Yahoo Finance Canada must ‘leverage the hell out of’ Biden’s LNG freeze: CAPP CEO
Canada’s main oil and gas industry group expects the Biden administration’s pause on new licenses to export liquefied natural gas (LNG) will last 15 months, pushing through the November U.S. presidential election. Lisa Baiton, head of the Canadian Association of Petroleum Producers (CAPP), says that's what she has been told from contacts south of the border.
Baiton was quick to blast the White House when the halt on new approvals was announced on Jan. 26. Her statement that day voiced “disappointment” on behalf of Canada’s natural gas producers, while praising America’s newfound status as the world’s largest LNG exporter as an “incredible success story.”
Canada’s natural gas market is highly integrated with the U.S. through a vast pipeline network. However, Canadian LNG producers have no working infrastructure to export overseas.
Federal Energy Minister Jonathan Wilkinson has put a positive spin on Biden's climate-motivated move to put the brakes on U.S. LNG export growth. He sees “an opportunity” for Canada on the basis the industry here has already significantly lowered its emissions.
Baiton is more blunt.
“I would really hope we take this moment to seize it, and really leverage the hell out of it,” the president and CEO of CAPP told Yahoo Finance Canada in an interview. “Canada is well ahead in terms of having some of the most stringent regulations in the world.”
According to Bloomberg News, LNG buyers in Asian nations, particularly China and Japan, are reviewing their options. Those are said to include new talks with already-licensed projects in the U.S., or suppliers from other nations.
Canada’s first large-scale LNG export facility in Kitimat, B.C. is nearly complete. LNG Canada, a joint venture between Shell, PETRONAS, PetroChina, Mitsubishi Corporation and Korea Gas, is expected to begin shipping fuel to Asia in 2025. Two smaller export terminals, Cedar LNG and Woodfibre LNG, are also approved for construction in British Columbia.
“The U.S. a decade ago was nowhere on LNG. Now, they’re the largest exporter on the planet,” Baiton said. “That should have been Canada’s opportunity.”
‘Swift Current, Saskatchewan gal’
Biden’s surprise announcement last month was the latest jolt in what Baiton calls the “most uncertain time in the industry’s history.”
She jokes about her move to the energy sector from her prior job, head of global affairs for Canada Pension Plan Investment Board, one of the largest retirement funds in the world.
“I recall some of you in this very room who said to me, ‘Lisa, are you really sure you want to jump into the oil and gas industry? Do you think that's a smart move?’” she told a Toronto business audience in a speech last November.
The sixth CEO of CAPP, and first woman to lead the association, started her tenure in May 2022, a few months after Russia invaded Ukraine, triggering an energy supply crisis in Europe.
The following August, Biden signed the Inflation Reduction Act into law, unleashing nearly US$400 billion in financial aid for future climate and clean energy projects. Canadian policymakers were forced to play catch-up as industry leaders cried out for a policy response from Ottawa.
Meanwhile, environmental activists ramped up efforts to convince the world’s largest pension funds to divest from Canadian oil and gas. Some listened.
Royal Bank of Canada (RY.TO)(RY), one of the country’s largest lenders, has also been targeted by anti-fossil fuel activists, owing to an apparent clash between its ties to Canada’s oil and gas industry, and the bank’s public messaging on climate change.
With deep ties to Bay Street and Canada's energy patch, Baiton says she brings a "unique patchwork of experiences." A self-described “Swift Current, Saskatchewan gal, born and raised,” her parents co-owned a small oilfield services company.
“I really came away with a strong appreciation of how important the oil and gas industry was to our family,” she said. “It gave us a very nice life, despite the ups and downs.”
In her speech last November, Baiton spoke about her love of Toronto, where she spent about 25 years working in finance and government relations. Her resume includes a stint at Canadian Bankers Association, and three separate policymaking roles for federal and provincial governments.
Her time at CPP was one of global expansion for the now $575 billion fund. Prior to her joining, in 2009, 45.5 per cent of CPP’s investment portfolio was based in Canada. That’s shrunk to 14 per cent as of March 31, 2023.
“Putting my old hat on, one thing I know about capital is that it’s competitive, it’s global, and it will go where there’s the highest amount of certainty, both from a regulatory and investor perspective. Which in turn has the chance of a higher rate of return,” Baiton said. “Canada has a lot to do to catch up in that regard.”
Canada’s federal government plans to cap upstream emissions from oil and gas development. By 2030, conventional oil companies, oilsands producers, and natural gas companies will collectively have to lower their emissions by 35 to 38 per cent versus 2019 levels.
In a report last week, RBC estimated that Canada needs $60 billion per year in climate and clean technology investment until the end of the decade in order to put the economy on track for net zero emissions by 2050. The bank says about $22 billion per year is invested now.
“The reality is, the energy transition is massive infrastructure and capital projects. That can only be done with institutional investors,” said Kevin Krausert, CEO and co-founder of Avatar Innovations. His Calgary-based venture capital firm and startup accelerator pairs entrepreneurs with major Canadian oil and gas producers. “Canada is struggling. That’s why they’re looking elsewhere for investments.”
Krausert and Baiton see heavy-handed regulations from Ottawa as a major roadblock to investment. Other observers point to poor policy coordination between energy-producing provinces and the federal government.
The International Energy Agency (IEA) and Ernst & Young Canada have each stressed the need for nationwide coordination on energy policy. The IEA said this is “an essential element to successful energy transition outcomes," in a 2022 report.
“We will continue to work with provincial and federal governments to find something that provides investor and regulatory certainty,” Baiton said.
Krausert is more blunt.
"How we win in the future is technology, innovation, and investment. It's not regulation," he said. "What we need to figure out as a country, and as a business community, is how to drive investments into technology projects that are actually going to reduce the emissions. That's the work that institutional investors, especially pension funds, need to be doing."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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