlanPetrolieretGazier-OilandGasPlan@ec.gc.ca. See more information under the heading “PROPOSED REGULATORY TEXT” in Canada Gazette, Part I, Volume 158, Number 45: Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations
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Episode 266 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. Happy New Year. Well, it’s been a busy holiday season as it usually always is. Jackie, you and I have talked already about various family-related functions and how much fun and somewhat relaxation that we had. I think you said you were binge-watching the Landman and we’ll talk about that at a later date.
Jackie Forrest:
And I finished Yellowstone. I actually had time to watch TV, Peter. It’s very unusual. But the Landman, which is basically a show about the oil and gas industry in the Permian Basin is worth talking about because it’s the first time I’ve really seen a show that really shows the oil and gas industry up close. Not just Dallas from the corner office, but right down to the service rigs operating. So worth talking about it. Of course, it’s quite exaggerated and not totally realistic, but that’s what I want to talk about.
Peter Tertzakian:
So it’s sensationalized somewhat, but yeah, you’re right. It’s rare since the days of Dallas show when it was out in the 1980s, I think it was maybe dating myself, since that show was on, so…
Jackie Forrest:
Yeah, well and considering the anti-oil and gas sentiment of the last decade, I know that’s changing now. It’s interesting that a show, kind of primetime show, is focusing on the oil and gas industry.
Peter Tertzakian:
Okay, well, I’ll have to try and take in a few episodes. Maybe I can speed it up two times, watch it, and then we can have a discussion about it. But we are recording now on January 6th, the Monday we’re back. And imminently awaiting, it seems, the resignation of our Prime Minister Trudeau. The CBC is suggesting that he’s going to be resigning here in the next half hour or so. We shall see.
But that just leads into 2025, which will no doubt be a period of a lot of change and volatility, not only domestically, but in terms of what happens, post the election of President Trump and the inauguration of President Trump and other things around the world that are very volatile at the moment. But for now, I think the big news in Canada is going to be, “Well, what happens once our Prime Minister resigns?”
Jackie Forrest:
That’s right. Okay, well… We will talk about that in our themes for 2025, but let’s start with our look back. We typically do a look back on 2024 and our predictions. And this podcast we always do, the first one of the year, our outlook for 2025. So we’ll get to that soon and that’ll include elections and what Donald Trump may do or may not do in terms of impacts to the Canadian energy economy. But I looked back at our podcast from a year ago. We had 11 predictions, Peter, and-
Peter Tertzakian:
Didn’t we get them all right? Didn’t we get them all right?
Jackie Forrest:
Well, I scored them. I think we got about seven correct, 65%, which actually rounds up to 70. So I’m like, that’s pretty good, majority. Right? We had things like predictions about the US election and if Trump got in. We didn’t actually predict who would get in, but if Trump got in, what the main policies he would be thinking about are. We identified the “drill, baby, drill” and changes to the Inflation Reduction Act, the Clean Energy Policy. But we didn’t talk about the potential for tariffs. Or a new one, Canada becoming the 51st state.
Peter Tertzakian:
No, we certainly did not predict that one, and I don’t think I’ll predict it for 2025 either. But why don’t we go through some of the lists. We talked about the oil and gas cap being in Gazette One.
Jackie Forrest:
And we got that right. We said the clean electricity ride would not be final in 2024, and that was incorrect. It actually did come out right at the end of the year. We will talk about that at the end of this podcast, our thoughts on that. Interest rates, Peter. You thought they wouldn’t come down as fast as some were predicting?
Peter Tertzakian:
Yeah, I only thought we’d see about a 1% drop max. But it was actually 1.75%, one and three quarters percent. And so in some ways, that’s good news. It means that inflation was being tamed and we’re trying to get some stimulus going in this country. In other ways it’s been somewhat negative, depending on your perspective in terms of the Canadian dollar. But we shall see. We shall see where it goes. And the Canadian dollar by the way, also took a hit because of the chaos at the end of the year in our government. But maybe we’ll see that recover.
Jackie Forrest:
Yeah, we thought oil was underpricing Middle East and geopolitical risk in general. And I think that proved to be incorrect, because a lot of that geopolitical risk never resulted in outages. And we had a lot of OPEC spare capacity, so the oil price stayed fairly moderate despite all of that risk out there.
