November 8, 2018
It’s a rough time in Canada’s oil patch, and the energy industry is warning that Justin Trudeau is about to make it worse.
The bottom has fallen out of Canadian heavy crude prices, with their discount relative to the U.S. benchmark near a record amid a supply glut and persistent transport constraints. Trudeau’s government, meanwhile, is both trying to complete a pipeline expansion project it bought this spring and pass a series of legislative reforms on the approval process for major projects.
Those reforms, known as Bill C-69, have become a lightning rod. The government argues it will bring clarity and will make resource projects more predictable — an argument that’s won support from the Mining Association of Canada, which represents Barrick Gold Corp. and Cameco Corp., among others. Canada’s oil sector, however, opposes the current version.
“It’s definitely not gotten investor confidence, and there’s pieces in this bill that sabotage the public confidence as well,” Tim McMillan, president of the Canadian Association of Petroleum Producers, which represents producers such as Suncor Energy Inc. and Canadian Natural Resources Ltd., told Bloomberg News, adding that rushing through a flawed law without changes “will do substantial damage to our economy.”
McMillan’s group is also pressing the government to consider how to revive Enbridge Inc.’s proposed Northern Gateway pipeline in a bid to add capacity. However, there’s no sign that’s likely since the prime minister rejected the project in November 2016 and criticized it as recently as last week. An Enbridge spokesperson said Wednesday that Northern Gateway isn’t among its priorities right now.
Trudeau campaigned on changing Canada’s environmental laws, some of which were revised in 2012. The government unveiled interim rules two years ago and the final proposal, Bill C-69, earlier this year. Lawmakers in the House of Commons approved an amended version in June and it’s now before the Senate, once a sleepy rubber-stamp institution that has grown more unpredictable in recent years.
The producers group warns the current bill increases complexity, raises the likelihood of litigation and gives too much weight to public commentary from communities that don’t live along a project’s route. It is pressing for an overall maximum timeline and to rein in powers the bill grants to cabinet.
The majority of amendments the government has made so far are either neutral or bad for the sector, according to McMillan. “We’ve been deliberate about working with them to get positive changes,” he said. “The concerns we have put forward have not been reflected in the legislation.”
Canadian pipeline projects have faced lengthy delays in recent years. TransCanada Corp. abandoned its Energy East project in the face of stiff opposition in Quebec to focus instead on the Keystone XL conduit to the U.S. Enbridge’s Northern Gateway was approved by Canada’s previous government, only to be struck down by a court and then canceled by Trudeau. And Kinder Morgan Inc. threatened to walk away from its Trans Mountain expansion before the federal government purchased the project in order to ensure its construction, despite another court setback this summer.
McMillan’s skepticism was echoed by the Canadian Energy Pipeline Association, which represents those three companies, among others. “It is difficult to imagine that a new major pipeline could be built in Canada” if the new rules take effect, the group wrote in a submission to lawmakers, adding that uncertainty is also compounded by added restrictions on tanker traffic. “The cumulative effect of this suite of policies has significantly weakened investor confidence in Canada.”
Trudeau, however, stands by the measures, arguing they will bring certainty to a sector frustrated by a series of legal defeats. Though frustrated by the court ruling that delayed Trans Mountain, the prime minister nonetheless sees an upside, according to Bloomberg News.
“What the court is actually doing is laying out with more clarity the path to get big projects approved,” he told a Vancouver business audience last week. He added that Bill C-69 will give resource companies “a much better idea up front of how long it’s going to take” and “what the risks are that it might be not approved or approved.”
The Senate could amend the proposed law, but is unlikely to reject it outright. Senator Grant Mitchell, a sponsor of the legislation, told Bloomberg News that he believes there’s “general support” for the bill in the upper chamber. “The sooner it’s done, the sooner some of the uncertainty is taken out of the process, and the sooner we can start sending the message to investors in Canada and the world that there is more certainty,” he said.