Wednesday, February 28, 2024

CANADA

Pension funds improving modestly on climate but still too slow: report

Ian Bickis, The Canadian Press


Canada's largest public pension funds are showing modest improvements on climate action but are moving too slowly overall, says a new report by a climate advocacy group.

The progress report from Shift Action for Pension Wealth and Planet Health notes that four of the 11 pension plans it examined still don't have emissions reduction targets for 2030 or 2050. 

It also says many of the pension funds are still not being transparent about their fossil fuel holdings, and none have acknowledged the need to phase them out.

Adam Scott, executive director of Shift, said it's important pension plans take action both to reduce investment risk and climate risk. 

"It's not just about defending their own portfolios, it's also about addressing the wider crisis systemically."

The report notes there were some improvements, including the first climate plans out of the Ontario Municipal Employees Retirement System and the Healthcare of Ontario Pension Plan.

But Scott said there has also been misalignment with some pension plans and their actual action, including at the Canada Pension Plan Investment Board.

The CPPIB, one of the few to still not set out interim emissions reduction targets, was the only one to slip in its letter grade in the report. 

"We're quite disappointed to see a pattern of public communication from CPPIB that is offside with their own net-zero plans and commitments," he said.

There were multiple examples of pension plans continuing to invest in fossil fuel companies that have plans for expansion, which creates a risk, given the transition and the long-term investment horizons of pensions, said Scott.

"When they decide to sell, is there somebody else willing to pay for it? That's where the risk really comes in."

The Alberta Investment Management Corp. received the worst grade among the 11 Canadian pension plans analyzed for the second year, as Shift says it sets no clear targets and has yet to put out a credible climate plan.

This report by The Canadian Press was first published Feb. 27, 2024.


Canada's top pensions have trillions in assets. 

Should they do more to fuel the energy transition?

New report analyzed pension funds for climate targets — and many fell short

Benjamin Shingler · CBC News · 
A train in a concrete building.
A new light-rail network in Montreal was funded in part by the Caisse de dépôt et placement du Québec, the province's pension fund manager. Climate activists have been increasingly pressuring pension managers to transition from oil and gas to renewable energy. (Ivanoh Demers/Radio-Canada)

Canada's largest pension funds, which hold trillions of dollars in assets combined, are trailing behind many of their international counterparts when it comes to shifting away from investments in fossil fuels, a new report has found.

The report, released Tuesday by the advocacy group Shift Action for Pension Wealth and Planet Health, evaluated the policies of 11 of the country's largest pension managers against international best practices, as well as global targets to reduce greenhouse gas emissions.

The report found some progress since the group's first assessment, released last year, but on the whole found that most of Canada's pension managers still lag when it comes to climate commitments.

"What we're seeing is progress, which is great to see, but the pace of that progress just isn't fast enough to protect pensions and to align more broadly with climate goals," Adam Scott, executive director of the advocacy group, said in an interview.

WATCH | Call for pension funds to stop investing in fossil fuels: 
Climate change concerns are important to many Candians but some are calling out pension funds for continuing to invest in the fossil fuels sector.

Climate activists in Canada and beyond have been increasing pressure on pension managers to steer away from fossil fuel investments toward renewable energy.

Some pension funds in other jurisdictions have already begun divesting from fossil fuels. 

Big changes abroad

The report cites New York City pension funds, as well as others in France and Netherlands, as examples of how to be more transparent about investments, help fund the renewable energy sector and use shareholder resolutions to demand climate action from companies.

Earlier this month, another Dutch fund, PFZW, divested its holdings in Europe's biggest oil and gas companies, saying they are not reducing emissions fast enough.

In Canada, by contrast, four of the 11 pension funds listed still do not have emissions reductions targets for both 2030 and 2050, according to the report. 

Part of the problem may be "entanglements" at the board level between the pension sector and oil and gas production in Canada, the report's authors argued.

Seven of the 11 pension funds have at least one director or trustee who is also the director or executive of a fossil fuel company, the report said. 

Quebec pension fund scores high

For the second year in a row, the Caisse de dépôt et placement du Québec (CDPQ) scored highest in climate leadership among the funds analyzed, with the University Pension Plan (UPP) in Ontario placing second. 

The CDPQ, which has net assets totalling $434 billion, completely divested from oil production, refining and coal mining in 2022 and increased its investments in low-carbon assets to $47 billion, according to the report.

UPP, a smaller fund representing university workers with about $11 billion in net assets, was praised for its transparency with beneficiaries and for working toward having a net-zero portfolio by 2040.

A pumpjack draws out oil from a well head near Calgary in this file photo taken in September 2022.
A pumpjack draws out oil from a well head near Calgary. (Jeff McIntosh/The Canadian Press)

The biggest improvements came from the Ontario Municipal Employees Retirement System (OMERS) and the Healthcare of Ontario Pension Plan (HOOPP), funds that were previously far behind but released climate strategies in 2023.

The Alberta Investment Management Corporation (AIMCo), which holds $158 billion in assets, ranked lowest for the second consecutive year.

According to the report, it "failed again to commit to measurable goals that could align its portfolio with climate safety." It also said AIMCo has not yet released what it called a credible climate plan.

AIMCo did not immediately return a request for comment Tuesday.

