As Canadians, we have a proud history of being a global energy leader. As we transition towards a lower-carbon future, we find ourselves needing to balance today’s energy requirements with those of the future. This transition requires creativity, collaboration and capital. It’s both a significant challenge and a tremendous opportunity that Canadians are uniquely positioned to address.

Our country’s well-being is fuelled by today’s energy sector, and how we choose to invest will impact its future. According to the Government of Canada, the sector currently accounts for over 10 per cent of the country’s GDP growth – more than double the car manufacturing industry. Last year, close to $200 billion of Canadian energy exports were sent to 123 countries. The energy sector employs more than 150,000 Canadians and supports employment for approximately 750,000 others.

"Even with new growth drivers emerging, Alberta's productivity and income advantage remains firmly rooted in the energy sector," said Mark Parsons, Chief Economist, ATB Financial. "Maintaining a strong presence in the global energy market is crucial for sustaining this advantage and driving future economic prosperity in Canada."

With so much technological expertise and sector knowledge, we have a generational opportunity to build on our legacy of energy excellence by developing new technologies and lowering emission solutions, all while keeping the energy flowing. The growing global appetite for energy continues to be stoked by increased urbanization, the rise of AI and data centers, and ongoing geopolitical instability. 

While fossil fuels still make up approximately 80 per cent of the world’s energy mix, investment in North American clean technology is ramping up. Both traditional and emerging energy sources are necessary to maintain our quality of life, as well as to provide environmentally and socially responsible energy to jurisdictions around the world. Investing in the industry’s growth supports both the sector, as well as Canada’s overall prosperity.

The specialized team at ATB Capital Markets regularly takes the pulse of the sector. Its Fall 2024 Energy Sector Survey, published in September, included responses from executives representing 33 energy services companies, 38 exploration and production (E&P) companies, and 39 institutional investors. The survey identified several key findings:

Expectations for a moderate growth trajectory for 2025
Although long-term sentiment for crude prices have weakened over the year, 75 per cent of respondents expected WTI crude prices to average above $75/bbl over the next three to five years.

The survey provided an early glimpse into the outlook for 2025 with respondents indicating:

• expectations for 3-5 per cent field activity growth in 2025 over 2024,
• mid-single digit production growth for Canadian E&Ps on average;
• expectations of flat year-over-year per well development costs and marginal service price inflation. 

Sentiment remained generally positive on an absolute basis across E&Ps, energy services companies, and institutional investors.

Catalysts and Opportunities Ahead
Investors expect E&Ps to deliver the highest returns within the energy sector, followed by service and midstream companies. E&Ps also rank the highest for capital allocation.

Growth-focused capital expenditures will drive expansion, while higher shareholder returns will help reduce the cost of capital and incentivize investment. These cash returns are making the sector more attractive to external investors.

West coast LNG development remains the consensus top opportunity for the sector, coinciding with expectations for tightening AECO basis over the coming years and tailwinds to energy services activity.

"Federal energy and environmental policies and regulations" ranked as the top industry risk with 53 per cent of E&P respondents view Canada's Bill C-59 as "very impactful.

Access to capital will allow the energy sector to continue to expand and innovate. This requires a steady mix of funding sources including debt, equity and project financing. Beyond capital, mitigation tools like derivatives, swaps and hedging are needed to help stabilize revenue and reduce financial risk. 

Strong oil prices have bolstered the balance sheets of upstream companies, which in turn have positively affected midstream and oilfield services companies. Renewable energy - like wind and solar - are gaining traction, along with transitional energy, including carbon capture, electrification and hydrogen. While the sector continues to work towards integrating cleaner sources of energy, hydrocarbons and renewables must coexist.

After years of low natural gas prices, expectations are improving. One of the priorities for the sector is completing key pipeline and liquefied natural gas (LNG) infrastructure projects. Access to tidewater is essential for shipping oil and LNG to international markets with high energy demand.

LNG Canada will be Canada’s first large-scale LNG export facility and is expected to come online in mid 2025. This will open new markets for Western Canada’s drillers and is raising expectations for Alberta’s natural gas benchmark AECO price to eventually reach levels not seen since the early 2000’s. 

The Canadian Association of Petroleum Producers (CAPP) points out that oil, natural gas and refined products are critical components of Canada’s exports, making up about 20 per cent of Canada’s balance of trade.

"Alberta has always been a leader in energy. At ATB Financial, we believe that by supporting both our established energy expertise and the transition to new energy sources, we can strengthen Alberta's position as a global energy powerhouse for decades to come,” said Curtis Stange, President and CEO of ATB Financial.

ATB Financial forecasts show international oil and gas exports rising by almost 5 per cent this year (driven by the oil sands) and 3.1 per cent in 2025. This represents a significant driver of Canadian GDP. 

“Energy is, by far,  Canada's single largest export. Without it we would be running substantial trade deficits,” said Parsons. 

Despite regulatory headwinds, the sector continues to evolve and adapt. A healthy energy sector means a healthier Canadian economy, more jobs, increased revenue for infrastructure and social projects, and higher productivity levels.

From the December 2024 edition of Business in Calgary, and Business in Edmonton. Shared with permission.