Oil executives see Kenney as industry champion but key issues divide sector at home
Oil industry executives are counting on Jason Kenney to be their champion in taking on the federal government and the industry’s critics, but the Alberta’s premier-elect faces a divided industry on some key issues in his home province.
Mr. Kenney won a resounding victory in Tuesday election on a platform of unwavering support for the province’s leading industry, which has been hammered by depressed natural gas prices, volatile crude prices, and a lack of sufficient crude pipeline capacity to reach export markets.
The United Conservative Party leader plans to scrap the carbon tax adopted by the New Democratic Party government, slash corporate tax rates and cut other regulations which, industry complains, are impeding investment and growth.
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He has also vowed to go to war with the federal Liberal government over its climate-change policies, and with environmental critics who are seen by industry supporters as unfairly targeting the Alberta as a climate villain.
“We want to see a government in place that’s pro our industry and currently that is not the case,” Myles Bosman, chief operating officer at Birchcliff Energy Ltd., said in an interview Tuesday, prior to polls closing in Alberta.
Outgoing NDP Premier Rachel Notley has been a vocal advocate for the industry in its recent battles for pipelines and in opposition to federal legislation overhauling the environmental review process for major resource projects, including pipelines. But Mr. Bosman said Ms. Notley’s climate policy – including a cap on future oil sands emissions – failed to win the promised pipeline to the west coast, while the NDP government raised taxes and imposed burdensome regulations on the sector.
Mr. Bosman said he was recently in London, promoting Birchcliff to international investors, and encountered concern about both the provincial NDP and the federal Liberal governments.
“They said you need to change your governments as a signal to us to re- engage and invest in Canada,” Mr. Bosman said on the sidelines of an investor conference in Toronto.
“We’ve sent bad signals out to the world in terms of our belief in our own resources. Instead for making the case from the government standpoint for how clean and resourceful they are, we’ve been apologizing as the ‘embarrassing cousins’ as one of our leaders called us.”
While Mr. Kenney is promising to finance a “war room” to defend the industry’s reputation, he also faces divisions at home, and opposition to pipelines in British Columbia and the United States over which he has no control.
In December, Ms. Notley imposed an across-the-board production cut on oil companies in order to reduce the glut of inventories that built up in Alberta due to growing production, insufficient pipeline and rail capacity and a temporary shutdown of some key refineries in the U.S. Midwest. The growing inventories meant Alberta crude sold at a discount, with a widening differential between Western Canadian heavy oil and the benchmark West Texas Intermediate.
Companies like Suncor Energy Inc., Imperial Oil Ltd. and Husky Energy Inc. oppose the curtailment – which started at 325,000 barrels per day in January and will be eased to 175,000 barrels per day in June. “We believe a free market should be free,” Suncor’s chief financial officer Alister Cowan told the Bank of Nova Scotia investors’ conference.
Mr. Cowan said the companies had already begun responding to the glut by cutting production last fall when Ms. Notley ordered the across-the-board curtailment which hit low-cost producers along with everyone else.
However, many oil company officials are urging Mr. Kenney to keep the curtailment policy in place, at least until more rail capacity can be brought online.
“We hope that over a sensible time period, we pull out of curtailment, but we would hope it’s not quick or shock action,” said Tristan Goodman, president of the Explorers and Producers Association of Canada, which represents smaller companies.
“We don’t want to put ourselves right back where we were before with the large differential. We need to solve some degree of market access before we can see a dramatic change to curtailment.”
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Companies are also split on the NDP’s plan to purchase rail cars to provide additional export capacity while three planned pipeline projects – which are delayed or on hold altogether – can be completed.
Major oil sands companies, including Suncor and Canadian Natural Resources Ltd., supported Ms. Notley’s carbon tax and the cap on oil sands emissions, and argue they have succeeded in reduce emissions dramatically at new projects. However, there is widespread opposition to the levy in the industry more broadly.
The Canadian Association of Petroleum Producers (CAPP) is hopeful the new government will make good on its campaign pledge to pursue less regulation and lower taxes to spur growth. CAPP president Tim McMillan said both the United Conservative Party and the NDP based their campaigns on the need to ensure the oil industry has sufficient access to markets and a competitive regulatory environment.
Still, companies need to realize that they will face growing pressure to reduce greenhouse gas emissions from international investors who are committed reducing the risk climate change poses to their portfolios, Jackie Forrest, a Calgary-based analyst at Arc Research Institute, told the Scotiabank conference.
“I don’t think this is a trend that is going to go away; it’s going to get bigger and bigger,” Ms. Forrest said.
As a result, Mr. Kenney’s incoming government will have to show the world it has a serious plan to tackle climate change.