Peter Tertzakian:
Yeah, but the price of oil is still over $70 now. So I think that there is still a pricing of a geopolitical risk in the Middle East. It’s certainly not over over there. And we’ll see how Donald Trump takes on Iran, which is something that, well, I guess we’ll talk about that as well when we talk about our 2025 outlook. But to me, the price of oil didn’t spike to a hundred dollars or anything. And I think that’s good news. But having said that, I think because $70 plus price is a pretty good price, given that what is the average over the last 10 years, it’s probably more like $55-60, isn’t it?
Jackie Forrest:
Oh, for sure. Yeah. There was almost a decade there where we were closer to 50 after 2014-15. Hey, what I learned from Landman is you don’t want the price too high. They want it kind of in that sweet spot in that $70 to $80 range. Because you can do quite well. If it gets too high, then you got problems too.
Peter Tertzakian:
But I don’t think we need to watch the Landman to know that, to be honest.
Jackie Forrest:
No, that part it was accurate on. We talked about the gas still looking quite challenged in 2024. We’ll get to that. It certainly was. We predicted the TMX startup. Well, that one wasn’t hard to predict, but I’m glad that it started up and we’re certainly going to be needing it, especially if we have tariffs here on our flows to the United States. We did obviously talk about AI. We talked about it helping with energy efficiency. We did identify that it could increase electricity load, but I don’t think we really predicted how that would be such a big theme for the year.
Peter Tertzakian:
Yeah, it really has been a big theme for predicting all sorts of things dynamically. And that’s what AI is really good at. And its ability to predict things like the efficiency of infrastructure at large, manufacturing. All the way to electrical power grid, things like that. And I think that that’s going to be an ongoing theme as we go into 2025 and beyond.
Jackie Forrest:
Yeah, I mean a big discussion will be, is AI going to start stalling? There’s been some reports and articles I’ve read that the rate of improvement has slowed down here. So will there be this killer app that continues to take over human jobs and increase efficiency? Or are we getting to a point where these models can’t train? There’s apparently not enough data for them to train and become in much better than they are. So we’ll wait and see.
Peter Tertzakian:
I think it’s getting to the point where it’s not a good idea to talk about generalities, general AI anymore. I think we’re still in the early innings in terms of optimization of manufacturing processes and things like electrical grid and supply chains and so on. I think there’s a lot more room for growth in those areas, in terms of maybe large language processing and things like that. It’s certainly not an area I’m an expert in, but I think in areas like that, some of the big wins have already been recorded. And we may be at a point where we plateau out a little bit, but I still think we’re in the early innings of this whole AI thing.
Jackie Forrest:
I think you’re right. And even if it does plateau, I don’t think we’re using it very much even with the existing capability. I think it still needs to be integrated into a lot of work processes, business processes, and can still help with efficiency.
Last one was oil and gas. We predicted an increase in M&A in Canada. Well, certainly we are right on that one. We had several deals, but the big blockbuster was CNRL buying all the Chevron assets for 6.5 billion US dollars. So that was a big one, on CNRL getting bigger, already the biggest company.
Peter Tertzakian:
And it’s a real landmark because Chevron was one of the earliest multinationals in the Canadian Basin decades ago. And to see another multinational exit, the Canadian Basin, it’s a double-edged thing. Because on one hand, multinationals had deep pockets that came in. They were really the companies that grew our basin over the course of the last half century. But with the exit and the absorption by CNRL, it also means that the decision-making capacity of ROL Fields becomes more Canadian, CNRL being a Canadian company. So there’s two sides to this. One is the increasing Canadianization of our industry. The other is the exiting of multinationals and major sources of capital.
Jackie Forrest:
Right. And there were other deals, but they were actually more Canadians buying Canadians. So just consolidation and getting bigger. In fact, I don’t know if you caught it. Maybe you were busy at Christmas, but there was even a deal over Christmas where Million Energy announced Canadian 1 billion deal to buy Westbrook Energy. Tourmaline in August also acquired Crew Energy. So there were some other consolidations of smaller Canadian companies becoming bigger as well.
Peter Tertzakian:
And that’s following on the heels of the consolidation theme that was already happening in the United States.
So what are some of the other big things in ’24? There was of course the TMX startup.
