Canada: Post-Election 2019: Impacts On Canada's Energy Industry

The results of the Canadian federal election were as predicted: a parliamentary minority led by Justin Trudeau's Liberals. The Liberals have a strong working minority and rather than a formal coalition, they plan to govern on an ad hoc basis. This means passing legislation by finding the magic number of votes by combining with one of the other four parties: the Official Opposition Conservatives; the left-leaning New Democratic Party (or NDP); the Québec-focused Bloc Québécois (or the Bloc); and the Green Party (or the Greens). While this is not an entirely stable situation, Canada has had numerous minority governments, including most recently one led by Stephen Harper's Conservatives. Therefore, Canada watchers should feel relatively confident that the policies under a Liberal minority will not be radical or outlandish, as the government could easily be toppled with a vote of non-confidence which would mean a new election. This is not to say that there aren't hard feelings and anger roiling around on social media, but the Canadian experience is that a minority government can lead to incremental policy changes rather than seismic shifts.

Below we have described how we believe the election results may affect key parts of Canada's energy industry, especially with respect to how investors from outside Canada should view the next number of months.

The Trans Mountain Pipeline Expansion: Same As It Ever Was

Canada's ownership of the Trans Mountain Pipeline that transports crude from Alberta to tidewater on the West Coast, including its proposed multi-billion dollar expansion, is sure to remain a political football to be kicked around Ottawa. With a minority government, however, it's hard to be certain which direction that ball will roll. Despite taking it on the chin from all sides of the pipeline debate in the election campaign, the Liberals remained steadfast in its position that Trans Mountain will be built, with any profits reinvested in the environment.

The NDP and Greens are strongly opposed to the project, and the Bloc, like Québec, has stated its opposition to pipelines generally in Québec, though not in the rest of Canada. The Liberals will, of course, find support for Trans Mountain from the Conservative Party, but that might be support of last resort given the bitter rivalry that exists between these two main political parties.

The energy industry is concerned that Liberal support for Trans Mountain will wane as it tries to appease the NDP or the Bloc to remain in power. However, the decision by the federal government to buy Trans Mountain from Kinder Morgan for $4.5 billion is in the rear-view mirror. In addition, much of the pipe for the expansion project has been purchased, and some construction has started and can continue without the need for any new pipeline-specific legislation. Indigenous community support, conditioned on at least partial ownership in the pipeline, has also been growing. Killing the expansion would also further alienate Alberta and Saskatchewan, raising national unity issues we can all do without, and chilling further international investors that have invested tens of billions of dollars in Alberta's oil sands and are now having trouble getting product to market.

For all those reasons, our crystal ball says that a minority Liberal government will not kill Trans Mountain. Instead, look for a deal to be done quickly with Indigenous groups to bring them into the Trans Mountain ownership tent. Also, the Liberal Party has always maintained that it was a buyer of last resort for Trans Mountain, and that, once de-risked, Trans Mountain would be sold back to the private sector, potentially at a profit. The energy industry completely agrees, so look for that sale to occur before the next election – an election that is likely to occur a little sooner than might have been the case if we had a Liberal majority government.

Natural Gas: 100 Miles of Bad Road

The natural gas business continues to be the victim of low North American commodity prices, and with LNG export of scale still a few years away, natural gas producers continue to struggle. Some had managed to offset low gas prices with higher natural gas liquids prices (such as butane), but these prices have also plummeted in the last few months. We also expect there to be more insolvencies of natural gas-weighted producers if low gas prices continue.

However, the federal government seems to have left the natural gas business alone, and during the election campaign there did not seem to be the trenchant opposition from the left-leaning parties to natural gas that there was to oil or bitumen. Therefore, in the short term, we expect that there will be opportunities to acquire prospective natural gas assets at very attractive prices for buyers that can hold the assets, and take advantage of LNG export when the proposed liquefaction comes on stream.

Carbon Taxes: Here to Stay?

Prior to the October 21, 2019 federal election, Justin Trudeau's Liberal majority government implemented a federal carbon-pricing program in provinces that don't have equivalent pricing or cap-and-trade regimes, and compensates individual Canadians with rebates. During the campaign, each of the major parties differed widely on greenhouse gas (or GHG) reduction targets, and the means of achieving them. The Liberals promoted the continuation of their federal carbon-pricing program and pledged to keep raising the per-tonne federal carbon price from $20 to $50 by 2022 (although the 2030 targets in the Paris Accord are still not expected to be achieved by this program). In contrast, the Conservatives opposed carbon pricing and proposed tax incentives, levies on large polluters and spending on carbon capture technology. At the other end of the spectrum, the Greens proposed to double GHG reduction targets, and raise the carbon tax by $10 each year to $130/tonne in 2030.

The new Liberal minority government should expect to see general support for its existing federal carbon pricing program from the NDP, although the NDP is more likely to favour cuts to rebates to wealthy individuals and more tax burden on the oil and gas industry. We anticipate, therefore, that the minority Liberals and the NDP (perhaps with others) will cooperate on the federal carbon pricing program, and that carbon pricing will remain a key government policy (subject to any legal challenges regarding jurisdiction) in the minority Liberal government.

Consequently, we expect that Canada's oil and gas players will continue to design their own solutions, such as investing in technologies, as a means of addressing the increasing costs associated with GHG emissions, rather than rely on tax incentives, government spending, or a consensus solution. We have seen evidence of this in recent months, and expect the trend to continue. For example, Suncor Energy recently announced a $1.4 billion investment to replace coke-fired boilers with natural gas fired cogeneration units at its oil sands project in Fort McMurray which will reduce the GHG emissions associated with steam production at the oil sands project by 25% and generate 800 MW of power. Similarly, the Shell Canada operated Quest carbon capture and storage facility announced it had safely stored 4 million tonnes of CO2 in its first four years of operation. While a minority Liberal government may incentivize GHG reduction with a carbon tax, we anticipate oil and gas industry players will continue to invest in and create bespoke solutions to achieve GHG reductions and avoid carbon costs. It is very encouraging that they continue to make these investments without being forced to do so.

About BLG

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 Mondaq.com.

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

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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