"It's our job to invest in places where we can make money for our clients, not to impose our values on our clients' money," Evan Siddall, AIMCo's CEO, told the Financial Post in December. "And so we'll continue to invest in oil and gas, which has paid off."

In early February, AIMCo announced a new $1-billion fund dedicated to the energy transition and decarbonization.

"AIMCo has been strategically evaluating climate change risks and opportunities for the last decade," Marlene Puffer, its chief investment officer, said at the time.

$2.2T in assets

The 11 pension funds in the report collectively manage more than $2.2 trillion in retirement savings on behalf of more than 27 million Canadians. In total, Canadian pension funds hold more than $4 trillion in assets, the report said.

The vast sums of money at stake has spurred debate over whether pension funds have an obligation to take climate goals into consideration, or whether their fiduciary duty rests solely in maximizing returns for beneficiaries.

New York City municipal workers sued pension funds last year, arguing the managers were putting the climate over their investment returns. 

Scott rejected the idea that divesting from fossil fuels could jeopardize retirement savings.

He pointed to a 2023 analysis by the University of Waterloo and the environmental group Stand.earth that found six major U.S. public pension funds would have seen a return on their investments that was 13 per cent higher on average, or $21 billion US more, had they divested from fossil fuels a decade ago.

In Scott's view, pension funds are in a unique position in the financial sector to help drive the transition away from fossil fuels and toward renewable energy.

"They own everybody, including banks. They own companies, they own the whole real economy and they're long-term investors. So they have a different perspective," he said.

Julie Segal, who specializes in financial regulation at the advocacy group Environmental Defence, said the report shows the need for greater regulation of the financial sector so that institutions are required to set clear, measurable climate targets. Other jurisdictions, notably the European Union, have gone further in this regard, she said. 

"Canada is very far behind on setting those rules for the financial sector and we need climate-aligned finance policy," Segal said.

A recent World Bank report concluded that the global pension industry, whose assets totalled an estimated $44 trillion US in 2018, play "a critical role in the transition to a low-carbon climate resilient economy."

It concluded that pension funds must "reinvent themselves to comply with their global presence and a definition of fiduciary duty aligned with today's challenges."

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Alberta renewables sector fears politicization of energy as moratorium ends

Alberta green energy firms tired of divisiveness (FROM SMITH & UCP)

Amanda Stephenson The Canadian Press


Solar panels pictured at the Michichi Solar project near Drumheller, Alta., Tuesday, July 11, 2023. A seven-month pause on wind and solar development in Alberta is coming to an end, but some involved in the sector say their industry's future growth in the province is threatened by creeping politicization. THE CANADIAN PRESS/Jeff McIntoshJMC


CALGARY - A seven-month pause on wind and solar development in Alberta is coming to an end, but some involved in the sector say increased politicization threatens its future growth.

The industry was caught off guard last August by the UCP government's move to impose a temporary moratorium on new wind and solar approvals in the province to give it time to study issues related to land use, reclamation and grid reliability.

That moratorium is set to expire Thursday, after which the government is expected to unveil new rules to guide future wind and solar development in the province.

But Dan Balaban, CEO of Greengate Power Corp., said the government-imposed pause on the renewables sector is just one piece of an increasingly contentious public debate that has left the wind and solar industry feeling like a political football.

"This is really about the politics of energy," said Balaban, whose company was behind the development of the Travers Solar farm in southern Alberta, one of the largest solar projects in the world.

"It's very disappointing because I think there are pragmatic solutions to get us to where we ultimately need to be in terms of providing clean, reliable and affordable energy, and the politics of division aren't going to get us there. For me, as an entrepreneur, it's very off-putting."

The government-imposed moratorium was a response to what has been an explosion of growth in the province's renewable energy in recent years. In 2022, 75 per cent of all new wind and solar projects in Canada were built in Alberta, thanks to the province's sunny skies, abundance of wind and unique deregulated electricity market.

But the rapid growth led to questions from rural communities about who would be on the hook to clean up renewable energy infrastructure as well as concerns around the use of food-producing agricultural land for renewable energy development.

Balaban said all of those questions are valid, but Alberta's move to shut down the industry while seeking answers was "a very negative signal."

"It really feels like the renewable energy industry was singled out," he said.

"I agree that all of these things need to be reviewed, but I certainly don't see the same level of scrutiny and negativity being directed toward other industries."

At the time the moratorium was announced, there were 118 renewable energy projects proposed by 64 different development companies either in the permitting stage or about to apply for permitting in Alberta.

Jorden Dye, director of Business Renewables Centre Canada — which works to help businesses and institutions reduce their emissions by connecting buyers and sellers of renewable power — said whether or not the moratorium has a long-term chilling effect on the industry will depend on what regulations are introduced.


"There's a very broad range of changes they (the government) could make, starting with minimal impact all the way up to major impact with a massive reduction in projects," Dye said.

But like Balaban, Dye said he is concerned in general about the public discourse around renewables, which has intensified due to opposition from Alberta and neighbouring Saskatchewan about the federal government's proposed clean electricity regulations.

"I do think it's sad this has become politicized," Dye said. "Not only does it keep us from focusing on the actual issues, it just reduces the level of conversation in the province."