Jackie Forrest:
Yes. So we did have a podcast on that. And I think the big controversy at the time of the startup was the price. $34 billion and that wasn’t final, I think. We still don’t have the final numbers. But I can tell you, if we get these tariffs from the US government, we’re going to wish we had another one.
Just to put it in perspective, we want to have an actual more fulsome podcast on the tariffs and how they could affect the oil and gas industry. But let’s say that the tariffs result in Canadian oil and gas producers having to absorb some of that through a price discount. If it was a $10 greater discount per barrel, that would be about 20 billion a year of lost revenue to our economy. And so to me, while I don’t like the price of the TMX, these pipelines are so important. Because they result in the reducing the chances of us getting discounts for various different reasons, whether it be tariffs or growth in production. And so having the optionality to get our crude to other markets and our gas as well is really going to be important. And I think is going to be a theme. We’ll get into the 2025, but the importance of getting more infrastructure outside of the US I think is going to be a theme this year in Canada.
Peter Tertzakian:
Yeah, it’s going to be a big theme. And it also has big implications to royalties and taxes, which are significant. And if we drop by 20 billion, 15-20% of that is going to be typically if on a cash basis lost. In other words, forfeited royalties and taxes.
Jackie Forrest:
There’s a number of themes in 2024 that we didn’t mention that turned out to be large. I already talked about the growth of electricity demand. Clean energy companies not doing well is not something we had kind of talked about, but they certainly didn’t do well. The Clean Energy Index, that’s a basket of companies that are clean energy, whether it be EVs or batteries or solar panels, were down about 25% on the year. And there’s some big failures. We’ve had numerous bankruptcies including, I don’t know if you followed that. Northvolt, that Swedish battery company, went bankrupt. So billions of dollars lost by investors in the equity there.
And there were other examples, too. So in general, clean energy is just not growing as fast as people thought. It’s still growing, though. We haven’t got the latest EV numbers, but we will see growth in EVs. And in fact, the media reports at the end of the year showed that maybe even the US is going to show a little bump up. There was a bit of a buying increase maybe at the end of the year for EVs in the US. Some people think that’s kind of because Trump is anticipated to reduce those subsidies for EVs. So there was a bit of buying at the end of the year on that. So the silver lining is these companies are still growing, it’s just not growing as fast. So the companies are valued at much lower than they were several years ago, and maybe that’s an opportunity as well.
Peter Tertzakian:
Well, I think a better way to think about it is, which clean energy companies are we talking about? Because it’s, up to about last year, we could talk about clean energy as a large basket of companies. But 2024 really was a year of market discrimination. In other words, the market, particularly for the equities, started to say, “Okay, the companies that are making money, we’ll give them more money or it’ll continue to grow.” For example, wind and solar, some batteries, EVs and so on continues to grow. But other areas of clean energy really performed poorly. Because the market recognized, “Okay, things like hydrogen companies, for example, have really fallen under the wayside.” In the equity markets-
Jackie Forrest:
Biofuels is another one.
Peter Tertzakian:
Biofuels is another one. And basically the market is correctly assessing it and saying, “You know what? You’re not going to be making money for several years, so I’m taking my money and putting it elsewhere.” And of course with the rise in AI and data centers and power demand, anything to do with electrical systems really did quite well last year. So there’s sort of a rotation even, within clean energy, a discrimination and a rotation within clean energy that has started to occur. And I think there’s going to be even more refinement in ’25.
Jackie Forrest:
Okay. Well, first prediction. That’s a good lead-in to our predictions for 2025. Or at least identification of what the big themes we’ll be talking about on the podcast as we look forward into the new year. So I’m going to put the first one out there. We’re going to be talking a lot about the United States, Donald Trump, and energy policy, and how that’s going to impact Canada. That’s already started since the election of Donald Trump. And I think there’s a number of areas that we’ll be talking about. Obviously, the impact on clean energy with these subsidies. But of course the big one here in Canada will be this tariff on all Canadian goods. Is he serious? Is this going to happen? What industries is it going to affect if it doesn’t impact all of them? And that has a lot of implications. Not just to the companies that ship those products, but things like, you mentioned it, the Canadian dollar.
