CALGARY — When Mac Van Wielingen evaluates the current state of energy markets, where oil and natural gas prices have skyrocketed amid Russia’s invasion of Ukraine, he doesn’t see a clear-cut story of fossil fuels triumphing over renewables.
Instead, the veteran Calgary-based energy investor describes it as a crisis of narrow-minded energy policy, where he says leaders have for years set aside nuance or realism in their efforts to reach net-zero emissions. Van Wielingen, the founder of ARC Financial, one of Canada’s largest energy-focused private-equity funds with about $6 billion in assets under management, is among a growing chorus of energy sector voices framing the recent oil shock as evidence that a rapid shift away from fossil fuels could threaten energy security.
Talking Point
Governments have sought to rapidly shift toward low-emissions energy sources to meet their net-zero targets. But those efforts have come at the expense of energy security, industry executives say, which will leave lasting impressions on energy markets and the decarbonization push.
“We became blinded by an almost singular focus on reducing emissions,” Van Wielingen said in an interview with The Logic.
His comments come amid a period of intense volatility in energy markets that has put Canadian oil producers back in favour to make up for a critical supply shortfall intensified by the war in Ukraine. Stock valuations for Canadian heavy oil producers have held their value relative to the broader market over the last year. Enbridge CEO Al Monaco recently said the war marked a “major inflection point” in energy markets that will alter public views toward the energy transition.
Outgoing Alberta Premier Jason Kenney has referred to the “perverse vindication” brought by Europe’s energy crisis, and has made two Washington trips in an effort to frame Canada as a stable oil supplier. It’s a sentiment that is widely shared inside Calgary’s corporate towers.
“I can feel a little bit of that, to be really honest with you,” Van Wielingen said. “I can feel at least a touch of vindication, and it’s not so much, believe it or not, related to hydrocarbons as it is related to complexity and timing and risks and all that.”
Other experts have come to the opposite conclusion, saying the government needs to accelerate the transition to renewable sources as a way to undercut the geopolitics of energy.
Van Wielingen, a 40-year energy investor who has also served as chair of Alberta Investment Management Corporation (AIMCo) and as board member of the Business Council of Alberta, said the crux of the problem is a lack of long-term thinking on energy policy, which has led leaders to ignore major issues like security and affordability.
“If there’s an enemy in all of this it’s narrowness and rigidity of perspective, which creates what psychologists call ‘inattentional blindness,’ and you just don’t see other realities and other fundamentals.”
He cites Europe’s current struggle to rein in fuel and power costs, which spiked after Russia throttled energy supplies including natural gas. French President Emmanuel Macron’s recent electoral loss has been partly attributed to the energy crisis, while Germany has had to cut back its fuel tax as prices at the pump soared. Germany’s efforts to abruptly shift away from nuclear, coal and natural gas power sources has been fraught, as the country’s wind farms struggle to meet electricity demand.
While he expects cleantech adoption to continue at a rapid pace, the latest strategic issues in Europe are likely to spur distrust, he said.
“I think there will be an acceleration of renewable energy development,” he said. “But more broadly, what I worry about is the loss of credibility—institutional credibility and credibility in leadership.”
It might appear convenient that the founder of a major Canadian oil and gas investor is cautioning against the viability of a rapid transition away from fossil fuels. But Van Wielingen was also a fairly early cleantech investor, directing ARC’s shift about 10 years ago towards renewable assets.
ARC became the one of the largest private investors in Canadian hydro, and it made bets on a number of cleantech companies including Calgary-based BluEarth Renewables. It has also taken positions in fuel cell and hydrogen companies.
He said it remains uncertain how quickly the recent “meltdown” in cleantech markets will rebound, saying the sector is likely to see widespread consolidation as easy capital flees.
“I don’t see a V-shaped recovery for cleantech,” he said, adding that there could be some residual doubts about the sector more broadly.
The iShares Global Clean Energy ETF, which tracks a basket of wind, solar and other renewables companies, is down 24 per cent from one year ago. Capital raised by global cleantech companies through IPOs in 2022 is down more than two-thirds from last year, according to PitchBook, despite being more than halfway through the year.
“It’s hard to argue that it’s as viable as ever if these businesses, many of which have no cash flow, can’t access capital,” he said.
The current state of energy markets has also fed into concerns about the viability of investing with an eye toward environmental, social and governance (ESG) issues, he said. ESG investing has faced some pushback, driven either by allegations of greenwashing or by ideological opposition.
Van Wielingen, a long-time supporter of ESG investing, also worries that it could begin to weigh down the financial community, saying “a tsunami of compliance-based governance is coming onto the industry.”
“It seems intuitively positive: ‘Oh, let’s just get more metrics, and we’ll all just have more clarity and we’ll publish our progress against these metrics,’” he said. “But it’s not a powerful way to create change in society. Some of it is good, but it can be overdone. So ESG is aspirational, [and that’s] fantastic. I think it needs to be part of the purpose of a business, but you have to be very careful that it doesn’t engender more narrowness.”
Overall, he said public viewpoints are starting to become more aligned on a timeline to shift away from traditional sources of energy. When talking to federal government officials as recently as three or four years ago, Van Wielingen said, there used to be a sense among younger policymakers that Canada could complete the transition in as little as 10 years.
“Nobody’s arguing that anymore,” he said. “People now see that the timeframes are going to be very long. And it’s worrisome because of the climate risk.”
