Energy Bits: Shell and the oil sands, no private buyer for TMX

Finance Minister Bill Morneau, left, and Prime Minister Justin Trudeau

In today’s Energy Bits, analyst Eoin Coyne suggests Shell Canada’s sale of almost all its Alberta oil sands assets was motivated by internal corporate issues (not capital flight) and – quelle surprise! – Canada and Kinder Morgan fail to find a private buyer silly enough to pay $4.5 billion for Trans Mountain Expansion and most of the company’s other BC assets.

Evaluate Energy says capital flight not behind Shell’s sale of oil sands assets

Last quarter, Shell Canada sold its remaining 7.98% stake in Canadian Natural Resources Ltd. for $3.3 billion, which it acquired when it sold its 60% stake in the Athabasca Oil Sands Project last year.

That brings Shell’s oil sands divestment to $11.6 billion, according to a new report from Calgary-based Evaluate Energy.

When the deal was announced in March, 2017 critics howled about capital fleeing from the Alberta energy sector and pundits compained that super-majors reducing their investment in the province was a sign of the End Times.

Source: Evaluate Energy.

Turns out Shell had perfectly good reasons for selling that had nothing to do with Canadian energy policy or regulation.

Two perfectly good reasons.

One, buying the BG Group in 2015 – just as the global oil rout was nicely started – cost Royal Dutch Shell $50 billionUSD and management pledged to sell $30 billion of assets to partly pay for the acquisition.

Two, Shell is a leader among the super-majors when it comes to lowering CO2 emissions and part of the strategy is moving out of carbon-intense products like the oil sands and into natural gas and electricity.

“Shell stated this year that they have ‘ambitions’ to reduce their carbon footprint by 20% by 2035 and to halve their footprint by 50% by 2050,” says Coyne, a senior analyst with Evaluate Energy, who notes readers should keep an eye on Shell’s remaining 10 per cent ownership in the Athabasca Oilsands project.

“It’s a small stake but perhaps it wants to keep an eye on the industry and keep up to date with any technological advances,” said Coyne.

He also cautions that for the wily Dutch, a chance for a good investment return may trump the corporate carbon strategy.

“Their primary target will remain as delivering returns to shareholders. If they find they are able to do that while reducing their footprint then great, but I think their wording has given them wiggle room if they see a good opportunity somewhere,” he said.

Might Shell buy back into the oil sands if they’re confident efforts to de-carbonize bitumen by substituting solvent for steam in SAGD and paraffinic froth treatment in mining will be successful?

Readers might want to keep an eye on Athabasca Oilsands for clues.

Source: Evaluate Energy.

Ottawa, Kinder Morgan, fail to find buyer by July 22

To absolutely no one’s surprise, private capital and established pipeline companies stayed on the sidelines as the Canadian government tried in vain to find a buyer for the controversial Trans Mountain Expansion project and other Kinder Morgan Canada assets and failed to meet its July 22 deadline.

Looks like Prime Minister Justin Trudeau and Finance Minister Bill Morneau are buying a pipeline after all.

“We have no interest in being a long-term owner of a pipeline, but we will be the temporary caretaker,” Morneau’s spokesperson, Daniel Lauzon, told The Canadian Press on Sunday. “We won’t rush that.”

Government critics, including Energi News, have argued that a little more haste when the BC NDP formed government a year ago after campaigning strenuously against the pipeline project might have avoided the current worst case scenario in which most Canadians – and all the parties involved – have no appetite for public ownership but are stuck with it anyway.

What might Trudeau and Morneau have done differently?

One, they could have begun negotiating with BC Premier John Horgan shortly after he announced the deal with Green Party Leader Andrew Weaver to prop his minority government, which included fighting Trans Mountain Expansion with “all the tools in the toolbox,” as the agreement between the two parties says.

Two, after the mid-April “pipeline summit” between Trudeau, Horgan, and Alberta Premier Rachel Notley, new legislation to re-assert exclusive federal jurisdiction over Trans Mountain Expansion was promised.

No legislation was forthcoming.

Prof. Dwight Newman of University of Saskatchewan Law agreed during an interview that one – and perhaps the most likely – explanation was Quebec’s stated opposition to the Canadian government appearing to trample on provincial right.

Three, the National Energy Board Act provides all the authority the Canadian regulator needs to quash BC’s opposition.

Why didn’t Trudeau amend the Act to allow the NEB – which also has the powers of a superior court – to exercise that authority in a timely fashion, thereby giving Kinder Morgan the assurance it needed?

A highly placed source who asked to remain anonymous because they occupy a sensitive position within industry, recently told me that after campaigning on a “broken NEB” the Liberals just couldn’t bring themselves to use the NEB to try to fix a problem.

Pity, because this would have been the most sensible fix, as I’ve argued in a number of columns.

Now we come to the last course of action, which is to do nothing.

That’s right, nothing.

BC hasn’t actually passed new legislation or regulations yet.

The threat of new legislation and regulations was unacceptable to Kinder Morgan, but it need not be to the Canadian government, according to Prof. James Coleman of the Dedman School of Law at Southern Methodist University.

Because Sect. 91.10(a) of the Canadian Constitution gives exclusive jurisdiction over inter-provincial pipelines to the federal government – backed up by copious legal precedents since the early 1950s – the Prime Minister can continue building his new pipeline while daring Horgan to stop him.

BC tried once in the federal court of appeal and failed.

Horgan and crew have sent a reference question on the Province’s ability to restrict diluted bitumen shipments in an NEB-regulated pipeline to the BC Court of Appeal and are waiting for an answer.

The betting is BC comes out the worse for wear.

Prof. Coleman says Canada will win the legal battles because the law is very clearly in its favour.

Until those battles are won, which is no doubt a necessary precondition for purchase of the pipeline assets by a private company, Trudeau is the proud owner of a pipeline company.

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