Peter Tertzakian:
Okay, so we’re only two weeks away from the inauguration, which is on January 20th with Prime Minister Trudeau resigning, presumably today. There’s not enough time really, I think, to ward off tariffs. They’re coming. The question is what form will they take on what industries, how much and so on and so forth. Until we get some sense of strong leadership in this country, I really don’t think we are going to be able to avoid the tariffs. But at some point, potentially there’ll be moderated. But I don’t think it’s going to be early in the year.
Jackie Forrest:
Well, and I don’t know if you’re following all social media posts over the holidays, but there was an interesting one from Trump on January 2nd. And he retweeted a chart that showed the percent of US federal revenue that came from tariffs. And in the 1800s, that whole hundred-year history, it was quite significant. At times 50-90% of federal government revenue in the US was coming from tariffs. And of course in the 1900s that went to almost nothing, especially in the last 40 years or so.
And he talked about the fact that tariffs created this vast wealth for our country. Then we switched from using tariffs to income tax and we were never as wealthy as we were during that earlier period. So tariffs will pay off our debt and make America wealthy again. And that’s important I think, to watch. Because if this is really about generating revenue, paying off debts, and helping the US government improve their fiscal situation, it increases the chances they’re going in. If it’s not about border security or drugs on the border, I don’t think there’s much Canada can do if it’s really being viewed as a way to increase revenues.
Peter Tertzakian:
Well, whatever the reason, whether it’s because of trying to address the federal debt, which is in the multi-trillion dollars now, or whether it’s for border security and other reasons, it’s probably a mix of all of the above, I think countries can expect tariffs. I’m not convinced that comparing the situation today to the 1700s 1800s such as that chart is as fair. And we’re not in the Mercantilist Era here. We’re a completely different era, but there’s no question that the sentiment is definitely the tariff. I don’t think we’re going to avoid it. The question is how it will manifest itself. So stay tuned. I think we’re going to have a lot to talk about, Jackie, in terms of this. And we will have more numbers, and I think we’ll have a whole separate podcast on the tariffs.
Once, I think, President-elect Trump has been inaugurated, once we get more info and intel on who exactly is running the show in our country, then I think we’ll have more to talk about. With some sense of less uncertainty. I’ll put it that way, rather than saying certainty, there is no certainty in terms of how this is all going to play out.
Jackie Forrest:
I don’t think we can wait until we know what’s going on here. It’s going to happen a lot faster than that, but we’ll get to that. One last thing on the impact of the US government is, how does it going to impact geopolitics and energy prices? And I think that’s uncertain. It will go either way, but we’ll certainly be talking about how policy in the Middle East, Iran sanctions potentially, what goes on with Russia and Ukraine War, and the sanctions on Russia are going to impact the energy systems. And then of course we have things like China, the potential for tariffs on China, which could cause a recession there. They’re already slowing in terms of their economic growth. And then “drill, baby, drill,” how the US could affect. So lots of implications potentially on energy.
Peter Tertzakian:
Yeah. One of the interesting things to think about though is that the market, the market for commodities, the market for foreign exchange currencies, they’re already pricing all of these things in based on what is known. And so, one could argue that the price of oil incorporates tariffs already. The price, the foreign exchanges, and the level of the dollar incorporates all this stuff. And notwithstanding any further surprises, that’s the best prior assumption that we should be going with going forward.
Jackie Forrest:
I wouldn’t say it’s all built in yet, though. I think our Canadian dollar is about 69 cents right now. I checked yesterday and after that fall economic statement, it actually fell further. And I mean, some economists are thinking if tariffs go forward, could fall as low as 65 cents. So I don’t know that it’s all built in yet.
Peter Tertzakian:
Well, it’s popped a little bit since the potential resignation of Prime Minister Trudeau, so we’ll see where it goes. So there’s anticipation and pricing in of these dynamics.
Jackie Forrest:
All right. Well, let’s talk about Canada. Obviously a big part of the discussion even at the end of the year and going into the new year is all of this drama that happened pre-Christmas with Freeland resigning, calls for Trudeau to resign. Will Mark Carney have a role here to play? Jagmeet Singh saying that he supports a non-confidence vote when the time comes for that to happen. So what’s your take right now in terms of how this political situation will evolve and when we might get to finally the position of being in an election?
