In April 2023, the Energy Council held the Canada Energy Capital Assembly in Calgary, gathering executive explorers, producers, buyers, investors, financiers, and clean technology providers to discuss the opportunities and challenges presented by the Canadian energy transformation with both a current and future outlook.

Below you can read some of the key themes and takeaways from the assembly. 

1. Optimizing your ESG Agenda

To optimize your ESG agenda and drive performance improvements in the Canadian oil and gas industry, it is crucial to adopt a comprehensive approach that aligns with investor expectations and addresses key environmental, social, and governance factors. This can be achieved by implementing robust environmental management practices, prioritizing social responsibility by investing in local communities, and integrating sustainability goals into business strategies and performance metrics to drive continuous improvement.

Moreover, the social aspects of ESG reporting in the Canadian oil and gas industry significantly impact capital availability and successful project development. Investors increasingly consider social factors when evaluating projects, including things such as community engagement and support, indigenous rights and engagement, and diversity and inclusion. Addressing these social aspects positively influences investor sentiment, improves access to capital, and enhances the competitive positioning of the company.

2. The impact of Carbon Capture

Carbon Capture (CC) enables the capture and storage of CO2 emissions from industrial processes and power generation, reducing their environmental impact. Moreover, the captured carbon can be utilized in various ways, like enhanced oil recovery or producing synthetic fuels, further decreasing reliance on traditional oil and gas sources. For a sustainable energy future, a balanced approach combining CC with renewable energy development is crucial. CC primarily focuses on capturing emissions from large industrial sources and storing them underground. It has matured and possesses existing infrastructure, making it more likely to scale up in the near term.

In contrast, Carbon Removal (CR) aims to directly remove CO2 from the atmosphere using technologies like direct air capture or enhanced natural carbon sinks. While CR holds potential, it is currently less proven and faces challenges related to scalability and cost. Real project risks associated with CC projects encompass technological and operational difficulties, as well as financial viability. Addressing these risks necessitates effective risk management strategies, robust monitoring systems, transparent communication, and stakeholder engagement.

To scale up Carbon Capture, Utilization, and Storage (CCUS) projects, open-access carbon hubs that separate capture, transportation, and storage services can play a vital role. These hubs offer shared infrastructure and services to multiple emitters, reducing costs and improving efficiency. By centralizing the necessary facilities, open-access carbon hubs optimize resource allocation, minimize infrastructure duplication, and foster collaboration among different emitters. Furthermore, they provide a platform for knowledge-sharing, collaboration, and innovation within the CCUS industry. The success of open-access carbon hubs depends on various factors, including regulatory considerations.

3. The potential of a Canadian Carbon Market

Creating a viable carbon market for Canada requires considering political, legal, and economic perspectives. From a political standpoint, it is crucial to establish clear and consistent carbon market regulations and targets that are supported by all levels of government. Legally, developing a comprehensive framework that includes carbon pricing mechanisms, emissions trading systems, and market oversight is essential. Economically, promoting market incentives and fostering innovation through financial mechanisms, such as carbon pricing or emissions trading, can encourage businesses to reduce emissions and invest in low-carbon technologies. Carbon tax credits play a significant role in supporting investments into Carbon Capture and Storage (CCS) technologies. These credits provide financial incentives to businesses and industries that adopt CCS technologies and reduce their carbon emissions. This support helps bridge the gap between the high upfront costs of CCS deployment and the long-term benefits of emission reduction.

However, the differences in carbon tax requirements between federal and provincial governments, as well as across regions in Canada, have implications for carbon pricing and emission reduction efforts. Federally, the Canadian government has implemented a national carbon pricing system, which imposes a carbon tax or establishes an emissions trading system. Provincially, some provinces have their own carbon pricing mechanisms, while others have adopted the federal approach. These differences can result in variations in carbon pricing levels and compliance requirements.

4. The importance of understanding new and evolving policy and regulation

Canada has a number of policy measures: an ambitious carbon pricing scheme, clean fuel regulations, a commitment to phase out unabated coal use by 2030, nuclear plant extensions, upstream methane regulations, energy efficiency programs, and measures to decarbonize the transport sector that all impact development of traditional oil and gas related projects. Aligning projects with long-term environmental targets and policy regulations is key to developing a competitive advantage and successful projects in the Canadian Oil and Gas Industry. To achieve this, companies should start by thoroughly understanding the environmental targets and policy landscape at the national, provincial, and local levels.

There also needs to be a greater understanding around the software solutions to data collection and GHG measurement and how to navigate the ever expanding marketplace for ESG data vendors, as well as how investors and companies alike can use these tools to stay in front of regulation and adequately prepare and safeguard ESG principles amidst increasing scrutiny and SEC ESG crackdowns.

5. The role of LNG

LNG exports from Canada can play a significant role in the future global energy mix. There are key infrastructure, pipeline, and policy constraints that businesses need to overcome to reach Final Investment Decision (FID) in the Canadian oil and gas industry. Firstly, developing the necessary infrastructure for LNG projects, such as liquefaction terminals and associated pipeline networks, requires significant investments and regulatory approvals. These projects often involve complex engineering and environmental assessments, as well as securing land rights and addressing potential stakeholder concerns.

Overcoming these constraints requires effective stakeholder engagement, collaboration with Indigenous communities, ensuring compliance with environmental regulations, and addressing concerns related to land and resource impacts. Effectively communicating with environmentalists and key Indigenous leaders is crucial to minimize the risk of opposition in the Canadian oil and gas industry.

6. There are opportunities for investors

There is a significant opportunity for individuals with access to capital to purchase assets in the current oil and gas market in Canada. Historical trends show that assets have typically traded at higher multiples of cash flows compared to their current valuations. Private equity firms, which suffered losses during previous volatility cycles, are now hesitant to re-enter the energy sector on a large scale. Moreover, obtaining inexpensive debt capital has become increasingly challenging, despite the push toward ESG initiatives.

While it is commendable to focus on environmental, social, and governance factors, finding profitable investment opportunities that meet the desired returns of traditional upstream energy ventures, both in equity and debt, can be difficult. The primary bottleneck lies in securing equity funding for projects. However, the current market conditions, characterized by volatility and low oil prices, have resulted in undervalued assets and distressed companies. This situation presents an opportunity for investors to acquire assets at attractive prices, particularly for long-term investors seeking to build a diversified portfolio with high-quality assets that have strong growth potential. Currently, the void left by traditional funding sources, such as private equity firms, is being partially filled by emerging alternative sources of capital in the Canadian oil and gas industry.

Institutional investors, including pension funds, are increasingly allocating capital to energy infrastructure projects. Strategic partnerships and joint ventures between industry players and financial investors are becoming more common as a means to leverage respective strengths and mitigate risks. Additionally, alternative investment vehicles like infrastructure funds, private debt funds, and impact investment funds are emerging to provide capital for energy projects with a focus on sustainability and environmental impact.