Dye pointed to what happened when Alberta was forced to declare an emergency grid alert during an extreme cold snap in January. Premier Danielle Smith called renewables "unreliable" even though two natural gas-fired power plants were also offline at the time, while Saskatchewan Premier Scott Moe said on social media that power exports from his province to Alberta would be coming from "natural gas and coal-fired plants, the ones the Trudeau government is telling us to shut down (which we won't)."

Vittoria Bellissimo, president and CEO of the Canadian Renewable Energy Association, said she was discouraged by the number of "hot takes" the grid advisory sparked and said she has been working hard to increase the UCP government's understanding of renewable energy generally.

"It's not one type of energy versus another type of energy here. We have oil and gas producers who buy renewables to satisfy their electricity needs and ESG obligations. We have natural gas-fired generators who also produce renewables," she said.

"There is no line in the sand, or us versus them."

Balaban said he thinks his industry has been damaged by the "hostile rhetoric" between the province and the federal government over net-zero goals, which is taking momentum away from the growth of the renewables sector in Alberta.

He said his own company is not pursuing any new developments in Alberta until it is confident that any forthcoming new rules for the sector will be "clear, fair and objective."

"You know, increasingly in the world we're seeing ourselves being defined by division on major issues," he said.

"Energy is just one of those major issues and arguably one of the most important ones in Alberta. And this is unfortunately how it's playing out."

This report by The Canadian Press was first published Feb. 28, 2024.


CUTTING NOSE TO SPITE FACE DEPT.


Calgary·Analysis

Alberta gives cold shoulder to wind and solar industry, as the rest of the world is clamouring for more

Province will lift ban on new projects this week and begin introducing new rules

Kyle Bakx · CBC News · 
A wind turbine is pictured in the distance behind an oil pumpjack in a field.
The Alberta government will lift its ban on approving new wind and solar projects on February 29. (Kyle Bakx/CBC)

The Alberta government's seven-month ban on new large-scale wind and solar power projects will end this week, but the province is unlikely to return to its previous status as a hotbed of investment.

Alberta is known for its sunshine and strong winds, especially in the southern region of the province. Those conditions combined with a deregulated electricity system helped drive a flurry of activity in the last decade.

In 2022, more than three-quarters of all the wind and solar built in the country was located in Alberta. Solar and wind now account for about 30 per cent of installed electricity capacity in the province.

Last summer, the Alberta government decided to hit the brakes on the thriving sector by introducing a moratorium on approving any new proposals while launching an inquiry to examine issues including the impact on agricultural land, concerns about reliability and the need for mandatory reclamation.

While the ban lifts this week, the Alberta Utilities Commission (AUC) is awaiting direction from the provincial government about how to proceed. There will be new rules placed on the wind and solar sector.

Globally, the solar industry, in particular, is growing rapidly, with investments even outpacing the oil and natural gas industry last year as the cost of panels has fallen in recent years.

"Alberta hit pause in the midst of a growth curve, and Alberta was the No. 1 destination in Canada for solar investment," said Thomas Timmins, a Toronto-based commercial lawyer with Gowling WLG serving clients in renewable energy project development and finance.

"It's hard to say" whether companies will return to the province, he said, because Alberta's reputation took a hit as an investment destination.

A wind turbine spins behind a row of grain bins.
The Alberta government's inquiry focused on several issues including the development of solar and wind projects on agricultural land and the impact on Alberta’s viewscapes. (Kyle Bakx/CBC)

While Alberta rethinks how much renewable electricity it wants and what restrictions to place on the sector, other governments in Canada, the United States and around the world are competing to attract investment to grow their amount of solar and wind power.

"It's a global industry and it's a highly liquid and fluid industry. So Alberta is competing not just with Saskatchewan, not just with Manitoba, not [just] with Ontario, not [just] with Nova Scotia and Quebec, but also with every U.S. state," said Timmins. 

The pause on approvals for new renewable energy projects is affecting 118 projects worth $33 billion of investment in Alberta, according to the Pembina Institute, a clean-energy think-tank.

A wind turbine is pictured with a clear blue sky in the background.
Wind and solar power account for about 30 percent of electricity production in Alberta. (Kyle Bakx/CBC)

Easy to invest elsewhere

The Sharp Hills wind farm is the newest large-scale renewable energy project in Alberta, after nearly 70 turbines began operating in January. The nearly 300-megawatt project is located near the town of Sedalia, about 300 kilometres east of Calgary, and was unaffected by the province's moratorium because it was already approved and under construction.

The wind farm was developed by EDP Renewables, which is also pursuing a new 150-megawatt solar project in the southeast corner of the province near Medicine Hat. The company intends to apply to begin the permitting process soon.

"I find it a bit strange to have a moratorium on certain technologies rather than all technologies, if what's needed is a pause," said Thomas LoTurco, an Indianapolis-based executive vice-president with the company, about Alberta's wind and solar ban.

LoTurco says he's worried about a backlog of projects seeking approval in the province and about delays in developing projects. 

While EDP pursues its proposed solar farm in Alberta, it's just one of many projects on the go.

EDP is a global renewable energy company operating in 28 different markets around the world, including France, Brazil and Vietnam.

