Rising Oil Prices Boost Green Initiatives in Canada’s Oil Sands

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Through Kevin Orland and Robert Tuttle to 11/18/2021

CALGARY (Bloomberg) – The global energy crisis that many attribute to efforts to move away from fossil fuels is actually giving new impetus to the switch to renewables in Canada, according to some of the bankers helping oil sands producers get through this transition.

This is because, despite all the doubts that have been cast on the reliability of solar and wind power, soaring oil and gas prices are providing more liquidity for large energy companies such as Suncor Energy Inc. and Cenovus. Energy Inc. to pursue their long-term goals. to reduce emissions.

The gas shortage that is rocking Europe and Asia, and has even raised the specter of power outages in parts of the United States, threatens to undermine the resolve of policymakers to develop renewables and weaken the economy. supporting taxpayers with subsidized projects as they prepare for higher energy bills. . But for Canadian energy companies – which in the depths of the pandemic were primarily concerned with keeping their creditors at bay – higher prices mean they can put long-term transition projects back on the agenda by response to growing pressure from investors to help slow global warming.

“Strangely enough, these high prices have actually enabled a lot of our customers to sort out some of these transition issues faster than they otherwise would have,” Mike Freeborn, Managing Director and Co- responsible for the Canadian Imperial Bank of Commerce. energy, infrastructure and transition group, said in an interview.

Benchmark U.S. oil futures are near their highest level in seven years, while natural gas prices at the AECO hub in Alberta have more than doubled since August.

It is a dramatic turnaround for Canadian oil companies. In early 2020, they were cutting production and laying off workers as lockdowns hammered oil demand. Now, Cenovus is quickly repaying its debt following its acquisition of Husky Energy Inc., while Suncor recently doubled its dividend and increased its share buyback program.

Some of the money can also be spent on projects to help Canada’s energy industry – which accounts for 20% of the country’s exports and 10% of its economy – reduce pollution. Already, Pembina Pipeline Corp. and TC Energy Corp. announced plans to use their pipeline network to transport and store more than 20 million tonnes of carbon dioxide underground per year. Royal Dutch Shell Plc is seeking to partner with Indigenous communities to build a carbon storage facility in Alberta.

“A high oil price makes it possible to invest in more risky and expensive green energy solutions, such as carbon capture, use and storage,” Deloitte said in its outlook for the oil and gas industry 2022 recently. published.

The larger initiative – called the Oil Sands Pathways to Net Zero initiative – is a partnership between Suncor, Canadian Natural Resources Ltd., Cenovus, Imperial Oil Ltd., MEG Energy Corp. and ConocoPhillips to utilize carbon capture and other near-zero emission technologies from oil sands mining by 2050.

The project has an initial price of C $ 75 billion, and up to two-thirds of the capital may have to come from the government, Suncor CEO Mark Little said in July.

Producers are also likely to push ahead with long-term energy transition-related projects, such as liquefied natural gas export terminals, said Jonathan Hackett, co-director of Bank of Montreal’s energy transition group.

“The transition to a low carbon economy will take place over decades, not months, and we will need to build both solutions that fit this paradigm in 2050, but also that will help us meet a demand. increasing energy along the way. ,” he said

This decades-long process has encouraged Canadian banks, which count Calgary’s energy companies as a major customer base, to form energy transition groups to provide expertise on navigating these changes.

The Toronto-Dominion Bank announced the formation of a Sustainable Finance and Enterprise Transition Group in September 2020. CIBC announced its Energy, Infrastructure and Transition Group in April, and Bank of Montreal deployed its transition group in June.

The groups draw on the expertise of various parts of the banks to help clients access sustainable financing and deal with all of the environmental issues taken into account in their projects. Toronto-Dominion has even staffed its transition group with employees from outside the typical investment bank hiring pools, including climate policy experts and sustainability consultants.

This allowed the bank to act as a kind of SWAT team and approach transactions with “the vastly different perspectives of its staff,” said Amy West, Managing Director and Global Chief Financial Officer. sustainability and business transitions at TD Securities.

“We want to be able to have subject matter experts who cover many different areas, because our clients are really looking for distinct solutions to these challenges,” West said.


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