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Canada's minority government offers little hope of relief for fossil fuels

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Canada's minority government offers little hope of relief for fossil fuels

As Canadian Prime Minister Justin Trudeau navigates the process of setting up a government that could be ousted by a united opposition, the nation's oil and gas industry has little hope of changes to regulatory gridlock and environmental policies that sent fossil fuel jobs and investment fleeing to other regions during his first term at the nation's helm.

A flash point of the energy conflict within Canada has been the expansion of government-owned Trans Mountain Corp.'s pipeline network that links the oil sands of Alberta with a marine terminal on the British Columbia coast. Canada's crude producers have pushed hard for the 590,000 barrel-per-day expansion of the line for almost a decade as rising production and a lack of export capacity have cost the nation billions annually in lost revenue.

Jagmeet Singh, the leader of the socialist New Democratic Party whose support could be key to keeping Trudeau in power, ran on a platform opposing the expansion. Singh's influence could spell more delays for the expansion, or its eventual cancellation as it makes its way through the latest in multiple rounds of court challenges. The New Democrats could also push their much-stronger climate change-mitigation policies on the government.

SNL Image

Stacks of pipe await deployment in the Canadian government's Trans Mountain pipeline expansion.
Source: Trans Mountain

"A Conservative victory would have been an upset, but in the event the Liberals won with a weak minority victory," analysts at Mizuho Securities USA LLC led by Paul Sankey said in an Oct. 22 note. "This may mean the government now includes more extreme environmentalists."

Noting that "we pay more attention to Albertan politics than Canadian federal politics" the Mizuho analysts observed that the Canadian dollar, an indicator of the nation's financial health, was unchanged in the wake of the election. The Conservative Party of Canada, headed by Andrew Scheer, gained seats in the election but still fell short of Trudeau's Liberals.

Environmental groups claimed a victory in the polls, saying Canadians rebuffed Scheer's support of the energy industry and plan to repeal a wide-ranging federal tax on emissions.

"For the Liberals, [New Democrats] and Greens, this election was a race to the top, with each offering new ideas to cut pollution and transition our economy to a sustainable one," said Merran Smith, executive director of environmental think tank Clean Energy Canada. "The Conservatives wanted to head in the opposite direction, and this proved to be a political weakness."

In the end, Trudeau's Liberals appeared to capture 157 of the 338 seats available in Parliament. Scheer's Conservatives landed 121 followed by the separatist Bloc Québécois at 32, the New Democrats with 24 and the Green Party with 3 seats. A single independent, Jody Wilson-Raybould, was elected. Wilson-Raybould was fired from her post as Justice Minister in a disagreement with Trudeau over her handling of the prosecution of a Montreal engineering firm.

Pipeline stalemate

The pipeline stalemate leaves Calgary, Alberta-based Enbridge Inc. in a relatively advantaged position as the nation's largest carrier of crude for export. Further court delays on the Trans Mountain expansion and TC Energy Corp.'s cautious approach to its Keystone XL project mean the Enbridge's grip on about 75% crude shipments to the U.S. is unlikely to be loosened. Enbridge had sought to bind shippers to long-term contracts when its existing common carrier tolling agreement expires in 2021. The Canada Energy Regulator slammed the brakes on an open season for the change, saying it could not proceed without its permission. The move could have deterred shippers from leaving the Enbridge system for the competing lines, should they be built.

"On the margin, Enbridge will benefit from ongoing Trans Mountain expansion uncertainty, while growing concerns around diluent demand growth and storage requirements would hinder" other Canadian pipeline operators, analysts at Tudor Pickering Holt & Co. said in an Oct. 22 note. "On the upstream front, impacts will be felt across the board, with advantaged producers being those with greater egress options via rail ... and pipe."

The upstream effects of Trudeau's energy policies are already being felt in Alberta and Saskatchewan, which elected an almost-solid block of Conservative candidates. In an apparently unrelated move Oct. 22, Husky Energy Inc. reportedly laid off hundreds of workers in its Western Canadian operations. Since the 2015 election, oil producer Encana Corp. and Precision Drilling Corp., formerly the nation's largest oilfield services company, have shifted top executives and operations to the U.S. as prospects for a resurgence in Canada's oil industry dimmed. Bill C-69, an overhaul of the nation's energy regulation regime, has already been enacted amid industry concern that its mandate would make new pipelines virtually impossible to be approved. Still, the group representing Canada's largest producers offered a conciliatory statement on the election.

SNL Image

Suncor Energy Inc. and other oil sands producers have been prompted to lower emissions amid the Trudeau government's climate policies.
Source: Suncor Energy

"The Canadian Association of Petroleum Producers congratulates Prime Minister Justin Trudeau and the Liberal Party on securing a minority government," Tim McMillan, the group's CEO, said in an Oct. 22 statement. "The election of a minority government reflects the diversity of Canadians and the need to work constructively together to achieve our mutual goals. We all agree on the importance of making life affordable for Canadians, enabling results on climate change, and creating prosperity for all."

Gas gains?

Canada's natural gas industry could see a lift from the minority government arrangement.

While the domestic industry has been hammered by a flood of imports from U.S. shale regions, British Columbia's government, another minority held together by a coalition of the New Democratic and Green parties, has favored large LNG projects on the province's northern coast. The province receives revenue from the large shale gas deposits that straddle its border with Alberta and is supportive of the under-construction Royal Dutch Shell PLC-led LNG Canada Development Inc. project and a second facility proposed by a Chevron Corp.-led consortium. As the Trans Mountain expansion project has been battered by a barrage of legal actions, construction of TC Energy's Coastal GasLink pipeline to carry the fuel from fields in northeastern British Columbia to the LNG Canada facility has gone forward at a relatively swift pace.

Trudeau's tax on emissions has also prodded power generators and large industries to move to cleaner-burning gas from other fuel sources. TransAlta Corp. and other Alberta power producers are in the process of converting former coal-fired units to natural gas fueling. Province-owned SaskPower is also building natural gas generators to back up intermittent renewables as it shifts from coal-fired generation. Suncor Energy Inc., the nation's largest oil company by revenue, recently announced it would add a natural gas-fired co-generation facility its giant oil sands plant near Fort McMurray, Alberta to cut emissions. Electricity producers could also get a boost from Trudeau's campaign pledge to bring Canada to net-zero emissions by 2050.

While Trudeau hailed his government as uniting Canadians in his victory speech, regional differences flared as the electoral map showed a divided country with the Liberals taking the Maritime provinces on the East Coast, the socialist New Democratic Party shedding seats across the nation while maintaining its stronghold on British Columbia's coast, and the Conservatives dominating the resource-rich Prairies. The separatist Bloc Québécois enjoyed a revival in Quebec — jumping from 10 elected members to 32 — while maintaining its vow to use its position in Parliament to advance Quebec-only issues. The Facebook group Wexit, which promotes the secession of Alberta and Saskatchewan, saw its followers surge between Oct. 21-22.

Conservative leader Scheer said on Oct. 22 that his party would focus on Trudeau's ouster and new elections when the government resumes sitting. Minority governments in Canada have traditionally been short-lived, with Trudeau's Conservative predecessor Stephen Harper seating two minorities over a five-year span before finally winning a majority in 2011. Still, Clean Energy Canada's Smith warned that environmental issues will dominate any subsequent elections.

"The biggest takeaway from yesterday?," Smith said in the wake of the election. "If you're not serious about climate change, you will not find the support you need to govern in Canada."