In North America alone, the company has 3,000 megawatts of projects currently under construction and another 30,000 megawatts of projects in the planning stages. EDP aims to build about 1,500 to 2,000 megawatts of projects every year in North America.

Many provincial and state governments across North America recognize the need for renewable energy, said LoTurco, as electricity consumption climbs. He pointed to Ontario as an example, since the province announced in December its intention to secure 5,000 megawatts of renewable electricity, its first major renewables procurement in seven years.

"It's just a realization in a place like Ontario — that realization will hit everybody, that we're getting more electrified going forward," he said.

Two white wind turbine blades are on the ground in a snowy field.
Turbine blades and sections of the metal tower are stored at a yard near Hanna, Alta, before they are installed. (Kyle Bakx/CBC)

Reliable power

Alberta's premier isn't so sure.

Danielle Smith wants more power plants, but not necessarily wind and solar because of their intermittency.

"We have to make sure that we're bringing on a responsible amount of solar and wind so that we always have dispatchable power,... things like nuclear and hydroelectric, geothermal and natural gas," she said on CBC's Power & Politics.

"That's got to be the basis for how we build our system, and then solar and wind can augment," added Smith.

The province's inquiry was split into two parts. The first report was received in January, while the second is due by the end of March.

The provincial government will announce some regulatory changes in the coming days.

"The Alberta government will be setting a clear and responsible path forward for renewable energy development. This will begin ahead of the approvals pause lifting," said Ashley Stevenson, press secretary to Utilities Minister Nathan Neudorf, in an emailed statement.

A wind turbine is pictured behind a pair of oil pumpjacks and a storage tank.
The Sharp Hills wind farm is located near the town of Sedalia, about 300 km east of Calgary. (Kyle Bakx/CBC)

After the government receives the second inquiry report next month, it will "continue announcing the next steps forward to enhance the energy market. These policies will apply to project approvals going forward," said Stevenson.

In the meantime, some companies have shifted their focus away from Alberta since the moratorium was announced.

BluEarth Renewables put on hold its projects (of about 400 megawatts) in the province and instead invested in renewable energy facilities in other Canadian provinces and U.S. states.

"The moratorium basically threatened a very strong, open market," said company president Grant Arnold. 

"We will invest here when conditions allow us to do so," he said.

But first, he'll need to see how any new rules will impact the cost and time it takes to develop a project. Arnold said there will also need to be fairness and stability toward wind and solar companies compared to other electricity producers in the province.

WATCH | 3 ways the world is making progress on green energy: 


Varcoe: 
Wary renewables industry seeks fairness as Alberta's moratorium expires this week

With the freeze expected to end this week, wind and solar developers will be watching to ensure projects aren’t facing extraordinary new rules or barriers that other industries don’t face

Author of the article:Chris Varcoe • Calgary Herald
Published Feb 26, 2024 • 
Greengate Power CEO Dan Balaban was photographed in Calgary on Thursday, February 22, 2024. Gavin Young/Postmedia

Alberta’s controversial pause on approving new renewable energy projects will end Thursday and industry developers say they’re looking for one principle to guide its outcome and future investment in their sector.

Equitable treatment.

The industry was stunned by the UCP government’s decision last August to place a moratorium on approving new renewable projects while it examines policy issues surrounding the sector’s rapid expansion.

With the freeze expected to end this week, wind and solar developers will be watching to ensure projects aren’t facing extraordinary new rules or barriers that other industries don’t face when it comes to accessing land, or mandatory remediation requirements once a facility reaches the end of its life.

“Those are all valid things to review in the context of a fast-growing industry like renewables, but the moratorium was unnecessary,” said Dan Balaban of Calgary-based Greengate Power, one of the largest renewable developers in the province.

“That didn’t seem like a fair move to me. So, I hope that whatever comes out of the inquiry will be fair.”

The Alberta Utilities Commission (AUC) has examined the sector’s speedy development and the implications of its growth on the use of prime farmland for wind and solar farms, along with the effect on “Alberta’s pristine viewscapes,” and the possibility of mandatory reclamation security requirements for new projects.

In 2022, Alberta’s deregulated energy market was home to more than 75 per cent of all newly installed renewable energy capacity added in Canada, growing to more than 90 per cent last year, according to the Canadian Renewable Energy Association.


Alberta added 1.7 gigawatts (GW) of installed renewable capacity in 2023, as previously approved projects weren’t affected by the moratorium.

At the time, Affordability and Utilities Minister Nathan Neudorf said the pause was necessary as “Alberta has a bit of a Wild, Wild West feel to it,” with a surge of projects brought before the AUC.

Earlier this month, Premier Danielle Smith said the province will not allow the “sterilizing” of prime agricultural land by projects, indicating developers would have to consider using marginal farmland or adopt agrivoltaics, which allows for solar generation and agricultural production

She also suggested Alberta’s plan would need to ensure money is set aside by operators for future cleanup costs.

“It is totally appropriate to talk about the need for all industrial projects to post some kind of security, but conventional oil and gas doesn’t need to post some kind of security,” said Simon Dyer, deputy executive director of the Pembina Institute, which has called for equitable treatment for clean energy developments in the province.

“I imagine Alberta would be the only jurisdiction in the world to consider renewable energy riskier than oil and gas development.”