Peter Tertzakian:
Well what it appears, given the best information we have, is that Prime Minister Trudeau will stay on until the leadership review is conducted and a new liberal party leader. The question is, will there be an election forced by the opposition, including obviously led by the conservatives. I’m not an expert in all these constitutional procedural issues at all, but my sense is that the cards are on the table for a spring election. Probably some time in May, and we’ll take it from there. Now by the way, I thought I did predict last year that the election was going to be last year. And I didn’t get credit for the fact that-
Jackie Forrest:
Oh, I forgot to bring that up. Thank you for that. Thanks for pointing that out.
Peter Tertzakian:
You said that I lost that bet, but actually I think it’s a partial win because before the end of last year, Jagmeet Singh did come out and say, “I am going to vote for a non-confidence motion.”
Jackie Forrest:
Yeah. Well, to back it up, I thought-
Peter Tertzakian:
It’s a partial.
Jackie Forrest:
It’s a partial. And I was like, there won’t be an election in 2024 called. I still think I’m right there, Peter. I think that it’s a technicality. But hey, the chances are higher now. Here’s a sure bet. Who do you think is going to win the election if one is called at some point in 2025, which seems inevitable?
Peter Tertzakian:
Yeah, well. It certainly looks like a CPC victory. The only question is by what kind of margin. Now there’s some wild cards there in terms of the margin of victory. We’ve got Mark Carney lurking in the background, still apparently making calls about whether or not he’ll throw his hat in the ring for the liberal leadership. It really depends on who the liberals elect as their next leader, in terms of how it all plays out. And there’s so many potential wild cards between now and May that it’s hard to know how this is all going to play out.
Jackie Forrest:
But I mean, you have to agree, it seems unlikely no matter who the liberals put in that the conservative party has a very good chance.
Peter Tertzakian:
The only question is by what margin are the liberals going to lose? That’s at the moment, given the best information, the only question out there. But hey, politics can take odd twists and turns, as we know.
Jackie Forrest:
Well, and so the interesting thing about this potential election is that typically parties have to have a fairly big platform, lots of ideas of what they want to do in the future written down. Today, the conservative party of Canada really doesn’t have very much. If you go to their website, there isn’t that much to give you an indication of what their position’s going to be. Whether it be on housing or of course what we’re interested in. Very little on what their views are on the energy policy. So we are going to get a government here where I don’t think we’re going to have as much insight in terms of their policy platform for energy as we would normally.
I did want to point out to our listeners, if you haven’t heard, I’m sure you have because it’s all over the news, that Pierre Poilievre was on the Jordan Peterson podcast. I did listen to that, and it does give you some idea, but it’s still very, very high level in terms of what their policies will be. He talked about things like revoking the bill C-69, which is that process for large project approvals. He wants that to go faster. He supports exporting our LNG to international markets. And he talks about you’d like this one, Peter, why is Canada importing oil when we’re the fourth-largest producer of oil in the world? Why are we importing oil? But we don’t have a lot of details other than he wants to axe the carbon tax.
So I think this is an interesting one, in that we don’t know exactly his position on the specifics, like is he going to support this clean electricity regulation? We know he is not a fan of, or the conservatives are not a fan of the oil and gas cap. Are they going to support things like carbon capture storage or these investment tax credits that the liberals put out? A number of them went through in June of 2024. And more were expected to be passed by the end of 2024, but that didn’t happen because of all dysfunction in parliament. So we just don’t know where they stand on some of these detailed policies.
Peter Tertzakian:
Well, most people would agree that there is no advantage, there’s no political advantage to revealing all your cards when you have a 20-plus percent margin in the polling. So why would you? Now, I think when an election is called, obviously they are going to have to reveal their hand on some of these key issues that you mentioned. But I would argue that the CPC is very much about affordability, whether it’s groceries or whether it’s housing, and getting the economy moving again. That’s the main platform. And then everything is really subordinate to that, whether it’s getting the economy going through LNG manufacturing, easing tariffs, I don’t know. Then those are things that are going to come out between now and when the election is called. But there’s been no advantage to this point in the CPC revealing any of their platforms.
