International Energy Financing-implications For Canadian Energy Developments*

Abstract

Abstract This paper identifies and discusses the principal determinants of the future financial requirements of the energy resource industries for their world-wide operations. Factors discussed include the amount of finance required, alternative methods of financing and sources of funds. Comparisons are made between Canada's energy industries requirements and those of the U.S.A. and the U.K. It concludes that Canada's requirements are propornonately greater on a per-capita basis. Similarly, the Canadian petroleum producing industries requirements are examined in the context of those of the international petroleum industry. This shows that the unit investment cost of Canadian petroleum supplies is likely to be considerably higher than the average unit cost of Western World*** supplies. It also demonstrates a sharp? divergence between the financing patterns of the Canadian and international industries. The paper also discusses the role of international capital markets in providing funds for Canada's energy developments in the future and suggests that such sources may not be as helpful as might initially be expected and that competition for such funds may be quite strong. The paper concludes that a larger amount of finance in the future will have to be in the form of project-related loans. It suggests that these may be assisted if a new form of private-sector financial institution could be formed to provide third-party guarantees for such loans. Without this, it is feared that greater government intervention may be unavailable. Introduction The theme assigned to me for this address embraces a wide range of issues, including questions such as: What will be the capital requirements of the world's energy industries to the year 2000? Where will the necessary funds come from? Will there be a need for new methods of financing? What factors might frustrate the efficient development and financing of the world's energy resources? These are important issues, and the answers are far from obvious at first glance, but for this occasion I have been asked to examine the implications of these issues for Canadian energy resources and especially for the future development of the Canadian petroleum producing industry. For a visitor to talk about the future development of domestic industries is always a daunting and often a hazardous task. I therefore approach it with a certain degree of trepidation. I am also reminded of the Arab proverb: "Those who foretell the future lie, even if they tell the truth." Determinants of Financial Requirements The future financial requirements of the energy resource industries will be primarily determined by the following basic factors: market needs for energy; technological! geological complexity of resource recovery; environmental hostility at resource location; level of annual rate of inflation; political costs. Based on past trends, the growth rate in market needs for energy will match (or at least be linked with) the prospective rate of growth in economic activities.