On a weekend radio program, Smith reiterated the pause will come off Thursday and said the province will provide more clarity about adding renewables to the electricity grid in the future.

She also pointed to the extreme cold weather last month, when the province’s grid operator issued an emergency alert and considered imposing rolling blackouts amid high power use and a lack of electricity generation.

“We need to bring on a responsible amount of wind and solar and always ensure that we have enough baseload dispatchable power so that it can be backed up. So, it might be a slower pace of growth,” the premier said.

Alberta Premier Danielle Smith addresses a news conference in Ottawa on Monday, Feb. 5, 2024. Smith is to give a television address to Albertans on Wednesday evening. PHOTO BY SEAN KILPATRICK /The Canadian Press

The Canadian Renewable Energy Association recommends there not be any retroactive policy changes that affect projects already built or filed with the AUC.

The industry group is calling for the government to adopt “reasonable” reclamation security requirements — using estimates made by experts in the field — and it opposes a blanket ban on land use for new projects, said Evan Wilson, vice-president of policy with the Canadian Renewable Energy Association.

“Let’s move forward in a way that is constructive and not about the government deciding what we can and can’t do, but more about providing transparency on how we are doing,” Wilson said Monday.

Many players in the industry note that rural landowners decide if they want to strike agreements that allow wind or solar developments on their property.

Rural Municipalities of Alberta president Paul McLauchlin said he hopes to see standardized rules around reclamation — some agreements with landowners already include them — and he points out land use needs to involve community planning conversations.

“I fully believe in landowner rights but, at the same time, also believe in landowner rights for your neighbour. The fact is, you can’t do whatever you want on your land,” said McLauchlin, who is also the reeve of Ponoka County.

“This is a good day for renewables. I think the opportunity is still there and it will never go away. And it requires just a little more front-end, sophisticated discussion by the industry, landowners, as well as the regulator.”

Solar panels at the Travers Solar Project with wind turbines behind them west of Lomond, Alta. Mike Drew/Postmedia

Aside from renewable development, the provincial government is also reviewing the overall design of the electricity market in Alberta, and other aspects of the power system.

The head of TransAlta Corp., the province’s largest power generator, which has both renewable and gas-fired units, said stability is critical to making long-term investment decisions.

“We’re close to getting some of that certainty or clarity from an Alberta market perspective over the course of the next probably 45 days or so,” TransAlta CEO John Kousinioris said Friday on an analysts’ call.

Greengate, which developed the country’s largest solar farm — the Travers Solar Project, southeast of Calgary in Vulcan County — is also waiting to see what comes out of the ongoing examinations.

Any decisions coming out of the pause will influence how it views future investment opportunities in its home province.

“What we really need to do is get through those reviews as soon as we reasonably can, put in a set of rules that are fair and let the industry get back to doing what it does,” Balaban said.

“We’re waiting to see how things unfold before we decide if we’re going to invest in any new renewable projects in Alberta.”

Chris Varcoe is a Calgary Herald columnist.
cvarcoe@postmedia.com

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OIL NEWS

Trudeau's pipeline project increases cost estimate by $3.1 billion

Robert Tuttle, Bloomberg News

The expansion of the Trans Mountain oil pipeline will cost about $3.1 billion more than the Canadian government-owned company running the project projected in May, another financial setback for a project beset by spiralling expenses and years of delays.

Costs for the expansion — which involves twinning a pipeline stretching from Edmonton to Vancouver — will be 10 per cent more than the most recent estimate of $30.9 billion, the company said in a filing with the Canada Energy Regulator on Monday.

That brings the total cost to about $34 billion, more than six times the original estimate of $5.4 billion in 2013.

The latest cost increase — this time due to construction challenges that are delaying the new line’s startup into the second quarter — marks another setback for a project that Prime Minister Justin Trudeau has expended significant political capital on.

Trudeau’s government bought the line to save the expansion project from cancellation and give Canada’s oil producers a way to sell their crude to markets in Asia, boosting prices and lessening their dependence on the U.S.

The pandemic, years of labour shortages and technical challenges have caused the project’s costs to soar and required increasing government funds.

The government’s ownership of the pipeline has also dented the Liberal prime minister’s standing among environmentalists while winning him little support in the conservative oil-producing province of Alberta.

Trans Mountain pipeline seen driving 

Canadian oil to three-year high

Robert Tuttle, Bloomberg News

Canada’s relatively cheap heavy crude is set to spike temporarily in the coming months as a massive new export pipeline starts operations just as oil-sands companies curtail production.

Western Canadian Select’s discount to U.S. benchmark West Texas Intermediate may shrink from its current level of about US$17.10 per barrel to less than $10 a barrel between May and July, according to Jeremy Irwin, senior oil markets analyst at Energy Aspects. The last time the discount was in single digits was in April 2021.

The pricier crude would raise costs for refiners in the U.S. Midwest who rely heavily on Canadian oil and have long benefited from the discounts it has sold at, partly because of a lack of pipelines. Those swelling costs may be partly passed onto U.S. Midwestern drivers as higher gasoline prices.

