U.S. trade wars, actual wars in Ukraine and Iran, and a cold war between China and the U.S over AI dominance are disrupting the global energy industry.

The upheaval is expected to shift global trade flows and to turn the world’s focus away from sustainability to affordability and secure energy supply.

Canada’s industry needs to sort out whether this disruption signals a major new cycle of energy investment and what parts of it are just short-term noise, said Geologic chief executive officer Satvinder Flore, who moderated a conversation of industry leaders on the opportunities that exist within this uncertainty at the Calgary Energy Roundtable.

“We’ve seen the signals turning in Canada’s favour,” Flore said, pointing to higher M&A volumes, new project announcements, and growing U.S. and international interest.

Industry has improved its competitiveness with lower breakeven costs, while U.S. production that drove growth the last decade is plateauing, he added.

Canada is now genuinely competing for global energy capital, but the country needs to quickly identify the drivers for investment and what barriers have to be removed to grow, he said.

Energy security now top priority

Disruption in supply from the Iran war is sending a clear signal that energy security has moved to the top of the agenda, with importing countries looking to lock down long-term supply, said Lisa Baiton, president and chief executive officer of the Canadian Association of Petroleum Producers (CAPP).

Canada is well positioned to meet this demand, said Baiton.

“First, we have the resources the world needs precisely at the moment they need it.”

Secondly, she said, as International Energy Agency (IEA) executive director Fatih Birol pointed out in his recent visit to Canada, the country “has trust,” and a reputation for being a reliable, stable and safe trading partner.

“In the world we are in today, trust certainly is a depleting asset.”

But Birol didn’t just praise Canada in his speech, Baiton said.

“He also pointed out that we have an international reputation for being very slow to act, to build, and he really cautioned us to get on with it and move quickly to upend that international reputation.

“And he also cautioned Canada that if we missed that opportunity again, we would never see it again in our lifetime.”

Some progress has been made in removing regulatory barriers, she said, including agreements on methane equivalency, streamlining project reviews, and a commitment that natural gas will be part of the new clean electricity strategy. 

“We have a push to build major projects and [diversify] our trading partnerships.”

But the carbon price announced as part of the MOU signed between Alberta and Canada remains an issue, she said.

“It still represents a unique cost to Canadian oil and gas producers.”

Investment is returning to Canadian oil and gas operators as their financial performance improves, Baiton said. CAPP’s recent investor conference held in conjunction with the TSX saw a record turnout.

“But I think it’s really important to remember that there’s a lot of equity investors who are very happy to come in and benefit from the current high pricing environment but then leave Canada if we can’t show them the pathway for growth and production growth.

“I want to make an important distinction between those willing to take an equity position versus those investors who might be willing to actually deploy large-scale, long-dated capital into the country to build projects and stick with those assets through decades.

“I think we need to translate that initial market enthusiasm into actual investment in major projects and production growth.”

Baiton said industry should have been invited to the table when negotiations began on the MOU. But now at least those involved in the Pathways CCS project have the opportunity for input as part of trilateral negotiations with the federal and Alberta government.

“It’s important that the implementation of the MOU actually works for those producers.

“And they [governments] recognize, just like they do on the shiny side of the equation, that those producers need permission from their shareholders and there has to be a construct there that they can buy into.”

Broader energy demand growth story remains intact

The macro trend was signalling growth in energy demand prior to the current geopolitical crisis, said Enbridge Inc. president of liquids pipelines Colin Gruending.

“Many were subscribing to the notion that the world’s population is growing, standards of living are improving, and energy demand is up to the right,” Gruending said.

“And we should be less concerned about the composition of that energy and let’s just get after it and make sure there’s sufficient, if not a little bit of extra energy cushion.”

Enbridge is investing selectively to meet this demand, he said, with a massive backlog of both oil and gas opportunities, mostly in the U.S.

“I’d say the kind of the risk-reward of the capital we’re deploying now is more optimization and quick cycle for the reasons you would expect.

“We’re not going after big, new, greenfield trenching and maybe that doesn’t sound bold enough but I think for all the permitting challenges and things it’s still the way to go.”

The company believes the U.S. market to the south remains the best current option for Canadian oil exports, he said.

“South is a proven and reliable demand source,” he noted, and production in the U.S. will ultimately decline, “so there’s long-term sticky demand.

“And there’ll be exports out of the Gulf Coast as well.”

Timelines also matter, he added.

“We can get stuff done in the next decade, not decades.”

As for the proposed West Coast pipeline, the impact of the Iran war on global supply and Canada’s need for market diversification make a strong case for moving forward, he said.

“But there’s always been a strong case for West Coast exports.”

Getting there remains a challenge and while the MOU is step forward there is more work to do, he said. 

“The MOU is focused on a carbon solution and a pipeline, but it is silent on production policy, which is the most important of the three Ps because if we don’t get the production growth you don’t need further pipelines.”

