Areas Of Strengths, Weaknesses Identified For Canada To Attract Capital
In the global race to lure investment capital to fund energy development, Canada’s got game but must surmount challenges to be competitive.
Panelists who delved into financing Canada’s energy transition at the recent World Petroleum Congress in Calgary identified areas of strength to attract investment to the country but also weaknesses that must be addressed.
Ehren Cory, president and CEO of Canada Infrastructure Bank (CIB), said that the biggest factors affecting investment include regulatory environment, clarity of rules, and the tax structure, including investment tax credits (ITCs).
“I think of ITCs that support projects in areas like carbon capture and storage, hydrogen production and other areas that are designed to create a financial environment that makes those projects more viable,” Cory said.
The CIB, a federal Crown corporation that launched in 2017, invests in revenue-generating infrastructure projects that benefit Canadians and attract private capital. When it comes to government support for energy projects, Cory views the bank as occupying an important place in the middle part of a pyramid, as strategic investment or blended finance sandwiched between the regulatory environment and tax component at the base and government grants at the pyramid’s tip.
“You can’t afford to finance the energy transition all off of the public taxpayer with [the] grant end of it,” he said. “You’ve got to crowd in the middle part of that pyramid, which is us … to enable private capital to meet the investments it wants and to bridge the risk and uncertainty gap that it faces.”
Cory noted a challenge in attracting investment dollars to the energy transition is ensuring an agile approval process to get shovels in the ground quicker.
“How we get more projects done faster while respecting community engagement, Indigenous participation and reconciliation, and good environmental approvals is the other barrier that we've got to address if we're going to meet our aspirations.”
Adam Waterous, managing partner and CEO of Waterous Energy Fund, has witnessed a fundamental shift in investing trends from a flow of foreign capital to the “localization” of investment where Britons are the ones investing in the North Sea and Americans in the Permian Basin. He sees this trend extending to Canada to an extent.
“In the last 10 years there’s been a tremendous ‘Canadianization’ of the patch,” Waterous said. “There’s never been such a high percentage of the Canadian oil and gas business managed by Calgary-headquartered companies than it is today.”
The reason for this shift is twofold: first allocating capital to a capital-intensive industry like energy is difficult to do from a distance, which means it’s better to be close to the ground; second, the industry has become very politically sensitive, which makes managing things like regulatory approvals from the other side of the globe fraught with peril.
Having said that, Waterous also points out a contradiction to this model in Canada, as sometimes the dollars flowing into Canadian funds like his that invest in oil and gas projects start out as foreign capital. In part, this is because Canada’s “big money pool,” such as the large pension funds have allocated very little to the upstream oil and gas sector.
“Where does a guy like me get the money? A bunch of foreigners gave it to me to Canadianize the patch,” he said. “So, when I think about impediments to developing the Canadian business, I start with trying to understand why Canadian companies have to go outside of Canada to finance themselves.”
Meanwhile, the CEO of Alberta Indigenous Opportunities Corporation (AIOC) — which supports Indigenous communities that participate in major projects in Alberta, largely through loan guarantees — sees something once considered a barrier to luring investment to Canada’s energy sector becoming a strength.
Chana Martineau said there was a time when forging relationships with First Nations and Metis communities was seen as a challenge that industry had to overcome. Today, however, she believes Canada is in an enviable position with Indigenous relations compared to other jurisdictions, something that she heard in conversations with WPC delegates.
“And what is interesting is that … I talked with a number of people who were in the energy industry space from the U.S., and we discussed how this has changed from what was a barrier and a hurdle to start to be an advantage,” she said.
Since being created in 2019, the AIOC has done over $500 million in loan guarantees for projects in 27 Alberta Indigenous communities. The projects are now paying out $27 million annually in distributions to these communities, something Martineau said is becoming a “sustainable capital attractant.”
“Companies are actually looking to place investments and open subsidiaries and facilities here in Alberta because of the work we’re doing.”