By Bryan Livingston
Managing Partner and CEO
2019 is an important election year in Canada. Improving prospects for the country’s conservative parties are boosting oil patch optimism for much-needed oil & gas export pipeline construction.
Predicting election outcomes has its risks, but current sentiment indicates that United Conservative Party candidate Jason Kenney will win the provincial race in oil & gas rich Alberta. If he does, Kenney has said he’ll fight for market access, which means the paused Trans Mountain expansion (TMX) and Keystone XL oil pipeline projects could get moving again before the end of the year.
Prime Minister Justin Trudeau has faced criticism over his lack of support for the oil & gas industry, and his controversial introduction of a carbon tax, which has raised tensions in the Confederation over separation of powers issues. The tide is running strongly against Trudeau’s Liberal Party at the provincial level, where the party has lost the last three elections, most significantly including Ontario, by decisive margins. Trudeau’s government has also committed a series of blunders recently that could impact his electability come October’s general election.
Where Trans Mountain stands
The Trans Mountain pipeline expansion, originally approved in 2016, has been stalled since 2018, the same year the Canadian government bought the project from Kinder Morgan. A twinning from Edmonton to Burnaby that would almost triple capacity stalled in August 2018 when the Federal Court of Appeal put the project on hold over concerns about tanker traffic impact on British Columbia’s marine life, and consultations with indigenous communities. Trudeau and his government have faced significant criticism for the pipeline’s incessant delays.
On Feb. 22, the pipeline won a victory when the National Energy Board reiterated its approval of the pipeline with recommendations on how to mitigate effects on marine life, according to an article on CBC Radio-Canada. Ongoing consultations with First Nations groups under a revised process are expected to be completed before a final decision by the Federal government on whether to proceed with the project in 90 days.
Our sources on the ground tell us that optimism is running high among pipeline and facilities construction firms, who anticipate being released to start the work later this year.
Keystone XL’s latest setback
The Keystone XL pipeline, designed to transport heavy crude from Alberta to Nebraska, where it would hook into existing pipelines to reach Gulf Coast refineries – has also been on hold.
It looks as though Alberta will permit the northern leg of the Keystone XL but the U.S. portion, which would extend from the Canadian border into Nebraska, has been blocked due to court challenges.
The pipeline suffered a setback on Feb. 15 when a federal judge in Montana blocked TransCanada’s (recently renamed TC Energy) efforts to begin pre-construction work. Without the pre-construction preparation, which includes setting up worker camps, construction could get delayed into 2020, according to a CNBC report. Keystone XL also faces an unresolved court challenge over the pipeline’s route in the state of Nebraska.
Still, we remain optimistic that court challenges on both these pipeline projects will be successfully resolved, and the pipelines will be under construction by this time next year.
Quebec an outlier in pro-energy trend
It should be noted that Quebec is an exception to the pro-resource development political mood that is building in most of Canada’s provinces. Quebec has been a staunch opponent of Energy East, an oil pipeline that would have carried oil sands crude across the province to refineries in New Brunswick. TC Energy abandoned plans for Energy East in 2017 due to Quebec’s strong anti-pipeline sentiment. There was some talk in late 2018 about reviving the pipeline from political leaders in Alberta and New Brunswick, but it’s likely a waste of time at this point, considering Quebec really hasn’t budged on its opposition, even with the loss of the province to the Liberals at the hand of the CAQ (Coalition Avenir Québec) political party.
The spring provincial election in Alberta and the October Federal election, even if a minority Liberal government survives, should give a boost to Canada’s fossil fuel industry. Major oil export pipeline projects will have court challenges to overcome before construction can begin. But a political shift in the country is an important step toward restoring the health of the Canadian oil & gas industry and investor confidence.
Capital Alliance Corporation is a Dallas-based investment banking firm with a four-decade history, and deep operational and M&A experience across many sectors, including energy. Capital Alliance is affiliated with Oaklins International, the world’s most experienced mid-market M&A advisor, with 800 professionals globally and dedicated industry teams in 40 countries worldwide. We have closed over 1,500 transactions in the past five years.