Though Cautiously Optimistic In Its Latest Capex Forecast, CAPP Warns Of Potential Headwinds

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Lisa Baiton, head of CAPP.

Although the Canadian Association of Petroleum Producers’ (CAPP) latest forecast is calling for a slight increase in industry capital expenditures this year, persistently weak natural gas prices and the resulting decision by some producers to cut spending plans could alter the numbers.

On Monday, CAPP released its latest forecast which projected capital expenditures in the upstream oil and natural gas sector will reach $40.6 billion in 2024, rising slightly from an estimated actual investment of $39 billion for 2023.

Lisa Baiton, president and CEO of the industry group, acknowledges that low natural gas prices could alter spending and activity plans in the natural gas sector.

“We expect natgas drilling to be supported by the commissioning and start-up of LNG Canada through 2024 and into 2025. And that is included in the estimate,” she told the DOB.

“But to your point, commodity prices are a risk to any oil and natural gas-related forecast and the softening of natgas prices through the start of this year may have an impact on the forecast. So it’s something to watch out for throughout the rest of the year.”

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In the forecast, CAPP noted that despite some positive trends, “there remains a sense of caution” largely due to the ongoing uncertainty surrounding proposed emissions policy in Canada, “which continues to be a significant factor in investment decisions.”

And Baiton remains steadfast in that assessment as CAPP continues discussions with the federal government regarding its draft emissions cap framework and methane reduction plan amendments that are currently on the table.

“We did express cautious optimism in our forecast. But policy uncertainty in Canada continues to be a big factor causing investor uncertainty when we need large-scale, long-dated investment capital and we’re competing for that capital globally,” she said.

“Just as an example, we’re still waiting for the planned incentives around carbon capture to be finalized so project proponents can make their FID decisions. And the draft emissions cap framework and the draft methane regulation amendments are both big pieces of legislation that are causing investors to think hard about future investments in Canada,” Baiton added.

“I’ll say generally speaking that the more policy risk you have, the harder it is for investors to quantify that risk. And if they can’t quantify the risk, capital is mobile and it’s global and it’s going to go where there is policy certainty and regulatory certainty. So it’s definitely something we have to solve for here in Canada.”

Meanwhile, Baiton said CAPP continues to press on in its efforts to engage the federal government about its concerns over the proposed pieces of legislation.

“We put a lot of thought and technical expertise into our assessments of both the draft emissions cap and the proposed methane regulations. In terms of the emissions cap, we’re really seized with that one. In its present form, it’s completely unworkable from the industry’s perspective. It’s completely unnecessary,” she said.

“We already have a decade-plus track record of meaningfully reducing both CO2 and methane emissions in the absence of a legislated cap.”

When it comes to methane, Baiton said the Canadian oil and gas industry has, and continues to make great strides in reducing those emissions.

“We’re certainly on board with continuing to drive down methane emissions. We think it’s one of the fastest ways to significantly lower emissions overall. And we’ve already proven that by meeting ahead of schedule the original federal target of 45 per cent,” she said.

“In terms of the current proposed amendments, there are still a lot of questions that need to be answered within the draft amendments. In particular, the devil is in the details. So we don’t think it represents a predictable regulatory framework that uses commercially-available technology to reduce emissions.

“So all I can say is that we really believe that there’s opportunity to take a collaborative and constructive and pragmatic approach. We are in conversations with the federal and provincial governments on how we tackle that policy uncertainty that is causing investor uncertainty.”

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