Budget 2024 Energy/ESG Highlights Our Conclusion
Budget 2024’s headline ESG item was the announcement of a $5 billion
Indigenous Loan Guarantee program, which we view as a positive read-
through for future LNG projects. We also note there were new (minor)
incentives for electric vehicles and clarifying details around the previously
announced Clean Electricity investment tax credit.
From a greater Energy perspective, perhaps the most notable item was what
was missing from the Budget – no mention of an Energy windfall tax as
rumoured. We expect a likely relief rally tomorrow, as the Canadian large
caps underperformed U.S. peers by >3% from when the windfall tax was first
suggested last Thursday.
Key Points
The creation of a ‘sector-agnostic’ Indigenous Loan Guarantee Program for
natural resource and energy projects was a welcome sight. While $5 billion is
small relative to the opportunity (estimates put potential projects on
indigenous lands >$500 billion in the coming decade), the implementation of
the program was a crucial first step given the limitations of indigenous
communities to secure capital under the Indian Act.
We view this as favorable for pre-FID LNG projects located in First Nations
territory. This includes LNG Canada Phase 2, Cedar LNG (Haisla Nation),
and the Ksi Lisims LNG project (Nisga’a Nation) which has resource backing
from the Rockies LNG consortium (AAV, BIR, CNQ, CPG, NVA, OVV, POU,
PEY, TOU, WCP). We would also note that Cedar LNG and Ksi Lisims LNG
have all gained momentum in recent months towards potential FID. Of note,
LNG Canada Phase 1 is expected to be commercially operational by mid-
2025, with potential for first cargoes before the end of 2024.
We note Budget 2024 spent considerable effort to clarify the benefits of the
increasingly maligned carbon tax, and accelerated $2.5 billion in carbon tax
rebates for small business. While the carbon tax remains highly politicized,
we continue to believe the core of industrial carbon pricing (output-based
pricing system, TIER, etc.) will survive a future change in government.
Nonetheless, it was a welcome sight not to see Energy companies
specifically targeted in a windfall tax. Given the recent strength in commodity
prices, the ramp-up of TMX and the long reserve life (and significant
inventory depth) of Canadian energy companies, we expect the sector will
continue to attract funds flow from international investors and help close the
valuation discount. We expect CNQ and CVE as names most broadly held
by foreign mutual funds that could see the most upside in a relief rally.