Attracting the scale of capital to grow production to fill the proposed one-million-bbl/d pipeline is a monumental task, he added.

“Others in the room might have better numbers, but to grow the production we’re talking about … $50, $60 billion, carbon projects another $20 billion or more.

“And then we’re asking our producers for long-term shipping commitments on these pipelines, which isn’t on credit, a commitment of another $10-$20 billion. These are long-dated commitments.

“So that’s a lot of tens of billions of dollars, before you talk about the tens of billions of the industrial carbon tax.”

NGL export demand growing

The market signal for NGL exports was strong prior to the Iran war and has only improved since, said AltaGas Ltd. president and CEO Vern Yu. 

Asia imports three million bbls/d of propane alone, Yu said.

AltaGas is currently exporting close to 140,000 bbls/d and expects to double capacity by the end of the decade.

“We see so much more demand for our product. As an example, in April, we had a cargo loaded from Prince Rupert that traded 20 times before it actually landed in China.”

U.S. trade policy and tariffs are shifting LPG flows, he said. Canada is looking to diversify exports while at the same time importing countries are looking to diversify supply.

The Iran war has added to supply uncertainty with over 1.5 million bbls/d from the Middle East taken offline for the last two months, creating further opportunities for Canada.

“Countries like India and Indonesia that count on propane for their basic human needs for cooking, heating and transportation are going to run out in the very near term. They are begging for Canadian propane, so we have huge opportunity to lock that in for many years to come.”

To further grow Canadian LPG supply, new markets are needed to take the gas production that comes with it, he said.

“Whether that’s LNG facilities or potentially data centres, that then drives out more condensate and propane and butane production.”

The Major Projects Office (MPO), which has two LNG facilities listed as projects of national interest, is a positive step in building more egress, Yu said. 

But the government also needs to look at “the 2,000 or 3,000 other projects” available for investment.

“I think the critical thing that has to happen is for the rules to be simplified, the regulatory process is to be shortened, so companies and investors can have the certainty that the capital that gets deployed gets the return that you’re planning on.

“I know lots of companies here are continuing to invest despite the uncertainty that we have, but it could be a lot better than it is.”

EPC companies want certainty projects will get built

Canada is strategically situated to meet growing demand centres in Asian markets, said Narsingh Chaudhary, president for fuels and natural resources at Black & Veatch.

Chaudhary said he doesn’t believe the focus on low emissions production is a showstopper either, particularly on LNG exports where Canada can produce some of the lowest carbon product in the world.

“The market is ready to pay because sustainability was an important thing yesterday and while I think it’s taken a little bit of a vacation, it will come back again.”

The big challenge facing Canada is being able to demonstrate projects can be implemented quickly from concept to completion, he said.

 “If that timing can be assured by the market, the capital will flow.”

But it’s not only investment capital, he added. Projects around the world are competing for resources, including engineering and other skilled workers.

“For engineering and construction companies like ours [that do] projects globally, when we are looking at projects we’re also looking at if we are committing those resources, maybe committing company people in the planning, will those projects really happen?”

A second question is whether capacity exists to execute on projects, he said.

“For any large capex project, the thing which starts hitting them is not just the cost overruns but schedule overruns followed immediately by safety and regulatory concerns.”

Canada can learn from other recent resource infrastructure buildouts to avoid some of these concerns, he said.

“It’s important to look at all new business models and see what are those models which have worked in different parts of the world.

“If you look at the situation which Canada is today in terms of investment, Australia went through the same thing,” he noted.

“They adopted a model there, understood their constraints, what can be done globally and what cannot be done. And I think bringing some of those more global concepts and execution ideas are important.

“The question is, is the industry and governments willing to adopt those new models and be able to practice it?”

AI and data centres next big natural gas play

Powering AI data centres is a relatively new opportunity for Canada’s energy sector.

Entering the AI and data centre race requires building the complete ecosystem, including the power infrastructure and data centres themselves, said Chaudhary.

“I think what is important from the government and industry perspective is that you understand, does Canada have the appetite [to] create that ecosystem?

“I believe, personally, that the efficiency and competitiveness is there, or that it [can] be quickly scaled up with a lot of certainty.”

There is also the potential to supply gas to fuel U.S. data centres, said CAPP’s Baiton.

The U.S. is projected to consume more energy in the year 2030 for processing data than what they consume for manufacturing and that includes aluminum steel, cement and chemicals.

There could be opportunities for Canadian gas “to backfill the supply that is going to be used in the U.S. for their data centres,” she said.

“We have massive, untapped, low-cost gas supplies and natural gas reserves. The Montney alone, I think, is 160 years of natural gas supply.

“We really need to get it out of the Western Canadian Sedimentary Basin more reliably and more efficiently, whether it’s going to be for data centres or LNG exports or even for oilsands.”

Baiton added: “I would say over the next five years, on the top of our wish list, is additional egress for natural gas to reach new markets to meet not just the growing demand domestically, but also in the U.S. and internationally.”