Canadian law firm Bennett Jones is the official legal sponsor of the 24th World Petroleum Congress (WPC), taking place in Calgary from 17–21 September 2023. Here, Petroleum Economist talks to Pat Maguire, vice-chair and Calgary managing partner at the firm, about the opportunities in Canada's legal and regulatory landscape in the energy transition.
What are the top opportunities in Canada in the global energy transition?
Maguire: Renewable energy is surging in Canada. The wind and solar sectors are growing rapidly and attracting investment across the country, especially in Alberta.
Canada is ready for large-scale, low-carbon-intensity hydrogen production. The entire value chain is ripe for investment. Government support for the sector, financial and policywise, is strong across all levels of government.
We are at the front of the pack when it comes to CCUS. We have a unique combination of geology, technology and infrastructure, and around 15 projects are in development. Shell Canada's Quest facility opened in 2015 as the world’s first commercial-scale CCS project applied to oil sands operations.
The number of renewable natural gas (RNG) projects operating in Canada is expected to more than double between 2021 and 2025. There are government incentives federally and provincially. Here in Alberta, Calgary will be home to North America’s largest carbon-negative RNG and ethanol facility.
Many energy transition projects create new and novel business opportunities to partner with Canada's Indigenous peoples in a way that advances reconciliation. We have seen a number of successes already.
What about the legal challenges and risks?
Maguire: In Canada, we see two spheres of risk: one is domestic and the other is international. Domestic risks include the time, cost and uncertainty associated with permits and approvals, exacerbated by the overlapping jurisdiction between provinces and the federal government. Some provinces are very well advanced in regulation that supports transition projects. Other jurisdictions may be a little less advanced. There is also concern regarding the federal government's ability to regulate some provincial matters or projects that have an environmental impact.
Internationally, there is a lot of competition for investment in the context of the Inflation Reduction Act in the US, although Canada has done a pretty good job of addressing most of those concerns. In Canada's 2023 federal budget, there were two new investment tax credits announced—one for clean electricity at 15pc and one for clean manufacturing at 30pc, in addition to previously announced credits for hydrogen and CCUS. These green energy incentives are competitive from an international perspective.
How do energy transition projects fit in Canada's legal framework?
Maguire: The whole legal architecture around energy transition projects is really consistent with what we have seen in the conventional oil and gas sector. There is already a legislative and regulatory ecosystem in Canada that accommodates new energy project developments, or requires only minor tweaking to do so.
A lot of the regulatory structures that deal with oil, gas or hydrocarbons work perfectly well in connection with hydrogen projects but do not technically apply to them because they are not hydrocarbon projects. Those structures do not require wholesale reworking as much as making sure that transition projects can be addressed within that context. In areas such as CCUS there are some jurisdictions that have not clarified the law with respect to the ownership of subsurface storage space in the way that Alberta has.
When it comes to small modular reactors (SMRs), the Canadian Nuclear Safety Commission has anticipated the future development of this technology and has been proactive about making sure that its regulatory approach to SMRs is ready.
Intellectual property protection will be an interesting area that people are going to have to work their way through on some of these new technologies, especially in hydrogen.
What are the challenges associated with regulating new projects and new technologies?
Maguire: Right now in Canada, we have multiple projects all looking to move through the system at the same time. It is also notable that, in a conventional setting, projects were frequently advanced by a single project developer, or at most a couple of partners. In new CCUS projects, as an example, we are seeing a number of participants in a single project—emitters working with a capture technology provider, a midstreamer to move the CO₂, and even sometimes separate companies taking on the sequestration role.
On hydrogen, governments and regulators need to work through the issues related to its injection into natural gas streams and hydrogen transportation in ammonia form. Hydrogen in the context of industrial use is going to be a little less problematic. There may be a tweaking of regulations, but to the extent you are looking to generate hydrogen to serve an industrial site, I think that will be relatively straightforward.
What is the public's perception on energy transition projects in Canada?
Maguire: Canadians know the move to a lower-carbon economy is inevitable. It is generally supported across the country. It can be interesting, though, to see how companies, governments and communities view the actual development of projects. When you get on the ground, there can be local and competing interests in getting a project underway.
This is one of the areas where ESG is so critical in the energy transition. When a company has ESG principles embedded into its core business strategy, it will vastly improve its ability to connect with communities and tell its story.
Do insurance products for the industry need to evolve to accommodate new technologies?
Maguire: We are seeing some creative thinking by insurers around the different kinds of risks associated with emissions capture and subsurface storage, and the extent to which insurance products can fill in the gaps that will facilitate project development. Project developers have to shoulder sizeable risks, which makes financing difficult. I expect that, in the next few years, we are really going to see advances in the availability of insurance products for new energy projects, which will help with financing by managing those risks.
Will financing projects with Indigenous communities be different in the energy transition compared with traditional projects?
Maguire: The Alberta Indigenous Opportunities Corporation is a government-sponsored entity that helps Indigenous communities find equity participation in projects, including energy projects. Other jurisdictions also have other ways of supporting similar participation. An important part of the development of energy projects, whether they be conventional or new technologies, will be making sure that the issues around Indigenous participation have been addressed, including through these additional funding mechanisms.
You have practised energy law in Calgary for over 30 years. What does it mean to host the WPC here in Canada for the first time?
Maguire: It will be an absolute pleasure to host the energy world and show off our incredible city and our abundant resources, both natural and human. Canada's energy sector has always been on the cutting edge of the global energy industry and hosting the WPC will be a welcome opportunity to show the world how Canadian knowhow, entrepreneurship and technological capabilities can play an important role in the global energy transition. We also know how to throw a really good party.
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