trending Market Intelligence /marketintelligence/en/news-insights/trending/F6_vj8B7uJC-n4aGR-rbow2 content esgSubNav
In This List

Close Canadian election may dictate course of pipeline, climate policy


Japan M&A By the Numbers: Q4 2023


See the Big Picture: Energy Transition in 2024


IR in Focus | Episode 10: Capital Markets Outlook


Infographic: The Big Picture 2024 – Energy Transition Outlook

Close Canadian election may dictate course of pipeline, climate policy

The future of Canada's energy industry could hinge on a too-close-to-call federal election in which the nation's leading political parties are in a statistical dead heat, raising the possibility that any one of three less-popular parties could hold the balance of power in Parliament.

Incumbent Prime Minister Justin Trudeau's left-leaning Liberals and the right-wing Conservatives led by Andrew Scheer are virtually neck and neck as Canadians head to the polls Oct. 21. As of Oct. 20, the most-recent published poll, taken for the Global television network by researcher Ipsos on Oct. 17-19, found the Conservatives favored by 33% of decided voters, while the Liberals would garner 31% of the vote. The poll has a "credibility interval" of plus or minus 2%, indicating the parties are tied. That may be immaterial as the poll also indicated that neither party would be strong enough to hold a majority of the 338 seats in the federal Parliament that will be decided.

Leading the remaining parties are the socialist New Democrats headed by Jagmeet Singh, which had 18% support in the Global-Ipsos poll. That could give the New Democrats enough seats to form an alliance with the Liberals that could block the Conservatives, even if they win the most seats. Singh has already hinted that he would be open to governing jointly with the Liberals. His stated opposition to the expansion of government-owned Trans Mountain Corp.'s crude export pipeline and support for reducing or eliminating fossil fuels could create headaches for Canada's already-strapped oil and natural gas industries.

"Polls are currently indicating that a majority government may not be in the cards, bringing about concerns that a Liberal minority government could lead to [the Trans Mountain expansion] becoming a bargaining chip if a coalition were to be formed with other parties," analysts at Tudor Pickering Holt & Co. said in an Oct. 18 note. "Should a Conservative minority government be formed, we view it as more of a non-event for the energy space" because an overhaul of the nation's energy regulator has already taken place, and other export pipeline projects such as TC Energy Corp.'s Keystone XL and Enbridge Inc.'s Line 3 replacement are in the hands of U.S. officials.

Minority prospects

The prospects for Scheer's Conservatives' ability to form a coalition government are less clear. The Bloc Quebecois — a federal party from Quebec that supports separation from Canada — have traditionally been Conservative supporters, although in recent years, the party has come out in opposition to pipeline expansion. The Bloc, which held 10 seats in Parliament when the election was called, carried 7% of decided voters in the Global-Ipsos poll, which translated to 29% support in the pivotal province of Quebec. Western candidates for the fledgling People's Party of Canada led by Maxime Bernier, its only elected member, are vowing to impose pipelines on reluctant provinces. Bernier, who lost a bid to lead the Conservatives to Scheer, could be an ally but is supported by only a small percentage in all polls.

Completing a new export pipeline has been identified as critical by oil- and natural gas-producing provinces and companies that have seen local prices plummet because of limited access to markets outside of Canada. Trans Mountain, which runs between the oil sands region of Alberta and a marine terminal on the Pacific coast in British Columbia, is being expanded to a capacity of 890,000 barrels per day from its current 300,000 bbl/d. The expansion would allow crude producers to export more heavy oil to Asian countries and increase shipments of synthetic crude, derived from oil sand bitumen, to markets along the U.S. West Coast.

SNL Image

Pipe is unloaded in preparation for federal government-owned Trans Mountain's planned pipeline expansion.
Source: Trans Mountain Corp.

Trudeau found himself forced to buy Trans Mountain from Kinder Morgan Inc. for C$4.5 billion after the Houston-based midstream giant threatened to walk away from the expansion project amid opposition from lower levels of government, environmental groups and First Nations. The day before the transaction closed, a federal court stopped construction of the line for nearly a year, citing inadequate consultations with First Nations, among other reasons. While the federal government reviewed and relicensed the Trans Mountain expansion, and construction activities have restarted, the system faces fresh court challenges. The federal government has largely taken a hands-off approach to those challenges. Opposition to the expansion is highest in British Columbia's populous Lower Mainland region, which could be a critical battleground in the election.

Pipeline battles

After being elected with a majority in 2015, Trudeau has been a supporter of the Trans Mountain and Enbridge Line 3 projects, both of which he approved after a second — and in the case of Trans Mountain, a third — regulatory review. His government vetoed Enbridge's already-licensed Northern Gateway pipeline from the oil sands to British Columbia's northern coast and effectively blocked other proposals for that route by banning inbound oil tankers in the region. Tankers carrying crude from Alaska to U.S. ports are not affected by the ban. An application for a fourth pipeline, TC Energy's Energy East, which would have linked the oil sands with Canada's East Coast, was scrapped amid new regulatory requirements imposed by Trudeau's government.

The Liberal government recently enacted Bill C-69, which split the former National Energy Board into the Canada Energy Regulator and a separate environmental assessment board, an arrangement that industry associations have said would likely block the approval of future oil sands lines.

Scheer has vowed to push the pipeline fight to the Supreme Court of Canada to prove the federal government's authority to regulate pipelines and their construction. He has also vowed to overturn the West Coast tanker ban. While Scheer has said he would help the energy industry grow, he has offered few specifics on how energy regulation would be changed.

Climate change

Climate change issues, many of which involve petroleum producers, are also a hot topic in the election. Trudeau and Scheer have vowed to keep Canada within targets set under the Paris Agreement on climate change, although their method of achieving those goals diverges. Scheer has vowed to ax a sweeping emissions tax imposed on provinces the federal government deemed were underpricing pollution. The Conservatives would replace the tax with alternative emissions-reductions policies. The Liberals have vowed to bring Canada to net-zero emissions by 2050, a move that could benefit renewable electricity producers at the expense of fossil fuel generators.

The so-called carbon tax has fueled animosity between the federal government and provinces representing a majority of Canada's population, resulting in court challenges. During Trudeau's term, Ontario, Manitoba and Alberta have turfed left-leaning governments, including the provincial Liberal party in Ontario, while British Columbia's Liberal government was ousted by a coalition of further-left New Democrats and Greens. Trudeau has continued to show steady support through the campaign, despite opponents accusing him of meddling in the federal prosecution of a Montreal-based engineering company and photos that emerged of him appearing in blackface at various events.

The Canadian Association of Petroleum Producers and the Canadian Energy Pipeline Association, which represent the nation's biggest oil producers and pipelines, have urged voters to support candidates whose policies are most closely aligned with the Conservative platform. Industry watchers have also cited a Liberal win as a loss for the sector.

"We view the possibility of a Liberal minority government as a negative outcome given the uncertainty it would create," the Tudor Pickering Holt analysts said.

While Canadian elections are usually decided in the central provinces of Ontario and Quebec, which have the largest portion of the population, the Oct. 21 contest may not be decided until votes are counted in British Columbia, 4.5 hours after polls first start to close in Newfoundland and Labrador.

The Canadian Broadcasting Corp.'s poll tracker, which aggregates data from publicly available polls, also found the Liberals and Conservatives in a dead heat at 32% support as of Oct. 20. Based on the number of seats each party would win, the public broadcaster's data showed the likelihood of the Liberals forming a majority government at 13% while rating the Conservatives' chances at 2%.