There’s a lot more going on with Trudeau’s $2.5 billion oil and gas announcement than you think

Prime Minister Justin Trudeau's climate plan steamroller finally catches up with Alberta Premier Jason Kenney and CAPP. Politicians not exactly as pictured.

That squishing sound you hear? That’s Jason Kenney and the Alberta junior oil and gas sector being sucked under the Liberal climate plan steamroller. Friday’s announcement is about to flatten the political agenda of Alberta’s conservatives.

Ottawa is providing $1.7 billion to Alberta, BC, Saskatchewan, and the Alberta Orphan Well Association ($2oo million is repayable), for orphan and inactive well cleanup. A further as$750 million will finance the Emissions Reduction Fund, intended to lower methane emissions from oil and gas extraction.

The Alberta government and industry were expecting closer to $15 billion, causing considerable disappointment. “This is not going to do anything,” Grant Fagerheim, CEO of Calgary-based Whitecap Resources, told the National Post.

Kenney’s backers didn’t see the steamroller coming. Nor do they seem to understand what hit them. “I don’t think there’s a full appreciation and understanding of the severity of what we’re dealing with,” Fagerheim said, falling back on the old trope that Ottawa doesn’t understand – or much care about – the oil and gas industry.

Of course the federal government understands. The industry’s smaller players have been suffering a well-known liquidity crisis that has crippled most junior producers, damaged balance sheets, and left many with few options in the face of collapsing global oil demand and rock bottom prices. Many are still in business only through the good graces of their bankers.

The Liberals, obviously, have another agenda. As one anonymous executive told the Post, the announcement “appeared to adhere closely to Ottawa’s tendencies around environmental messaging, rather than addressing immediate concerns on private sector balance sheets.”

Only this isn’t about messaging. It’s about the Liberals methodically implementing their climate plan, the one that calls for Canada to have net-zero emissions in 2050.

As I explained in a column six months ago, the day after the federal election, Canada now officially has an Alberta problem: “Monday’s federal election results were the worst-case scenario for Jason Kenney and the current leadership of the Alberta oil and gas industry. Justin Trudeau is committed to net-zero emissions by 2050 and only Alberta stands between the Liberals and their climate goals……A huge battle is brewing between the Trudeau minority government and Alberta.”

The battle has now been joined. Here are four clues as to what lies ahead.

Santa wasn’t kind to CAPP

The Canadian Association of Petroleum Producers’ wish list, leaked to the public by Environmental Defence, was crumpled by the Prime Minister’s Office, lit on fire, and unceremoniously tossed in a trash can. Over the course of 29 meetings with federal officials, CAPP pitched its case for the adoption of a “do no harm principle with respect to regulations and the costs they impose on industry.”

The problem is that CAPP has been pitching this line for years, as its 2018 climate plan policy proposals make clear. Energi Media sent the document to three economists, who had rather unkind things to say about the biggest industry lobbying group’s approach.

Not surprisingly, CAPP got a big goose egg for its efforts. Don’t expect future efforts to be any more successful.

Credit support for intermediates, but none for juniors?

During the press conference, the Prime Minister slipped in the news that Ottawa is working on expanding credit for medium-sized energy companies, though his release says that financing will now be available through the Business Credit Availability Program. No doubt details will be forthcoming.

What’s telling is the specificity. He didn’t mention the seniors (those producing more than 100,000 b/d), presumably because they have sound balance sheets and have been busy arranging for credit to ride through the downturn.

The most glaring omission, though, is the juniors (less than 10,000 b/d). The federal government appears to be sending a signal that it is prepared to let them fail.

In fact, this may help explain the whopping $1.7 billion allocated for orphan and inactive well cleanup: the juniors have been responsible for most of the problem wells and more bankruptcies will swell the inventory considerably. Hence, more money for remediation.

As an aside, junior oil company executives are generally big supporters and donors of the Conservative Party of Canada, as well as vociferous opponents of the federal Liberals.

The steamroller appears to be well organized

A curious thing happened in the hours following the Prime Minister’s Friday announcement: environmental groups like the David Suzuki Foundation and Greenpeace Canada issued press releases praising Ottawa’s oil and gas support. That’s right, the industry’s most implacable foes lined up to praise the Liberal government for giving $2.5 billion to an industry they regularly excoriate.

A cynical observer would be tempted to think the releases were coordinated, perhaps by the PMO. This perception would be further reinforced by a universal call within the commentary for the Liberals to stick to their climate policy guns.

Whatever the Trudeau government’s plans for future energy support announcements, it appears that political backing is already well organized. That doesn’t bode well for Kenney and CAPP.

Witness the humiliation of Jason Kenney

The Premier once made headlines claiming Trudeau had the intellectual depth of a finger bowl. Ouch. He later apologized, but the incident left no question about his animosity toward the Liberal leader.

Kenney also campaigned for the CPC in Ontario during last year’s election. He regularly invokes the Liberals as Alberta’s boogeyman, responsible for “regulatory uncertainty” and a host of other oil and gas ills. Once elected, the former CPC cabinet minister girded his loins and enthusiastically picked fights with any and all of the oil and gas industry’s detractors, real and imagined, but especially Ottawa.

Alberta has been lobbying hard for the $15 billion bailout promised almost a month ago by Finance Minister Bill Morneau. Days, then weeks, dragged by with no announcement. When it came, the give wasn’t even close to the ask and much of it came with strings, like the oversight committee for orphan well cleanup.

The fish was on the hook and the fisherman let it wriggle off. Then the Premier had to effuse gratefulness for the bit of chum thrown his way.

“We thank the federal government for taking this important first step to support the folks who work in our energy sector,” Kenney said in a statement, adding that “we will continue to work with the federal government until the energy sector has what it needs to survive and thrive for the benefit of all Canadians.”

Translation: Alberta is no longer demanding and will take what it can get. Quite a comedown from the heady days of the campaign.

Whither Alberta?

Poor Jason Kenney. The day after the first anniversary of his historic election victory and his vaunted “pushback strategy” lies in tatters. He has been humbled by his bête noire, Prime Minister Justin Trudeau, and the federal government is signalling that its climate plan – not the oil and gas industry’s ambitious expansion hopes – will drive Canada’s energy policies going forward.

This is just the beginning.

Six months ago, Alberta had the chance to change course and align its energy and climate policies with those of the national government, not to mention the global community. Now, it appears the Kenney government and many CAPP members will suffer the consequences of their choices.

It didn’t have to be this way.

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