CAPP calls on Canadian govts to imitate Trump’s America by ditching climate policy, regulations

By 2035 crude oil supply will rise by 2 million b/d, requiring federal approval of new pipelines. Will Ottawa be on side given CAPP’s opposition to climate policies?

The oil and gas sector is on a collision course with Canadian governments. With the release of its 2018 crude oil supply forecast, CAPP has made it abundantly clear that it wants Canada to reverse course and follow the Trump energy policy model, which essentially consists of repudiating climate targets and “streamlining” – read, eliminating – regulations. CAPP is making a serious strategic error that will come back to haunt the industry.

Let’s take a look at the two positions.

Source: CAPP.

Prime Minister Justin Trudeau and his Liberal government – backed by the Rachel Notley NDP government in Alberta – has made it clear that co-operation on climate policy is a bedrock principle for federal support for new pipelines. Of all the issues facing the upstream sector, getting product to market at a reasonable cost and diversifying those markets away from the United States is paramount.

The Canadian Association of Petroleum Producers has become increasingly strident since Donald Trump was elected in 2016 as its members watched the new president repudiate American commitment to the Paris climate accord and slash oil and gas regulations left and right. CAPP draws a straight line between Trump’s actions and the flood of capital into US shale production since prices began to recover last year.

“[T]he United States continues to aggressively streamline and reduce the costs associated with its regulations. Capital spending in the U.S. rose 38 per cent to $120 billion in 2017 while investment in Canada fell to $45 billion,” Tim McMillan, CAPP CEO, said last week when the supply study was released.

“The number of regulatory costs and changes that are underway and being implemented in Canada today is inconsistent with what’s happening in countries we’re competing with for capital, and those costs continue to escalate here while other places have very active programs to streamline and find efficiencies,” McMillan told Energi News in an interview.

Source: CAPP.

The Canadian government wants climate policy in return for pipelines, while CAPP wants pipelines and a significant reduction in regulation, particularly climate policy, without offering anything in return except a vague commitment to reducing emissions with “innovation” and new technology, sans emission reduction targets.

The CAPP model is never going to fly.

Not only is it antithetical to Canadian strategy and policy, but it’s also out of step with Canadian public opinion.

“Most Canadians believe that climate change is something we need to address,” David Coletto, CEO of Abacus Data, which closely tracks Canadian attitudes toward energy and climate issues, said in a recent interview.

“It’s about finding a balance. That’s certainly what the federal government has tried to do:  a national climate change plan that incentivizes less emissions, but also continuing to build pipelines and make sure that we get value for the resources that we have as this transition [to a low-carbon economy] happens. That’s the key piece.”

This is the Canadian “energy consensus.” As long as politicians and industry colour inside the lines of that consensus, Canadians will support a pragmatic, middle ground to energy.

Colour outside the lines, as BC Premier John Horgan has been doing with his obstreperous opposition to the Trans Mountain Expansion pipeline, and Canadians withdraw support.

Canadians will never support CAPP’s call for more a more Trumpian approach to climate policy and regulation.

But CAPP’s own supply forecast demonstrates how badly the oil industry – and Alberta – needs that support.

“CAPP forecasts oil supply will rise another two million b/d to 6.2 million b/d by 2035,” trumpets the trade group’s press release.

That much crude oil will require four or five pipelines the size of Trans Mountain Expansion. Given the opposition on the West Coast, does anyone really want to build even one more pipeline through Metro Vancouver? After the debacle of the Energy East project, which was roundly opposed by Montreal area mayors, can anyone imagine building a pipeline to the East coast?

McMillan can.

“I guess I’m not as defeatist as that. I think that there are going to be people that oppose pipeline projects be they in  Burnaby or Ontario or Quebec – that’s okay. We live in a democracy and the reality is that the majority of Canadians support energy infrastructure,” he said.

Tim McMillan, Canadian Association of Petroleum Producers.

“There’s going to be a challenge building any infrastructure, but I’m not willing to say that it’s not the right thing for Canada and that it doesn’t have substantial support.”

Sure, substantial support as long as Canadians believe industry is working within the energy consensus. Watch that support evaporate once CAPP’s opposition to carbon pricing and climate regulations becomes well known.

Especially once Canadians discover that the Canadian Energy Research Institute’s oil sands supply cost study, released in May, estimates emissions compliance costs at just $.67/b.

That’s right, 67 cents.

“I would argue that the biggest single competitiveness issue facing industry is not climate policy. It’s the fact that we can’t get access to markets either for oil or for natural gas and as a result of that are selling both those products at a significant discount,” Dave Collyer, former CAPP CEO (2008 to 2014), Energi News. 

“So if the package of climate policy and other actions can help to enable market access – which is fundamentally the position of the Canadian and Alberta governments – then that equation makes a lot of sense and the upside for market access far exceeds the cost of the climate policy burden.”

No kidding the upside for market access far exceeds the cost of the climate policy burden. The differential between Western Canadian Select and West Texas Intermediate rocketed to over $38 (the historic average is $10 to $15) a few months ago, before falling back to the low to mid-$20s (it closed at $24.06 on Friday).

Do Canadian producers really want to risk the potential of a persistently high differential that could cost them $10 or $20 – or more – per barrel by picking a fight with the Canadian government over 67 cents a barrel?

This is the line CAPP is foolishly drawing in the sand.

It’s time for cooler heads on the CAPP board of directors to reverse course and draw up a strategy more in line with the Canadian energy consensus.

Arguing that Canada should copy Donald Trump will end in disaster, for both industry and Alberta.

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