Driving the potential gain for Canadian crude is the expansion of the Trans Mountain pipeline, which will add the capacity to ship an additional 590,000 barrels of oil a day from Alberta to a Pacific Coast port and reduce producers’ reliance on American refiners. At the same time as the pipeline is due to start up in the second quarter, major oil-sands companies including Imperial Oil Ltd., Canadian Natural Resources Ltd. and Suncor Energy Inc. are planning to reduce output as they perform maintenance work on their facilities

Longer term, the discount on Canadian crude may return to normal levels or even widen. S&P Global estimates that Alberta oil producers are poised to add 500,000 barrels a day of supply by the end of next year, which will take up almost all of the new capacity on Trans Mountain. Filling up the line leaves the province’s drillers at risk of the pipeline shortages that have bedeviled them for years

Energy Aspects had warned of the potential overlap of oil-sands maintenance and Trans Mountain’s startup in a November report. Over the long term after the Trans Mountain startup, Canadian crude’s discount may average about $12 a barrel, Irwin said.

Canada sent 3.14 million barrels of oil to the U.S. Midwest in November, accounting for almost half of the U.S.’s crude imports, according to the Energy Information Administration

Feb. 26, 2024.


The Trans Mountain pipeline expansion: Who wins, who loses and how did we get here?

More than a decade in the making, the $30-billion project could be a game-changer for Canadian oil


Author of the article: Naimul Karim
Published Feb 26, 2024 
Pipes for the Trans Mountain pipeline expansion are unloaded in Edson, Alta last year. PHOTO BY JASON FRANSON /The Canadian Press
Article content

The Trans Mountain pipeline expansion project may still be months away from completion, but industry insiders have already started speculating on how it will impact the oil sector, from a potential increase in the price of Canadian oil to the opening of new export markets.

The expansion project will twin the existing 1,150-kilometre Trans Mountain pipeline between Alberta and British Columbia and enhance the system’s export facilities. The original pipeline was built in 1953 and has the capacity to transfer about 300,000 barrels per day. The new pipeline will be able to deliver an additional 590,000 barrels per day

But as we near the end of construction on the government-owned project that has been more than a decade in the making, plenty of questions remain about what lies ahead.


How we got here

Houston-based Kinder Morgan Inc. first proposed expanding the Trans Mountain pipeline in 2012. Its goal was to begin construction in 2017 and start a new flow of oil in 2019.

But the move was opposed by environmentalists who pointed out the existing pipeline had a history of spills. There have been 84 spills reported since 1961. While 70 per cent of them occurred at pump stations or terminals, 30 per cent occurred along the pipeline, with 20 incidents linked to the release of crude oil from the pipeline.

Kinder Morgan in 2017 threatened to cancel the project due to opposition from the British Columbia’s NDP government. Shortly after, the company sold the pipeline and the expansion project to the Government of Canada for $4.5 billion. The cost of the project has since increased to about $30.9 billion.

It's ridiculous to have this pipeline costing $31 billion — that is obscene
TRISTAN GOODMAN, CHIEF EXECUTIVE OF THE EXPLORERS AND PRODUCERS ASSOCIATION OF CANADA

Trans Mountain Corp., the government-owned company that’s expanding the pipeline, attributed the rise in price to several reasons, including inflationary pressures, the catastrophic floods in British Columbia, agreements with Indigenous communities, route changes to avoid environmentally sensitive areas, wildfires and labour shortages

The company also had to spend additional money on cultural protection as it discovered 83,000 artifacts, which have been returned to First Nations groups, during the construction process.

Tristan Goodman, chief executive of the Explorers and Producers Association of Canada, a national lobby group representing oil and gas entrepreneurs, said the rising cost of the pipeline is due to the government’s “failed” regulatory framework for environment, energy and natural resources projects. He said the entire system needs to be looked at.

“The government’s intentions are right to have good oversight, but they haven’t figured out how to get that oversight to be efficient and cost effective,” he said. “It is ridiculous to have this pipeline costing $31 billion — that is obscene.

The expansion project is now more than 98 per cent complete and is expected to begin operating in the second quarter.

Benefits of another pipeline

The main goal of the pipeline is to ensure Canadian oil producers get better prices for their product. The price of crude oil depends upon its quality, transportation costs and market forces. Heavy crudes are sold at a lower price because they are harder to refine and yield a lower amount of gasoline and diesel. Canada mostly produces heavy crude oil from Alberta and Saskatchewan.

The price also depends upon the distance between the producer and consumers. The greater the distance, the less producers receive for their products. It’s also cheaper to deliver oil through pipelines than trains.

It would cost about US$9 to US$10 to transport oil from Alberta to the U.S. Gulf Coast through pipelines, according to BMO Capital Markets analyst Randy Ollenberger, and about US$17 by rail. He expects the price differential between Canadian and U.S. oil to more or less reflect the transportation cost between the two markets and drop to around US$10 to US$12 per barrel from US$19 after the pipeline starts.

The new pipeline is also expected to allow Canadian producers to deliver oil to new markets, including the U.S. West Coast and Asia since the system will have better export facilities, such as ports.

For example, Ollenberger said that if a Canadian producer wanted to export oil to California, it would have to move the barrels by rail since there are no connecting pipelines. California imports heavy oil from other countries further away through tankers. Because of the new facilities being built to accommodate the Trans Mountain pipeline, Canada will be able to export barrels from the west coast using tankers, which will lower the transportation cost.