Jackie Forrest:
Yeah. And I mean there was definitely a small government. He wants to see no deficits. Very concerned about the debt and the deficits and the impact that’s having on the inflation and other fiscal metrics in Canada, our productivity. So those things made a lot of sense to me. The debt level just continues to grow with the liberals, as we saw at the end of the year with that fall economic update. He didn’t talk too much, I think there’s another podcast which I still have to listen to. But about this potential trade war with the US and his position to negotiate that. But I am very concerned about the timing here. Here we are, heading into what I see as the most significant trade war of my career, of my lifetime as a Canadian. And we won’t have, if we’re not going to potentially have an election until the spring, who’s going to be negotiating with the Americans?
Peter Tertzakian:
No, we don’t know who’s leading the charge on our side. We don’t know who’s leading the trade negotiations. I mean, there is presumably special committees within the federal government. Each of the premiers, including our own here in Alberta, Premier Smith, is doing their own thing. Well, just before Christmas, there were meetings of all the premiers and some sense that they may be working together. But really, there isn’t a clear concerted effort from a federal perspective because of all the chaos that was caused by Christoph Friedland resigning and the ensuing Christmas/New Year break. And now here we have the Prime Minister set to resign going into the uncertainties of liberal leadership. Meanwhile, the tariffs coming in.
Jackie Forrest:
Yeah, it’s not a good thing.
Peter Tertzakian:
No, it’s not a good thing.
Jackie Forrest:
And I tell you that Trump’s coming in on the 21st of January. And he’s not waiting for us to get our political house in order here. And so, that’s concerning. And I can understand why some of the premiers are taking this in their own hands. Because of course there’s big stakes here, big cost to our economy, potential for recession. I don’t blame them, even though they’re getting some criticism for stepping up and trying to negotiate to the best interest of their provinces.
Peter Tertzakian:
Well, let’s move on to more specifics. Like for example, the oil and gas emissions cap. It was in the Gazette One in November. So the deadline I think is in two days here, January 8th for any notices of objections. So it’s not too late for anybody who wants to file a notice of objection. Or a no, N-O-O, as we termed it in our podcast with Sondra Duncanson late last year. So what do you think happens to the oil and gas emissions cap tracking?
Jackie Forrest:
I think it’s pretty unlikely that it becomes the final rule. But who knows? Like you say, if government kind of gets extended, it’s possible that they get this out. The clean electricity regulation just came out at the end of the year. It’s now a final rule. We will talk about the details of that, but it’s possible this oil and gas cap gets there, too. So we do encourage you to put in your notice of objection. It can be just a very simple letter. We will put some instructions in our show notes for you to get that in before January 8th.
Peter Tertzakian:
Yeah, okay. So what is the prediction here? Is that the oil and gas emissions cap, we won’t a hundred percent assume is that it’s run out of runway, as they say. But that doesn’t excuse not objecting to it. It’s not too late.
Jackie Forrest:
Right. So you could still see it pass, especially if this election is pushed off into the spring.
Peter Tertzakian:
What about the methane regulations? Where are they?
Jackie Forrest:
Same thing. Gazette One has come out and Environment and Climate Change Canada could issue those. That’s uncertain as well, if those will become final before the election is called.
Peter Tertzakian:
Okay. And then there’s a string of ITCs investment tax credits, for clean energy, for CCS. There’s still no pathways deal from anything that I’ve heard in terms of carbon capture and the 50% federal investment tax credit. Have you heard anything?
Jackie Forrest:
Well, so the CCS investment tax credit has been passed. So have some other ones around clean electricity generation, but there were a number of additional investment tax credits that were expected to get passed that weren’t. And I think it’s highly uncertain that those ever get put into law. Because those have to go through the parliamentary process. But the bigger question for me is for the ones that we actually have today, is the Conservative Party going to keep them in play? And so I think for people developing clean energy projects in Canada, this is a big uncertainty. Because you don’t know if you should incorporate those investment tax credits in your economics or if they’re going to be taken away from you. I think this is going to be, unfortunately, all of this chaos with the politics and the lack of visibility to what the Conservative Party of Canada may do on the micro scale is going to really slow down investment here until there’s some resolution.
Peter Tertzakian:
I would say it already has. I mean, since probably the latter half of last year there’s been investment stasis or paralysis. And I think that paralysis is going to continue into the spring until such time as an election is called and we have some resolution to who’s steering the ship in this country. I mean, as an outside investor in particular, why would I invest here if I don’t know the answers to these questions or what happens to all these ITCs and regulations and so on? There’s no point. I mean, I’ll just take my money elsewhere until such time as we get resolution in Canada.
