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Election results troubling to Canada’s oil industry Liberal party needs opposition support to govern; forging alliances could slow progress on major projects, including Mackenzie gas development Gary Park Petroleum News Calgary Correspondent
In the fallout from Canada’s June 28 federal election, the oil patch is in a jittery state, worried about the consequences for a host of big-ticket items — notably the Mackenzie Gas Project, British Columbia offshore, East Coast offshore, Alberta’s oil sands and the sale of the government’s 19 percent stake in Petro-Canada.
The vote left Canada without a majority government for the ninth time in its 137-year history, as the Liberals under Prime Minister Paul Martin captured only 135 of 308 seats in the House of Commons, 20 short of the number needed to run the country.
Having ruled out a formal coalition with any of the other political parties, the Liberals can stay alive only by horse-trading with their opposition on an issue-by-issue basis.
Among political observers there is a widespread feeling that Canadians, only 60 percent of whom voted on June 28, have no appetite for an early return to the polls and that the parties have neither the energy nor the finances to wage another battle in the short term.
However, the Liberals still have the challenge of forging alliances to continue governing.
The Conservatives, as the main opposition, have 99 seats, but are the least likely to support Liberal legislation, believing that they have made enough gains to win the next election.
That leaves the Bloc Quebecois with 54 seats, the New Democratic Party, NDP, with 19 and one independent.
Those options are further narrowed because the Bloc Quebecois is committed to an independent Quebec, although it has indicated a willingness to work with the Liberals on issues of importance to Quebec. New Democratic Party is left-leaning Thus, the hopes rest with the left-leaning NDP, which promotes a range of issues that raise alarm in the industry and has called for a tax hike of C$45 billion over five years, a full tax on capital gains, higher tax rates for incomes over C$250,000 and higher corporate taxes.
Under leader Jack Layton, the NDP is the most aggressive proponent of the Kyoto climate-change treaty that sets limits on greenhouse gas emissions and the least likely to favor swift regulatory approval of plans to develop the Arctic and frontier offshore regions.
In his opening salvo June 29, Layton threatened to block a deal to sell the federal government’s remaining 19 percent stake in Petro-Canada for as much as C$3 billion.
“We have not supported the sale of Petro-Canada, particularly with such a pathetic percentage of the sale revenue going towards renewable energy and energy solutions,” he said. “It is not a wisely cast policy, as we see it at the moment.”
The NDP campaign platform called, among other things, for the creation of a government-owned corporation to fund and sell renewable energy sources and to build 10,000 wind turbines by 2010. NDP supports Kyoto Protocol During the campaign, Layton attacked the Liberals for not having a specific plan to implement the Kyoto Protocol, although the government has pledged to limit emission cuts in the oil and gas sector to 15 percent.
“Paul Martin has said he agrees with Kyoto targets, but those are weasel words,” he said.
Layton said the NDP wants action to move Canada away from its dependence on fossil fuels and, to that end, would rule out subsidies or tax incentives to help the petroleum industry achieve the Kyoto targets.
Martin had been expected by the industry to stick with Kyoto’s broad principles, while setting a timeline and implementation objectives that would be acceptable to industry.
Roger Soucy, president of the Petroleum Services Alliance of Canada, said Kyoto now looms as a larger issue than ever before.
The industry has “probably been put on notice that Kyoto is going to have to be dealt with,” he said. Slower and fewer decisions expected Even before the voting, Charlie Fischer, chief executive officer of E&P independent Nexen, said the history of minority governments would point to “far slower decisions and far fewer decisions because, in finding compromise, it just takes more effort.”
He predicted the “most significant negative effect” would involve the Arctic and frontier regions where the government is “still really trying to define the regulatory structure.”
David MacInnis, president of the Canadian Energy Pipeline Association, said “it’s safe to say” the industry will have to do business “a little differently” in the changed political environment.
He said the uncertainty “means longer time lines and longer time lines mean higher costs.”
The big issues at stake are:
Mackenzie Mackenzie Gas Project — Applications to build a C$5 billion-plus pipeline from the Mackenzie Delta to Alberta are expected to be filed this summer with regulators. The major producer consortium led by Imperial Oil has repeatedly made the case that serious delays in the regulatory phase pushing the start-up of gas deliveries beyond 2009 could undermine the economics of the project, although the proponents are taking a measured view for now of the shift to minority government.
In keeping with plans for one of Canada’s largest pipelines, the regulatory phase, despite moves to conduct a joint environmental review, involves 12 government and aboriginal agencies, most of them with a strong environmental interest.
Given the NDP’s claim to have the only “green option” among Canada’s four major political parties, the Mackenzie project would be an early opportunity for Layton to assert himself without having an apparent impact on Canada’s wider economy or energy security.
In addition, the federal government is already under pressure to resolve the Deh Cho First Nations land claims along the lower one-third of the Mackenzie pipeline route, presenting Layton with a chance to align himself with an aboriginal cause. British Columbia offshore British Columbia offshore — The province’s hopes of lifting the moratorium on exploration of the region by 2010 could be dealt a serious, if not fatal blow if the Liberals move to the left to appease the NDP. Environment Minister David Anderson, who has insisted on costly environmental impact studies before opening the offshore to exploration and drilling, was re-elected June 28, although there is some speculation he may be dropped from the cabinet.
Regardless of that prospect, the NDP candidate won the riding most directly affected by any offshore development of the Queen Charlotte Basin, with its possible 26 trillion cubic feet of gas reserves and 9.8 billion barrels of oil.
British Columbia Energy Minister Richard Neufeld, who has distanced himself from some of the province’s more bullish forecasts that a commercial offshore industry could be up and running this decade, is still holding Martin to his campaign promise to put the British Columbia offshore on the same footing as the East Coast offshore.
“I’m banking on it that his word is true,” Neufeld said, while conceding that a balance-of-power position for the NDP is not good news for British Columbia. East Coast offshore East Coast offshore — A string of dry holes in the last couple of years and a host of exploration licenses that start to expire this year has the future of the East Coast hanging in the balance, regardless of its fledgling exploration history, with just 200 wells drilled compared with more than 40,000 in the Gulf of Mexico.
The industry, with EnCana in the forefront, has pressured the Canadian and Nova Scotia governments to streamline the regulatory process, which is estimated to take twice as long as rival basins in the Gulf of Mexico and West Africa offshore. That goal produced its own conflict in the federal cabinet before the election, with Energy Minister John Efford favoring removal of “excessive” red tape, while Anderson insisted he was more concerned with protecting marine ecosystems.
Adding the NDP to the mix is not likely to hasten regulatory reform. Alberta oil sands Alberta oil sands — The sector is the highest profile target for those who want Kyoto fully implemented, because of its carbon dioxide emissions. If the NDP decides to put the oil sands in its sights, it could spell trouble for the 61 projects currently on the table.
In addition, the industry has been making a case for human resource policies to ease labor shortages that are a major contributor to the crippling cost overruns on projects over recent years. But any changes to labor conditions could be unacceptable to the NDP because of its heavy reliance on organized labor.
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