It’s a similar situation with China. Canada exports about 150,000 barrels a day to China, he said, but they depart from the U.S. Gulf Coast via tankers.

“When the pipeline comes into service, we can send it directly from the west coast,” Ollenberger said.

The additional pipeline is also expected to give Canadian oil producers more options for refiners at the other end of the pipeline.

“If refiners know you are trapped into one pipeline, they can discount because they have other options to go to at the bottom of that line,” Goodman said. “Whereas if the producer is given another access point, they can pick up the product and say, ‘I am not going to put it through this line, I am going to put it in this new line.’ That forces competition.”

Likely winners and losers?

Enough producers have already committed to use the new pipeline to take up about 80 per cent of the planned capacity. These companies include Cenovus Energy Inc., Imperial Oil Ltd. and Canadian Natural Resources Ltd., according to Trans Mountain. The remaining capacity can be used on a spot basis.

Imperial Oil is a minor player in terms of the pipeline reservations it has made, chief executive Brad Corson said on a conference call in February. But, overall, he said the pipeline will have a positive impact on the industry and reduce the discount in the oil prices Canadian producers receive.

He said Imperial Oil will continue to ship crude to its usual destinations, but the new pipeline could provide it with options to ship west or south.

Cenovus has a larger capacity on the pipeline. The company on a conference call last year said the pipeline would be a “great tool” to enter new markets globally, but it expects the start-up process to be a “little bumpy” out of the gate.

There have also been talks about how the Trans Mountain pipeline might negatively affect Enbridge Inc. since it runs its own pipeline — the biggest in Canada — to transport petroleum products. However, the company in February rejected those claims, saying that oil production has been on the rise and will continue to increase.

“This notion that the Mainline is going to lose a bunch of volume when TMX (Trans Mountain pipeline expansion) comes in is a bit of a stale concept,” Colin Gruending, the company’s head of liquids pipelines, said. “It might have been valid a few years ago, but it’s been delayed materially. And in that multiyear period of delay, supply has structurally and permanently grown.”

Ollenberger said companies don’t necessarily have to be a contractual partner of the Trans Mountain pipeline to benefit from its expansion since they may be able to sell their oil at a higher price to other markets through other pipelines, such as the one run by Enbridge.

“The benefit really is for the industry overall,” he said. “It allows the industry to receive a better price for its product and to grow.”

In anticipation of those better prices, the industry has already started to pump more oil. So much so that Goodman expects the new pipeline to be saturated within a year or two instead of five or six years as initially assumed.


• Email: nkarim@postmedia.com


Canadian oil and gas producers bump up spending, industry group says

in Oil & Companies News 28/02/2024

Canadian oil and natural gas producers will spend an estimated C$40.6 billion ($30.07 billion) on capital projects this year, up slightly from C$39 billion last year, the Canadian Association of Petroleum Producers (CAPP) said on Tuesday.

Producers are staying disciplined with spending even as Canadian oil production is at record-high levels ahead of the expected completion of the Trans Mountain oil pipeline expansion in the second quarter, CAPP CEO Lisa Baiton said.

WHY IT’S IMPORTANT

Canada, the fourth-largest global oil producer, has steadily raised production to take advantage of expanding pipeline capacity even as OPEC and the wider OPEC+ alliance have implemented a series of output cuts since late 2022 to support prices.

Canada’s congested oil pipelines and lack of export capacity for liquefied natural gas (LNG) have long limited expansion of crude and gas production. The Canadian government-owned Trans Mountain expansion has been dogged by cost over-runs and construction problems , but will nearly triple the flow of oil on that pipeline from Alberta to the Pacific coast, where it can be shipped to refineries on the U.S. West Coast and in Asia.

Shell-led LNG Canada is finishing work on the country’s first major LNG export facility, which will boost demand for Canada’s gas when it starts operation, possibly within the next year.

KEY QUOTE

“Despite these positive trends there remains a sense of caution largely due to the ongoing uncertainty surrounding proposed emissions policy in Canada,” Baiton said.

BY THE NUMBERS

CAPP estimates conventional oil and gas capital spending at C$27.3 billion in 2024, with oil sands spending pegged at C$13.3 billion.

Spending in Alberta, Canada’s main oil producing province, looks to remain steady at C$29 billion, with small increases expected in Saskatchewan, British Columbia and Newfoundland and Labrador, CAPP said.
Source: Reuters (Reporting by Rod Nickel in Vancouver, British Columbia; Editing by Chizu Nomiyama)

CAPP projects slight increase in Canadian oil and gas capital spending in 2024

The industry group representing Canada's oil and gas producers says capital investment in the sector will edge slightly higher in 2024.

The Canadian Association of Petroleum Producers is forecasting capital expenditures for the upstream oil and natural gas sector will reach $40.6 billion this year, a small increase from the $39 billion invested by companies in 2023.

CAPP president and CEO Lisa Baiton says the sector is optimistic in anticipation of the expected completion of the Trans Mountain pipeline expansion, which has led Canadian oil producers to boost their output to record levels.

But she says companies are also feeling cautious in light of what she describes as ongoing uncertainty surrounding emissions policy in Canada.

