Trudeau wins; results create bleak outlook for Canada’s oil provinces
for Petroleum News
Canadians gave Justin Trudeau a second four-year term as prime minister on Oct. 21, under major changes to his tenancy contract that have seen the country sharply divided along political fault lines.
Pending a final vote count, his Liberals captured 157 seats in the House of Commons, 13 short of an outright majority, trailed by the Conservatives at 121, Bloc Quebecois at 32, New Democratic Party at 24, Greens at 3 and one Independent.
Tainted by the stains of ethical scandals and broken promises, Trudeau lost 27 of the parliamentary seats he won in 2015, mostly in his home province of Quebec, while the Conservatives under Andrew Scheer gained 22.
The most telling blow to the Liberals’ confidence occurred in the resource-driven Prairies, where the Conservatives won 33 of 34 seats in Alberta, all 14 in Saskatchewan and seven of 14 in Manitoba, while adding 17 of 42 in British Columbia from mostly rural electorates.
Thus, Trudeau, who is unlikely to seek a formal coalition, can only govern with votes from the socialist NDP, since he has no chance of support from the separatist/nationalist Bloc Quebecois, whose unspoken objective is to pull Quebec out of Canadian Confederation.
In those circumstances, he will be forced to bargain for votes on an issue-by-issue basis, while possibly appointing outsiders to his cabinet if he hopes to maintain a pretense of caring for all Canadians.
That boils down to a simple case of Canada’s tail wagging its dog, causing the greatest unease in Alberta and Saskatchewan, who have been threatened by the NDP and the Greens with a winding down of Canada’s fossil fuel industry over the next 10 to 30 years.
The two key minority parties have shown no desire to reverse the Liberals ban on tanker traffic off the northern British Columbia coast or the sweeping changes to environmental review legislation for major resource projects.
Nor is it likely that they will adopt Scheer’s campaign pledge to build an energy corridor across Canada to replace about C$11 billion a year of oil imports from the Middle East and Africa to Quebec and open up oil exports from Canada’s East Coast.
Trans Mountain expansionThe NDP and Greens are also resolutely committed to what one newspaper columnist called Trudeau’s Goldilocks Policy which introduced a national carbon-pricing policy in return for getting Canadian oil to offshore markets through an expanded Trans Mountain pipeline system, TMX.
What that means for TMX will be the first test of the minority regime.
The Liberals already have a bundle of public money tied up in TMX, having spent C$4.5 billion to acquire the existing 300,000 barrels per day Trans Mountain pipeline, and started down the road to spending about C$9 billion to deliver another 590,000 bpd of capacity from the Alberta oil sands to export tanker terminals in the Vancouver area.
Trudeau is virtually assured of Conservatives backing in the House of Commons to any efforts he makes to advance TMX and might even get support from the NDP whose leader Jagmeet Singh has presented Trudeau with a long list of demands that pointedly sidestep any call to kill TMX.
Alberta concernThe overriding concern for the Alberta government is to improve the province’s ability to reverse the trend in capital spending which is expected to shrink by 7% this year to C$36 billion as drilling drops 18% to 5,000 wells, which Energy Minister Sonya Savage said is vital to achieving “our main objective ... getting market access” for crude bitumen and LNG.
“We are tired of being a punching bag,” she told the Calgary Herald. “All we want is to get our resources to market. We have a constitutional right to develop them.”
Tim McMillan, president of the Canadian Association of Petroleum Producers, said Alberta is in a “terrible spot as far as global investment goes.”
“A minority government doesn’t send a clear signal to the market, to global investors, that we’re getting a shift in direction that would change their view of us,” he said.
Rafi Tahmazian, a senior portfolio manager at Canoe Financial, said the new federal government will see Canadian energy shares stuck with “dirt cheap valuations and we will bounce along the bottom for an extended period of time. We are paralyzed.”
The election result is a “sad day for Western Canada. It probably means more job losses for Alberta,” said Robert Cooper, with the Calgary-based investment firm Acumen Capital Partners.
“When you have a government that is strangling you out of existence, your risk tolerance just went out the door,” he said.
Grant Fagerham, chief executive officer of Whitecap Resources, echoed those views, suggesting companies have no choice but to be “more restrictive on spending” until they are sure production has a market.
Now he said the question is “where do we go from here? We definitely have to look at pulling back from spending.”
Bob Geddes, president of Ensign Energy Services, said an oilfield service company is going bankrupt every week and that is unlikely to change given the election outcome.
Grim pictureThe grim overall picture has been painted by Trevor Tombe, an associate economics professor at the University of Calgary, in a new analysis that asked what the impact would have been on the Canadian economy if Alberta’s growth rate had kept pace since 2014 with British Columbia.
He projected that Canada’s economy would be C$130 billion (or 5.7%) greater, its unemployment rate would be 0.8% lower and the federal deficit nearly C$13 billion a year smaller, which would be close to balancing the federal budget.
Tombe said that when Alberta employment was at its peak in 2014, before Trudeau was first elected, it provided jobs for 150,000 out-of-province Canadians who generated good incomes that boosted the tax revenues of their home provinces.
When Alberta was booming it was responsible for spending C$75 billion a year on total domestic internal trade of C$380 billion. The current consensus is that those days are long gone.
- GARY PARK