The Canadian government of Prime Minister Stephen Harper has moved decisively on its dream to create a global energy superpower and open access to Asian markets by overhauling regulatory hearings and putting a crimp on environmental opposition.
Taking the unusual step of using its federal budget as the vehicle for change, the government imposed a cap of two years on regulatory reviews while stepping up its scrutiny of charities such as environmental organizations which are restricted to spending 10 percent of their budgets on political activities.
The immediate beneficiaries could be Enbridge’s Northern Gateway proposal to export 525,000 barrels per day of oil sands crude from the British Columbia coast and Kinder Morgan’s evolving plan to double capacity on its Trans Mountain pipeline to 600,000 bpd, all of the increased volumes aimed at Asia-Pacific markets.
Ian Anderson, president of Kinder Morgan’s Canadian unit, said the changes will “move the yardsticks significantly,” while Enbridge spokesman Paul Stanway said it is in Canada’s best interest to have “a thorough but efficient regulatory regime to assess all large industrial projects” that will create jobs and prosperity.
“If we can get to those decisions more efficiently, it’s got to be helpful,” said David Collyer, president of the Canadian Association of Petroleum Producers. “It also gives people more clarity, more predictability, more certainty about how the system is going to work.”
Asian trade ties sought
Harper has just returned from his second trip in recent months to Asia, seeking to cement trade ties with that region by attracting investment in resource development and export facilities, motivated by U.S. delays in approving Trans Canada’s Keystone XL pipeline from Alberta to Texas refineries.
Finance Minister Jim Flaherty, in releasing his 2012-13 budget, said legislation will soon be introduced to achieve the government’s goal of “one project, one review.”
The changes will affect all major natural resource projects, with the greatest impact on oil sands development and energy pipelines along with hard-rock mining.
“We will implement responsible resource development and smart regulation for economic projects … maintaining the highest standards of environmental protection,” Flaherty said.
Threat of regulatory burdens
The budget document noted that regulatory burdens threaten the viability of C$500 billion in announced new investment over the next 10 years by creating “an increasingly complicated web of rules and bureaucratic reviews that have grown over time, adding costs and delays that can deter investors.”
“Everyone wants environmental protection, but let’s get it done on a timely basis,” Flaherty said, arguing Canada could “blow it” unless it puts an end to environmental reviews that have been dragged out over as much as eight years.
He and Natural Resources Minister Joe Oliver have prepared Canadians for a regulatory overhaul in recent months by pointing out delays in regulatory processes that have already lasted eight years for the C$16.2 billion Mackenzie Gas Project and six years for the joint Suncor Energy-Total Joslyn oil sands mine, costing C$6 billion and targeting eventual output of 100,000 bpd.
Oliver has campaigned across Canada against what he described as a “needlessly complex, duplicative regulatory system.”
He has estimated the oil sands could generate C$3.3 trillion in economic benefits to Canada over the next 25 years, largely based on forecasts such as the Canadian Energy Research Institute’s updated estimate that oil sands production could grow to 5.4 million bpd from 1.6 million bpd by about 2045.
The job-creation spin-off from the oil sands is also a government priority. In a new report, the Petroleum Human Resources Council of Canada forecast that in-situ oil sands operations alone will increase their payrolls to 35,000 by 2021 from 20,000 last year, plus 6,000 to replace those who retire.
Environmental protection
Oliver said the upcoming changes do not mean Ottawa will favor development of natural resources over environmental protection.
“We will ensure that no project goes ahead if it isn’t safe for Canadians and safe for the environment,” he said.
Government frustration boiled over earlier this year after environmentalists and First Nations made up the bulk of 4,500 groups and individuals who registered to speak at a joint National Energy Board-Canadian Environmental Assessment Agency hearing into Enbridge’s proposed Northern Gateway project, underpinning Harper’s ambition to open markets for Canadian crude in Asia and threatening to extend the regulatory process to three and a-half years.
The opposition to Northern Gateway is expected to be repeated as Kinder Morgan proceeds with its own scheme to double capacity on the Trans Mountain pipeline to 600,000 bpd, also targeting Asia-Pacific markets.
Across the border funding
What infuriated the government was evidence that U.S. activists were helping finance Canadian charities and whipping up opposition to oil sands development, pipelines to tanker ports on the British Columbia coast and fast-emerging proposals to start LNG exports to Asia.
“Concerns have been raised that some charities may not be respecting the rules regarding political activities,” the budget document said.
“There have also been calls for greater public transparency related to the political activities of charities, including the extent to which they may be funded by foreign sources.”
For openers, the government said it will be more rigorous in policing the 10 percent limit on political spending by charities.
Limit on reviews
The legislation will impose an overall two year limit on environmental reviews, capping hearings by the National Energy Board at 18 months and standard environmental assessments at one year.
Project oversight will be consolidated into fewer government departments and agencies and C$14 million will be spent over two years to integrated consultations with aboriginal peoples into project reviews.
Analysts at J.P. Morgan said the new rules could “optimistically mean the (Northern Gateway) pipeline being operational by early 2016 or before. Add in the Trans Mountain pipeline and the implication is that Canada could be shipping considerable volumes of oil into the Pacific basin within four years.”
They also said accelerating project approvals would free up the supply chain where bottlenecks and limited market access mean that Canadian crude producers are receiving around 25 percent less for their crude than if it were being sold on the international market.
Fisheries Act changes
Canada’s Fisheries Minister Keith Ashfield said that the Fisheries Act will also be changed to remove some obstacles facing Northern Gateway, whose planned pipeline route crosses about 1,000 fish-spawning rivers and streams.
“There is ample evidence that the policies we have in place now are infringing on the everyday way of life of Canadians,” he said in the House of Commons.
Simon Dyer, policy director at the Pembina Institute, an Alberta-based environmental thank tank, said in statement the longest regulatory delays stem from companies changing their plans or failure by the government to meet its own regulatory obligations.
He said Oliver has been “trying to paint the picture of a problem that doesn’t exist.”
Shawn Denstedt, an attorney with the firm of Osler, Hoskin & Harcourt, said the regulatory changes are needed to end “perpetual assessments … that don’t protect the environment, help the economy or help the social fabric of Canada.”
