“Supporter Spotlight” features Canadians with a passion for Canada’s Natural Resource sector. Our spotlight this month is Eric Nuttall, Partner & Senior Portfolio Manager with Ninepoint Partners. Eric talks to us about the importance of the oil & gas sector for the Canadian economy.
Canada Action: Eric, thank you so much for taking the time today. You are Partner and Senior Portfolio Manager with Ninepoint Partners LP. Your views are frequently sought after by the likes of BNN, The Globe and Mail, the National Post, the Calgary Herald, CNBC, and the Wall Street Journal. How did you get into finance?
Eric: (He laughs). It’s a long story. I’ve always known that I loved investing from the earliest of ages. I remember being 4 or 5 and watching the news and there’d be this gold ticker and it always fascinated me. An organization came through in grade 4 and ran a two-day mock stock challenge. That was really cool and it captivated me. Then all throughout high school I helped run an investment team.
I grew up in Ottawa and went to Carleton which isn’t exactly a Tier 1 school so it was a little more challenging. But in the end, it ultimately came down to someone giving me a shot as many of us have. That was some 18ish years ago and it kind of snowballed from there.
Canada Action: Let’s discuss the current situation with Line 5. Line 5 is an offshoot of Enbridge’s main pipeline that carries 540,000 barrels of crude supply per day from Alberta, through the United States and back across the border to Sarnia, Ontario. It provides more than half of Ontario’s crude supply and 66% of Quebec’s supply. The line also provides all jet fuel to Canada’s busiest airport (Toronto’s Pearson airport). Shutting down the pipeline can mean fuel & propane shortages as well as a skyrocket in prices. Heating up homes could potentially cost much more and it could also mean suspended operations for the airport. In the United States, a lot of people are panicking due to the gas shortage and people have resorted to putting gas in plastic bags. How important are pipelines and what effect could pipeline closures have on the Canadian economy?
Eric: Oil is integral to our way of life in so many different ways and the only logical way to transport that fuel is via pipeline. To have to put oil in a rail car is an epic level of stupidity. We know it’s more expensive and more importantly, it’s much more dangerous.
Modern-day pipelines are extremely safe. We know spill rates are very very low and when there is a spill it’s detected early and contained. So it was heartening to see the importance of pipelines get renewed with the Colonial Pipeline shutdown.
You know, both in Canada and in the United States, the level of energy ignorance is just so high. We use a product every day and yet we don’t know how integral it is. I think most people think 99% of oil is used for gasoline, whereas 40% of oil demand is non-transportation.
Our entire way of life is filled with products we simply couldn’t create if it were not for oil consumption. So there’s just this perverted notion that we’re going to reach peak oil demand in the next couple of years and that oil usage is going to end the very next day. It’s such a level of ignorance.
So how important are pipelines? Pipelines are necessary for our lifestyles and our way of life.
Canada Action: With reference to peak oil demand, you recently wrote an article for the Financial Post where you say that “The world is nowhere near peak oil demand. Global population growth of 1.2 billion people over the next 20 years combined with decades’ long runway for alternatives to reach critical scale means that oil demand will grow for years to come. Yet, the delusion of imminent peak oil demand is having a profound impact on the willingness of companies to invest today in large, extremely expensive projects.” There has been and continues to be a lot of talk that oil is dead and that we don’t need fossil fuels. But clearly, we do. What do you say to people who believe we no longer need them?
Eric: I’ve tried to make a point that there’s a massive chasm between government policies about decarbonization and our energy reality. So what is the reality without debating the need to reduce CO2 emissions? How do we achieve it? What’s the realistic timeline to do so?
Oil is used in every aspect of our daily life. And certain elements have alternatives that while it’s likely to occur, I would suggest the timeline is decades and not years. Let’s talk about electric cars. There are about 1.3 billion internal combustion engine cars on this planet and last year EV sales were roughly 3 million. Clearly, there’s a very long time for scale, for the displacement of the internal combustion engine.
So you look at things like base metals, and required investment, where there’s potentially a 30% deficit in 9 years time in just copper - a significant base component of batteries, electric cars, even offshore wind facilities - and there are certain limiting factors that even if money was no object, which clearly it is, there are limiting factors for how quickly we can gain scale and displace the usage of oil.
