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Trudeau regulatory regime changes take bite out of capital spending
Gary Park for Petroleum News
The numbers offer a clear picture of the Canadian government’s strategy that has dragged its petroleum industry from a place of prominence on the global stage.
And the worst could be yet to happen based on warnings from company chief executive officers that new federal legislation will choke off any hopes of pipeline expansions that are essential if Canada is to diversify its markets beyond North America.
In its annual forecast on crude oil production, markets and transportation, the Canadian Association of Petroleum Producers has delivered the grimmest outlook in history.
Predicting a fifth straight year of shrinking capital investment in the oil sands from C$33.9 billion in 2014 to an expected C$12 billion this year, CAPP blamed the trend on “continual delays in obtaining increased market access” that have stalled regulatory approvals for major pipelines, notably Enbridge’s Northern Gateway to Prince Rupert on the northern British Columbia coast and TC Energy’s proposed Energy East pipeline to the Atlantic coast in New Brunswick.
Overall capital spending in Canada’s oil and natural gas industry is expected to slump to C$37 billion in 2019 from C$81 billion in 2014.
Drop from 2014 outlook Although the report said Canadian oil output will reach 5.36 million barrels per day by 2035, up 1.27 million bpd from current levels, that amounts to an annual increase of only 1.4%, less than half the output of 7.5 million bpd from Western Canada in 2030 that CAPP projected in its 2014 outlook.
CAPP said global demand for crude oil is anticipated to reach 106.3 million bpd in 2040, a gain of 12%, led by consumption and refinery demand in the Asia-Pacific region.
But Canada will be “left on the sidelines,” despite its role as a leading supplier of “the most responsibly produced oil and natural gas on the planet. But our lack of pipelines and inefficient regulatory reality means that other suppliers, with lesser environmental and social standards are taking our market share,” the report said.
If those challenges are not met and the industry is denied the chance to recapture more than C$40 billion of investment, Canada’s gross domestic product, business investment, exports, jobs and tax revenues will all suffer, CAPP said.
Minimal rewrite of C-69 On the same day the report was released, federal Environment Minister Catherine McKenna said the government of Prime Minister Justin Trudeau would accept only 62 of 229 Senate recommendations to rewrite some of Bill C-69, which opens the door to a sweeping overhaul of Canada’s regulatory approval process for major resource projects, while modifying another 37 recommendations.
The effect was to give a distinctly cold shoulder to all amendments urged by industry groups such as CAPP and the Canadian Energy Pipeline Association.
By moving ahead with Bill C-69 the Trudeau government has put itself on a collision course with nine of Canada’s 10 premiers, leaving British Columbia Premier John Horgan as its only ally.
Industry stepping back Rich Kruger, CEO of Imperial Oil (owned 69.6% by ExxonMobil), said that if the bill is passed “it will unfortunately cause us to step back and deeply consider all future major growth opportunities.”
He said there is no balance in the legislation and “the proof will come over time, when parties quit investing.”
Birchcliff Energy CEO Jeff Tonken said Bill C-69 would block access to coastal tanker terminals “and that will then stop any growth in Canada.”
CAPP President Tim McMillan said McKenna’s claims that the opposition Conservative Party, led by Andrew Scheer, wants to “pursue economic development at all costs and put the interests of oil lobbyists ahead of the interests of Canadians” is proof that she wants to “profile our industry as if we are not responsible.”
Backing the industry, six premiers (including Bob McLeod of the Northwest Territories) sent a letter telling Trudeau that he should accept all amendments to Bill C-69 or risk national unity by driving away jobs and investment.
The premiers also urged Trudeau to scrap Bill C-48, which would ban oil tankers from loading at northern British Columbia ports.
Trudeau fired back by suggesting it was the premiers who were “threatening our national unity” to which Kenney said the premiers signed their letter “in the best traditions of cooperative federalism ... this dismissive response from the federal government is the real threat to the national economy and to national unity.”
- GARY PARK
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