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Canada’s energy sector has nearly made it through the longest, darkest tunnel it has traversed in generations, but insiders say only more government support can push them the rest of the way into the light.
Major oil and gas executives and investors gathered in New York City this week for the annual FirstEnergy conference just ahead of the International Energy Agency declaring signs of a bottom in crude oil prices. Optimism would have permeated every aspect of the event – with oil prices now more than 40 per cent off their lows from earlier this year – were it not for the ongoing frustration among participants about a perceived lack of government support for new pipelines.
“The industry believes, both from a provincial standpoint with the province of Alberta and federally, that ... [governments] are non-supportive,” FirstEnergy Capital executive chairman Jim Davidson told BNN. “American investors [at this conference] are wondering why they should take a look at Canada when the Canadian companies are forced to sell their product at a discount because they cannot get their products to tidewater.”
“It becomes a very difficult situation from their standpoint because of course they have comparable investments that they can make with the shale players in the U.S. whose profit margins are larger because they have product getting to tidewater,” Davidson said.
Bitumen derived from the oil sands in northern Alberta – which makes up the bulk of Canadian crude oil production – has always sold at a discount to North American benchmark prices in part because it is more expensive to refine. Another reason for the lower price is a lack of adequate export capacity as production has grown in recent years beyond the levels pre-existing pipeline networks can carry out of the landlocked province.
New pipeline proposals – such as Keystone XL, Northern Gateway and Energy East – have been met with fierce resistance as opponents argue any new oil-based transportation infrastructure will make it more difficult to transition away from fossil fuels. Supporters disagree, claiming Energy East in particular is about supplying made-in-Canada crude to refineries in Quebec and New Brunswick, which currently rely on foreign-sourced oil for more than half of their supplies.
Outside of market access issues, the industry has a far more positive outlook on the future.
The days of mass layoffs and major dividend cuts are for the most part behind us, Davidson said, noting “both investors and CEOs are of the view that we have reached bottom [on prices] and that is a big psychological change.”
Enerplus CEO Ian Dundas agrees “the mood has changed” amid the first back-to-back declines annual in Alberta energy investments since the early 1980s, specifically over the past month. However, he remains wary of calling a bottom.
“Bottoming isn’t an event and is not a specific time but a lot of the conditions are in place,” Dundas told BNN. “Largely there has been almost a capitulation in investors’ minds as to the need for managing balance sheet over growth, so I think bottoming is clearly upon us. How long that takes, we will find out.”
As the industry awaits a continued rebound, the rapidly diminishing prospects of new oil sands pipelines winning approval is clearly taking the wind out of the sails of a recovery that is sustainable in the longer-term. Without new export capacity, the National Energy Board expects Canadian producers to continue receiving lower prices for their products than they otherwise would, leading to what experts believe will be “insidious” economic pain for Canada even if prices remain comfortably above break-even levels for the foreseeable future.
Prime Minister Justin Trudeau and his newly elected Liberal government in Ottawa have avoided taking sides on the increasingly contentious pipeline debate, particularly as the NEB has yet to begin its roughly 27-month review of Energy East. Rene Amirault, CEO of Secure Energy Services, believes Trudeau “can be the PM to” help the industry build the pipelines it so desperately needs, but he and many of his colleagues are clearly running out of patience.
“We vote in our political leaders and we expect them to be leaders,” Amirault told BNN. “Other than the Premier of Saskatchewan and maybe the Premier from New Brunswick, we just don’t see any leadership across this country.”
Ottawa added roughly nine months to the Energy East review timeline, from a previous expectation of 18 months, in late January so the process can account for potential increases in greenhouse gas emissions. Those reviews have “got to be [in a] timely” way, Amirault said.
“It can’t be ‘We’re going to study this to death’,” he added. “We know how to build pipelines.”
The rest of the industry, meanwhile, remains eager to hear at least a symbolic show of support.
“What we’d like to see from the federal government and provincial counterparts is a unified front to build the pipeline projects that Canada needs, going both east-west and north-south,” said Tourmaline Oil CEO Mike Rose. “That’s all I want from the federal government.”