Canada: Risks And Challenges Facing Canada's Oil And Gas Industry: Price Volatility And The Certainty Of Uncertainty

Last Updated: November 9 2016
Article by Alicia Quesnel

Predictions about economic recovery in global resources markets are plentiful - unfortunately, they are not particularly consistent. The only certainty about when and how recovery will occur and what recovery will look like is that it is uncertain. Hourly speculations about the factors that affect commodity prices (or speculations about the factors themselves) are fuelling a price volatility that is increasingly divorced from the underlying fundamentals. Right now commodity prices are less about the economic fundamentals of supply and demand and more about addressing financial' market requirements, geopolitical concerns and the climate change imperative. The impact of all of this on Canada's energy sector has been profound, far reaching and unprecedented. What the industry looked like in 2014 is not what the industry looks like today, nor what the industry will look like tomorrow. The changes are many and varied and this article examines three of them: firstly, the flight of resource capital from Canada, secondly, the redefinition of the junior resources sector, and finally, the closing of the current window of opportunity to become a player in global LNG markets.

Investment capital takes flight

Investment dollars in Canada's energy sector are moving south. Canadian products are constrained by a lack of access to markets outside Canada. The US, once our customer, is now our largest competitor. Obtaining approval of new energy infrastructure projects in Canada, particularly pipelines, has become increasingly difficult; with the result being that access to more lucrative global and international markets is constrained. Until such access becomes available, Canadian products will continue to be subject to a discount on already low global and North American commodity prices.

In the meantime, investors and companies looking for growth in the energy sector have started to reallocate their investment capital from Canada's energy sector into international markets. Encana Corporation started looking south in 2014 with its US$3.lbn Eagle Ford acquisition, and since that time, its acquisition of additional US natural resources assets and its disposition of significant Canadian resources assets. And it hasn't looked back. In August 2015, Canada Pension Plan Investment Board, a significant investor in Canada's energy sector, acquired US based Antares Capital for US$12bn. In September 2015, Emera Inc., an energy and services company headquartered in Halifax, Nova Scotia, acquired TECO Energy, a US energy related company, for approximately US$lO.4bn, reducing its Canadian assets to only 23 percent of its portfolio. In February 2016, Fortis Inc, a leader in the electric and gas utility business, acquired ITC Holdings Corp., a US based energy infrastructure company, for approximately $US Il.3bn in furtherance of its stated objectives to possess significant growth assets. In March 2016, Trans Canada Corporation completed its acquisition of Columbia Pipeline Group for approximately $US13bn acquiring (rather than constructing) additional pipeline assets to grow its business. Finally, in September 20 16, Canadian based Enbridge Inc. and US based Spectra Energy Corp. agreed to combine in a US$28bn stock deal to create the largest energy infrastructure company in North America fulfilling Enbridge's stated objective of diversifying and expanding its sources of growth beyond 2019.

By contrast, big deals in Canada, other than Suncor Energy Inc.'s acquisition of additional oil sands assets from two of its joint venture partners in the Syncrude oil sands project, have been few and far between.

Intermediate is the new junior

In prior years, Canada depended on its vibrant junior oil & gas sector to accelerate recovery from down markets. All that was needed was readily available capital from banks and a capable and experienced management team. In today's environment, that no longer works. Players in the junior sector have been disproportionately affected by the low-price commodity environment. Cash flow from operations is often insufficient to meet operating expenses and drilling programmes have been significantly cut back. Reserve values and reserves are both decreasing - not only as a result of lower commodity prices but also as a result of lack of investment. Canadian banks are suffering losses and looking at ways to reduce their exposure to the energy sector. At the end of each quarter, junior and intermediate exploration and production companies are seeing a reduction in the borrowing bases for their reserve based lending facilities, further exacerbating their financial woes. Since reserve based lending is the most critical source of capital for junior exploration and production companies, the inability to finance operations from that source of debt capital has had a significant impact on the junior sector. The cost to 'start small' is just too high. And the 'reward', at least for North American private equity investment in the junior oil & gas sector in Canada, is just too small

In this environment, most junior players do not have the financial ability to participate in the current unconventional resources growth plays in western Canada, like the Montney shale. These plays are capital intensive and drilling programmes are technologically complicated and challenging. New industry realities mean that 'juniors' will need to be bigger, stronger and more financially sound if they want to attract funding from the sources of capital that are available to them.

Closing the blinds on LNG in Canada – almost

One of the biggest missed opportunities for Canada is the development of a globally competitive liquefied natural gas (LNG) industry along British Columbia's west coast. This is as much a result of the global resource meltdown as the inability of Canadian companies to obtain regulatory approval of large scale infrastructure projects. In 2014 there were more than 20 proposed LNG projects for up to 250 mtpa of LNG capacity being proposed along British Columbia's west coast. By the end of 2014 and throughout 2015, several projects were deferred or cancelled. Two promising large scale projects were set to make a final investment decision in 2016 - Shell Canada sponsored 'LNG Canada', a joint venture with China National Petroleum Corporation, Mitsubishi Corporation and Korea Gas Corporation for up to a four train 24 mtpa LNG project; and the Petronas led 'Pacific Northwest LNG Project' , a joint venture among Progress Energy Ltd., a wholly-owned subsidiary of Petronas, Sinopec, JAPEX, Indian Oil Corporation and Petroleum Brunei for up to an 18 mtpa LNG project.

The LNG Canada project was the farthest project along in terms of regulatory approvals. However, in February 2016 LNG Canada announced that it would delay a final investment decision until the end of 2016 to ensure that the project was economically viable in the current environment. In July 2016, Shell announced that the final investment decision planned for the end of 2016 would be deferred to an indeterminate future date.

The Pacific Northwest LNG project is the last remaining large scale LNG project that has yet to be deferred or cancelled. The proponents made a conditional final investment decision in 2015 pending receipt of federal environmental approval. After several regulatory delays, the project received federal environmental approval of its project on 28 September 2016. However, despite the earlier conditional final investment decision, the future development of this project is uncertain. There are 190 conditions attached to the federal environmental approval, including the first ever maximum cap on C02 emissions. Petronas has stated that in light of the 190 conditions and the current economic climate, it will review the project to determine whether it remains economically feasible before it makes a final investment determination.

The global energy industry generally, and the Canadian energy industry in particular, has seen very significant structural and cyclical changes in a very short period of time. Unfortunately, the long-term implications will only truly be understood in hindsight

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions