Tertzakian: Canada, World Must Overcome Significant Challenges On Road To Net Zero

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Canada and the rest of the world must overcome significant challenges in a relatively short time to achieve the goal of net-zero by 2050, chief among them navigating the sometimes-turbulent waters of government policy, the founder of ARC Energy Research Institute told World Petroleum Congress delegates.

In his keynote speech at the WPC, Peter Tertzakian, managing director of ARC Financial Corp., said the unique thing about the current energy transition is the multitude of issues shaping it, what he calls the “forces of change.” And one of the biggest factors affecting the transition is government policy.

“It's not just a technology plus capital markets or geopolitics and some relatively simplistic legislation,” he said. “It’s social issues, the economy, inflation, technology, climate change as a dominant environmental force, the geopolitics all of which leads us to policy as a dominant driver of this and we have to understand policy and policy is complex.”

About nine months ago, ARC surveyed 25 institutional investors from North America and Europe and found that the top issue they face is understanding the risk-return relationship around policy. Tertzakian said that if financial markets are key to the energy transition and complex government policy is clouding investment decisions, it can restrict the flow of much-needed capital for energy projects.

“A multitude of issues even now, compounding with the geopolitics and energy security …, on top of regulatory policy leaves intelligent decision makers in paralysis,” he said. “If I don’t know exactly what a policy risk is, how am I expected to invest $2 billion in a project?”

Since the Leduc #1 well was drilled in 1947, which jump-started Canada’s oil industry, Tertzakian estimates that almost $2 trillion in today’s dollars has streamed into Canada’s upstream oil and gas industry from foreign investors, representing roughly 70 per cent of the total capital that’s funded the sector.

He said that finding the capital to build the infrastructure required of the next energy boom and achieve climate goals in the coming years will be a major challenge.

“We are now expected to renovate the house to accommodate carbon mitigation net zero by 2050. Well, anybody who has renovated a house — and I have — will understand the costs involved of renovation.”

He said policy shouldn’t impede investment but rather encourage it and urged WPC delegates to press their governments for simple, easy-to-understand policies to ensure that an effective energy transition will take place.

“The more policy that you introduce into the system the more complexity you introduce, such that the analyst in front of the spreadsheet in the cubicle, can’t figure out how to fill out the spreadsheet,” he said. “This is the fundamental problem that’s occurring right now and it’s not really visible because the headlines and the things you read are at the top level, and nobody writes an article about the poor analyst trying to fill out the spreadsheet.”

Regarding other forces influencing the energy transition, Tertzakian expects that technology will make significant strides in the coming years, just as it has in sectors such as electronics and communications in the past two decades. However, he says technology alone isn’t enough to execute the move to a net-zero carbon economy, and comparing the energy transition from DVD players to streaming services is misguided.

“It's pretty easy to pick up a DVD machine and sign up for a Netflix subscription, yet isn't so easy to renovate or replace billions, if not, trillions of dollars of infrastructure to take us to the new world in 28 years,” he said. “And there’s a lot of technological change that can happen between now and 2050, but technological change is an insufficient condition by itself to execute in this transition that we’re in right now.”

Looking forward, Tertzakian said no one can predict how the energy transition will unfold with any certainty. Nonetheless, he thinks Alberta is in an enviable position to thrive, given the right conditions. He points to a diverse suite of natural resources in addition to hydrocarbons such as lithium, sun, wind, biofuels, hydrogen from natural gas, and infrastructure to support their development, including the ability to capture carbon from hydrocarbon production and store it subsurface.

“Anytime we’ve made a transitional shift … we understand how to respond. It's not always fast because transitions are never fast, but we shift our economic activity and our privileged resource base to adapt, and we are in the midst of doing that right now.”

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