In Alberta specifically, CAPP is forecasting oil and gas producers to maintain a steady investment level year over year at $29 billion, with the oilsands expected to contribute around $13.3 billion of that.


While a consortium of oilsands companies known as the Pathways Alliance have proposed spending $16.5 billion on a massive carbon capture and storage network to reduce emissions from oilsands sites in northern Alberta, they have not yet pulled the trigger with a final investment decision.

This report by The Canadian Press was first published Feb. 27, 2024.


Crude-by-rail shipments jumped in last half of 2023 as Alberta's oil output grows

Canadian crude-by-rail shipments nearly doubled in volume in the last six months of 2023, as oil output from Alberta surged to all-time highs and the Trans Mountain pipeline expansion remained under construction.

Data from the Canada Energy Regulator released Monday shows oil-by-rail export volumes jumped from 78,747 barrels per day in May of last year to a high of 167,006 in November.

Though they then declined six per cent to 157,142 in December, that was still 25 per cent higher than the country's crude-by-rail shipments in December 2022.

For the full year, Canadian crude-by-rail exports averaged 119,077 barrels per day, a seven-year low and down 17 per cent from 2022.

But the sharp uptick in the last half of the year shows the impact of surging oil output in Alberta that has filled Canada's oil export pipelines close to capacity.

Last year, Alberta’s crude oil production hit an all-time record, totalling just under 1.4 billion barrels last year or about 3.73 million barrels per day.

The increase came as oilsands companies have been ramping up to prepare for the opening of the Trans Mountain pipeline expansion, which will add an additional 590,000 barrels per day of export capacity for this country's energy industry.

When the Trans Mountain project does come online and begins to fill with oil, the recent increase in crude-by-rail shipments should reverse, said BMO Capital Markets analyst Ben Pham in a recent report. 

"For the first time in over a decade, the (Western Canadian Sedimentary Basin) will have excess crude takeaway capacity," Pham wrote, noting BMO expects Western Canadian crude oil supply to increase from 5 million barrels per day in 2023 to 5.3 million in 2025 and 5.6 million in 2030.

In addition to allowing Canadian producers to grow production, the addition of the Trans Mountain expansion is expected to improve the price they receive for their product. The Western Canada Select differential, a discount Canadian oil companies typically have to absorb in part due to a lack of export capacity, is expected to narrow when the new pipeline starts up.

But Trans Mountain Corp., the company building the pipeline expansion, recently pushed the pipeline's in-service date back from the first quarter to the second quarter of this year due to unexpected construction difficulties in B.C. 

Eight Capital analyst Phil Skolnick said in a note to clients Monday that the project must be completed soon or Canadian producers will take a hit to their bottom line.

"Estimated growth in Western Canada will require (Trans Mountain) start-up by Q3/24 in order to prevent differentials blowing out, in our view, as we see exportable volumes exceeding current pipeline export capacity at that time," Skolnick wrote.

He added that even with the addition of the Trans Mountain expansion, Canada's oil output is growing so quickly that exportable supply could exceed pipeline capacity as early as 2026.

"This puts the country's producers in a vicarious situation as the (Trans Mountain) project took over a decade to complete, raising doubt of another major export pipeline ever being constructed," he said.

This report by The Canadian Press was first published Feb. 26, 2024.


Oil industry faces a 'sentiment problem': Nuttall

Jordan Fleguel, BNN Bloomberg

A Canadian portfolio manager says he remains bullish on the global oil industry despite signs of a demand slowdown.

Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, told BNN Bloomberg that he believes certain organizations such as the International Energy Agency (IEA) are underestimating the demand for oil in 2024.

“(The IEA) is very, very pessimistic on demand,” he said, adding that there was a consensus among those he spoke with during a recent energy-focused trip to Saudi Arabia that the organization has become overly politicized.

“I think there's concern that too many people are listening to an organization that no longer serves its original purpose.”

Nuttall said that OPEC has a better track record of accurately predicting oil demand. The organization forecasts demand of 2.25 million barrels per day in 2024, compared to the IEA’s 1.2 million barrels per day.


Nuttall said that he sees the market being “infatuated” with narratives about slowing demand and faltering OPEC cohesion, but that after his trip to Saudi Arabia he believes those narratives remain false.

“I think we suffer from a sentiment problem, not a fundamental problem,” he said.

Canada’s energy outlook

Nuttall said that his recent trip also reinforced his view that other resource-rich countries like Saudi Arabia are approaching the clean energy transition much more effectively than Canada is.

“They're getting it right and we're getting it wrong. In Canada, we think we're going to solve the climate crisis by taxing farmers who use natural gas to dry their crops,” he said.

“(Saudi Arabia) is promoting oil and natural gas production knowing that the demand will be there for decades ahead and leveraging the resource that offers to then invest in technologies such as carbon capture… it's just a much smarter approach that they're taking.”

NFeb. 26, 2024.uttall said oil’s strong fundamentals have set up Canadian energy stocks for success this year, and added that recent M&A activity in the space is mainly a “function of poor sentiment.”

“Companies must get bigger to gain relevance to the ideas list of the generalist investor that is only going to own two or three names, and so we're seeing that consolidation further,” he said.

Feb. 26, 2024.

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