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Providing coverage of Alaska and northern Canada's oil and gas industry
January 2016

Vol. 21, No. 5 Week of January 31, 2016

Trying to turn the tide

Canadian government about to roll out changes to pipeline regulatory reviews, prodded by loss of C$50B in oil and gas revenues

GARY PARK

For Petroleum News

There are the first, faint stirrings within the new Canadian government of regulatory and financial changes to advance the prospects of building energy pipelines to the Pacific and Atlantic coasts.

Finance Minister Bill Morneau, as part of his cross-Canada consultations to prepare a 2016-17 budget, left no doubt that he is exploring ways to reverse the loss of C$50 billion in annual government revenue from the decline in oil and natural gas prices.

At the same time, Natural Resources Minister Jim Carr acknowledged the urgent need to craft a new process to consider and approve pipelines to export terminals.

But he cautioned that the Liberal administration of Prime Minister Justin Trudeau will probably roll back changes introduced by the previous government to streamline the regulatory process by limiting environmental reviews and who can appear before National Energy Board hearings.

Carr said only that the government hopes “within weeks” to announce an interim environmental review process while pledging that energy projects started under the previous regime “will not have to restart from zero.”

Compounding the challenges is the prospect of a flood of Iranian oil on to the international market after the United States and the European Union lifted economic sanctions against Iran.

That comes on top of unease within Canadian petroleum circles as the United States draws closer to exporting crude and LNG.

‘Biggest competitor’?

Alberta Premier Rachel Notley noted earlier in January that with the boom in shale oil and natural gas production over recent years the United States no longer needs up to two-thirds of Canadian output, suggesting that the U.S. has “transformed from our best customer to our biggest competitor.”

But the latest figures from the U.S. Energy Information Administration painted a slightly different picture, estimating Canadian crude shipments to the U.S. at 3.4 million barrels per day in the first week of January, their highest level ever.

“That’s one piece of the puzzle you don’t hear too much about ... the market share Canada is gaining in the U.S.,” said Carl Evans, senior crude oil analyst at research firm Genscape.

The surge comes as U.S. oil production was expected to drop 80,000 bpd in December, which Martin King, vice president of institutional research at FirstEnergy Capital, said could allow Canada to capture a “bit more” of the U.S. market.

Even so, given the cold shoulder the Obama administration delivered to TransCanada’s Keystone XL, the Canadian petroleum industry has decided it can no longer afford to delay finding ways to open markets beyond North America and benefit from Brent crude prices now that the Canadian dollar is at its lowest level since 2002.

“There’s clearly a worry among people in the sector that they do need to get access to tidewater (coastal ports),” Morneau said in Calgary.

He also agreed to take a second look at a Liberal government policy promise to end subsidies for the fossil fuel industry, some of which the industry considers to be merely tax breaks which are available to other resource industries.

Stimulus package?

After years of having very little or no contact with the Canadian government, the petroleum industry is hopeful the Trudeau government is about to release a stimulus package.

“I think our government really understands the crisis we are in,” said Alex Ferguson, a vice president of the Canadian Association of Petroleum Producers.

But there are few specific ideas on how the government can facilitate the provision of new pipelines at a time when it is under mounting pressure to force Kinder Morgan and TransCanada to reapply for the Trans Mountain expansion and Energy East, respectively, which would offer combined incremental capacity of 2 million barrels per day, mostly for markets in Asia and Europe.

One new study by the Federation of Canadian Municipalities has suggested the government should pump C$140 billion to C$400 billion into infrastructure projects over the next 10 years.

While most of that spending would be directed at transportation systems, from urban transit to roads and railways, little would directly benefit the movement of crude unless a decision was taken to bypass the controversial overland pipelines in favor of using rail.

‘Getting projects built’

Trudeau told reporters at a federal cabinet meeting that the “focus on infrastructure money is actually on getting projects built, getting people working on things that will activate the job market in the short term and create growth and productivity gains in the medium and long term.”

He was defensive when asked how much sympathy he had for the 60,000 petroleum sector workers who have lost their jobs in the past year, arguing that the government of Prime Minister Stephen Harper had failed over 10 years to recognize “that the way to support our resource industry is to be stronger on environmental oversight and responsibility.”

He sidestepped questions on how large a budget deficit he is willing to run to keep the economic engines turning over beyond promising his first budget will be “fiscally responsible.”

For now, optimism is being kept alive by word that Trudeau has decided to focus initial stimulus efforts in Alberta and Saskatchewan by allocating C$1 billion for infrastructure work in the two provinces.

Alberta Infrastructure Minister Brian Mason said he understands the decision will fast tracked, with money being made available in April.

He said federal dollars will augment money Alberta is borrowing to support a five-year, C$34 billion capital plan to create about 10,000 jobs.

However, there is no indication that the infrastructure spending will yield any direct benefits for the oil and gas sector, prompting industry insiders to warn that unless the Canadian government can find a way to expedite regulatory approvals for pipelines the current slender hope of action will be meaningless.






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