Jackie Forrest:
Hey but, there’s not a lot of clarity in the US right now either. So maybe it’s just nobody invests in North America for a while here until there’s some clarity.
Peter Tertzakian:
Well, I would argue that, I mean, there’s definite clarity in big picture intent with the Trump administration coming in. There’s definitely a move to deregulate, definitely a move to encourage investment. And whatever you think about those dynamics, that attracts capital.
Jackie Forrest:
But the micro details are still pretty uncertain. But I agree. We know a lot more about Trump’s energy policy than the conservative party of Canada. Way more.
Peter Tertzakian:
Well, yeah. Let me ask you the question, which is clearer, the Trump energy policy or the Canadian energy policy?
Jackie Forrest:
Yeah, yeah. No, you for sure know the broad principles much more clear in the US. Let’s talk about item three. I won’t get in too much detail, but we will be talking about growing electricity demand in Canada and opportunities that brings. And we’ll probably be talking about how Alberta is redesigning the market and our concerns around that, maybe not getting the investment that we need.
Peter Tertzakian:
Yeah.
Jackie Forrest:
At the same time, there’s this push towards data centers and bringing on even more demand on top of a already growing demand profile. And I did want to point out in the fall economic update. No one actually read that because they were just too busy with the news flow of the resignation of Minister Freeland. But the liberal government talked about wanting to reduce regulatory barriers and grow data centers faster. And that we should become a leader and we should get our Canadian pension funds to invest in these data centers. I hope this government knows that that might increase greenhouse gas emissions. So they didn’t want the LNG industry to grow, because it would create greenhouse gas emissions. And this sector certainly is going to result in some growth in natural gas generation, in my opinion.
Peter Tertzakian:
Well, whether it’s federal… But I think there’s a lot of provincial governments including our own here in Alberta that are very supportive of the whole data center thing. But as you say, and as we’ve discussed extensively on this podcast, data centers demand a lot of electrical power. A lot of consistent, reliable electrical power. And that necessarily means in the near-term natural gas-fired power generation. And so it’s difficult to see how we can have this conflict between all the heavy greenhouse gas regulation and the encouragement of data centers unless you’re in a jurisdiction that has a lot of hydro. But if you were in those jurisdictions in provinces such as BC, Ontario, Manitoba. Even there, there’s concern about, at the margins, if there’s enough hydroelectric power to satisfy just the regular economic growth, let alone the growth of data centers on top of all that.
Jackie Forrest:
Yeah, all these jurisdictions. We have something like 15 gigawatts of new procurements underway in Canada. A lot of these in hydro rich provinces that are saying, “Hey, we’re short power.” And they’re actually looking at bringing on additional generation. So it’s going to definitely put a burden on it. We’ll certainly be talking about that more in the new year. The other theme I think we’re going to talk about is the return of energy security and energy sovereignty. The tariffs are only going to highlight that. Some of these geopolitical disputes already have. So I think we’re going to be talking a lot more about building access to new markets. At the end of the year, we talked about the potential for building the new Keystone XL or another big pipeline to the US. And with that, I think that’s going to pivot, to be talking about building new pipelines to alternative markets.
Peter Tertzakian:
Yeah, I think it’s going to be a big theme in the new year. The Russia-Ukraine War, okay. It may or may not be resolved as a consequence of the Trump Administration coming in. However, the old war, I’ll call it, with China is certainly far from over. And I think that security of supply of all sorts of things, including energy, are going to be increasing themes. And protectionism of supply chains, including energy supply chains, is going to be a big theme. So watch for that. And this is something that Canada, as part of the Western Alliance, excels in, in terms of its natural resource endowment including wind, sun, oil, gas, coal, uranium, geothermal. I mean, you name it. We have it all here.
Jackie Forrest:
And we are… This is a prediction that I hope is a sure thing. LNG Canada’s startup this year, our very first LNG exports off our west coast. So we will be moving in that direction, but certainly it’s just a drop in the bucket in terms of what we really need, in terms of optionality.
Peter Tertzakian:
When is the maiden voyage of the first tanker?