Then there are things like petrochemicals. The last time I checked, even an electric car runs on tires. What are the tires made of? In a world where you’re looking at a population growth rate of about 1.4 billion people by the time the world is supposed to hit net zero, all of that growth is occurring in countries where their primary focus isn’t to be woke, reduce emissions and build a little solar farm. It’s to reduce the usage of cow dung as their primary fuel source for cooking inside of their home.
It’s very easy for us to see the world through our very privileged Western filter but the reality is this mass race where the plan is not based on reality is going to lead towards energy scarcity and energy poverty. That is the reality. So you can’t look at me with a straight face and say the world’s population is going to grow by 32% in areas where they don’t even have the installed base to convert. They’re still building that out, where they crave the lifestyle that we have, and somehow we’re all driving electric in the next 3, 4, 5 years which is a complete fairy tale - that suddenly the demand for oil is going to end.
No doubt government policy is taking us to peak oil demand. The strong debate is when will that occur. My best guess is we’re still 10 years out from that occurring and even then, what does our industry look like in peak oil demand? It would be very easy to say “We reached peak oil demand, demand falls and therefore prices must fall”. But a line that you referenced that I’ve coined is that the fear of peak demand is leading to the reality of peak supply.
The industry is no longer willing to invest in growth and therefore the day will come where we’ve reached peak. Yet if supply is falling faster than demand at that point we can reach peak demand and yet the oil price can still go up; it does not mean we’ve reached peak oil prices. The role of Canada in that world, the long-term fortunes of that industry in that likely future, is overwhelmingly positive.
Canada Action: We’ve seen an increase in the importance of ESG practices within all natural resource extraction in the past 5 years. Investors are increasing their focus on ESG issues and are more inclined to invest in companies that are employing leading ESG practices. How important are ESG Rankings?
Eric: I would say the importance is growing by the day. ESG funds are becoming overwhelmingly popular and in demand. I had a talk with certain oil sand executives and the conversation revolved around the fact that we’re already global leaders.
So much of the conversation around ESG is just the E. Of course, Canada ranks well in the S and the G. We’re not employing child labourers to go dig for cobalt with their bare hands. So on the E, my message was we need to do a much better job of communicating not just what has been achieved, but what is likely to be achieved in the coming years. That our industry is the largest investor in cleantech by far of any other industry in Canada. That certain of our projects already have lower emissions intensity than the average barrel produced in the world. And we’re not talking prototype potential developments - we’re talking about in-field things being done today where in the next couple of years, our emissions can be meaningfully lower on average.
So our role in Canada as a producer, not just of the most ethical oil in the world, but potentially some of the cleanest in the years ahead is unbelievable. Canada could be the supplier of choice going forward in a world where we’ll be consuming oil for the rest of my lifetime.
Canada Action: Why do you think all Canadians should care about Canadian natural resource development? Is there any kind of message that you want to tell Canadians reading this?
Eric: Our oil & gas sector is the bedrock of our Canadian economy when we look at the royalties in taxes that it pays. It doesn’t just generate jobs in Alberta. It pays for schools, it pays for hospitals, it builds the roads, from coast to coast.
So when we look at the amount of debt that we’ve all taken on over the past year and a half due to COVID, we need all engines of growth firing in all cylinders to dig ourselves out of the fiscal hole that we find ourselves in.
I think that our oil & gas industry should be a meaningful contributor to Canada’s prosperity again. I think we will play a very strong role in the years ahead in helping to repair the national balance sheet.
Canada Action: Is there anything else you would like to share with our readers?
Eric: I think I've tried my best in the past couple of years of offering hope. So much of the conversation is one-sided, so much of the conversation is rooted in complete energy ignorance where people have an agenda, talk down our industry to be able to talk up another indirectly. When I look at the impact that’s had on people and families it’s horrible.
So I’ve tried to offer hope based upon the reality of where we’re headed. My overwhelming message to people in the industry and investing in the industry is that the outlook has never been brighter.
From a global perspective, from oil demand recovery, through the lack of investment from foreign companies, the ability of Canadian companies to attract new investment - especially as we educate the global investment community on how well we rank on an E, an S and a G - I really see the potential of strong funds back to our country and getting a rerated In our energy stocks which are the most attractively valued of any jurisdiction in the world.
So the one thing I would say is that as bad as it’s been, I really truly believe that the future has never been brighter for our industry.
Canada Action: Eric it’s been a pleasure. Thank you so much for your time today.
Eric: Thank you!
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