Jackie Forrest:
Well, they keep saying mid-2025. So I don’t know, is that June? May? But I do know one thing. We will have a podcast and talk about it and hopefully get someone from LNG Canada to celebrate that milestone as we did with the TMX.
Peter Tertzakian:
Okay. Well maybe we’ll fly out to Kitimat and do a podcast while it’s happening. How about that?
Jackie Forrest:
Yeah, let’s do that. Let’s hope for an invite. If anyone’s listening out there, we’d love the invite, “Come to Kitimat.”
Oil and gas prices. We’ll just quickly talk about that. Gas was just terrible. Eco, that’s the Alberta hub, their gas price, $1.34 Canadian per gigajoule, just incredibly low on average last year in 2024. Henry Hub did better, but was still very low. I think gas prices looked poised to increase. But of course with gas, it’s always about the weather and it does seem like a warmer winter so far. And I think oil prices… The general consensus is probably a bit weaker. And China’s a big thing to watch, and these tariffs that potentially could be put on China from the US aren’t going to help in terms of growing their economy and their oil demand.
Peter Tertzakian:
All right, well we’ve talked about a lot, Jackie. So what’s next?
Jackie Forrest:
Well, I know it’s been a long podcast. But I do think we should have some initial thoughts on this final reg that came out on the clean electricity regulation, CER. We talked a lot about it on the podcast last year. December 18th is when the final rule came out and there were some changes. We talked about it being unworkable. I think we had Nancy Southern from ADCO come on and talk about how it just was just totally unworkable policy. There were changes. The original draft plan to achieve net zero by 25, now it’s 2050.
So basically, if you build a natural gas power plant today, you have 25 years before you have to put on the carbon capture storage. If you have a plant that already exists beyond 2035, when it becomes 25 years of age, you’ll need to put CCS on it. And so this was a big change, I think, from the original. But still not a lot of support for it from what we saw just at the end of the year. Electricity Canada, a significant industry association in Canada that represents generators and other participants said they were against the policy, saying it will leave key regions of Canada behind and make electricity less reliable and less affordable.
And the Alberta government came out strongly against it, saying they’re going to challenge the rule in court. And Saskatchewan also said that they will not comply with the new rule. So I think there’s a good chance there’ll be a court challenge on it. And even though it’s a rule today, if there’s a court challenge, let’s think this through. Conservative Party of Canada gets in. Do you think they’re going to fight the provinces at the Supreme Court on a regulation that the Liberals put in? So I’m not sure it’s that likely to actually be around in 2035.
Peter Tertzakian:
Yeah, well. I mean if it endures, it still does not provide a lot of incentive for investment in gas-fired power generation. I agree, all of these potential for lawsuits and discontent amongst the provinces, federal government versus provincial government, et cetera. My prediction is post-election, the CPC gets elected, it’s going to be either shredded or relegated to provincial jurisdictions. And so until such time as that happens, there’s going to be some uncertainty. And as I said earlier, there isn’t a lot of incentive to invest in anything until such time as we have a firmer sense of who’s running this country.
Jackie Forrest:
Yeah. So we don’t have to get all the details. I just will say one broad thought about it is, now that they moved the net-zero date to 2050 versus the 2035, I question, “What’s the purpose of this policy?” The reason we had it was because electricity was going to be accelerated and have to achieve net-zero sooner. If it’s the same as every other sector in the economy, why do we need a special rule that adds more complication? Why not just have the carbon policy that you had that was getting all the sectors to 2050, which was our carbon pricing policy for industrial emitters. So I just question why do we need this complex policy to achieve the same goal as what the original policy that already was in place on the electricity generation sector?
Peter Tertzakian:
Yeah. Well, I’ll conclude with my final prediction here. That the trends are in motion for a complete rethink of net-zero by 2050. I think I’ve said it in a podcast before. The whole net-zero by 2050 initiative is probably going to be replaced with something else.
Jackie Forrest:
What’s that going to be?
Peter Tertzakian:
Well, stay tuned. To our listeners, and we’ll have some prognostication on that, no doubt this year.
Jackie Forrest:
Okay. Well, we’re happy to be back. We had a great holiday. We hope all of you did as well. And we really look forward to another year of lots to talk about around energy and Canada and beyond. So, thanks to our listeners.
Peter Tertzakian:
Thank you.
Jackie Forrest:
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