For Canada’s energy patch, the Liberal minority government that emerged from Monday’s federal election is proof of a widening split with provinces west of Ontario, and a fresh dose of uncertainty for companies and investors. So what happens next?
Prime Minister Justin Trudeau will be beholden to his opponents in Parliament. But for experts monitoring the battered oil and gas sector, this is by no means a worst case scenario.
In fact, it may be the best minority government outcome they could have hoped for when it comes to key infrastructure projects like the Trans Mountain Pipeline expansion.
“From an energy investment perspective, the prospect of a Liberal minority is actually a win over that of a Conservative minority,” Eric Nuttall, a senior portfolio manager at Ninepoint Partners, told Yahoo Finance Canada on Tuesday. “On TMX at least, I’m fairly confident the Conservatives would back any necessary legislation to further advance the project.”
A Conservative minority government could have prompted challenges from a left-leaning coalition, upping NDP influence, he said. That would be bad for what Nuttall sees as the largest issue for investment in Canadian energy.
The Federal Government announced a $4.5 billion deal to buy the Trans Mountain pipeline and expansion project from Kinder Morgan Canada last May after the company halted non-essential spending. The purchase followed months of delays, and a legal spat that pitted Ottawa against the B.C. government.
The energy sector has struggled to rebound since 2014 crash in global oil prices. Capital spending in Canada’s energy sector totaled $75 billion in 2018, according to Natural Resources Canada, 36 per cent lower than the peak five years ago.
For years, western Canadian oil producers, and the thousands of workers they employ, have yearned for pipelines to bring bitumen to tidewater in order to reach markets beyond North America. The glut of oil trapped in the centre of the country has long been a sore point between the west and Ottawa.
‘We’re heading towards a showdown in Canada’
Red ridings are now virtually non-existent west of Ontario’s border with Manitoba. In oil rich Alberta, Monday’s election knocked out three Liberal MPs, including Natural Resources Minister Amarjeet Sohi. Edmonton-Strathcona was the only riding in the province not to go blue. Ralph Goodale, Saskatchewan’s lone Liberal and a well-known party veteran, also lost his seat.
Dan McTeague, an independent energy analyst and Ontario Liberal MP between 1993 and 2011, sees regional divisions intensifying along energy-based lines when he looks at Canada’s new political map.
“These are probably the most precipitous, uncertain time for the federation going back to the 1995 referendum. We’re heading towards a showdown in Canada,” he told Yahoo Finance Canada. “Trudeau is on a collision course with the energy sector, the sector that has provided Canada’s bulk and heft of its revenues and standard of living.”
He hopes to see the Liberals cooperate with Conservatives on the energy file in order to stem rising feelings of Western alienation.
Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers, said the new government should telegraph a decisive course on energy in the coming days to assure investors, companies and workers.
“A minority result doesn’t send a real strong signal in any direction to global capital markets,” he told Yahoo Finance Canada. “There are actions the government can take to say this is our North Star. We are positioning Canada for economic success, which is our number one priority.”
Nuttall said sentiment in the oil patch is the “worst in its history,” a bitter pill for Canadians to swallow given his bullish outlook on crude prices into 2021 underpinned by rising long-term global demand.
“We’ve had companies forced to lay off many, many thousands of skilled employees. We’ve had companies effectively go into bunker mode trying to preserve liquidity, trying to get through to the other side,” Nuttall said. “The Canadian energy space is in purgatory.”
McMillan sees the election as a chance to hit the reset button on the fraught relationship between Ottawa and the companies and workers he represents.
“We’ve seen increasing concerns from Canadians that we are giving up on prosperity, jobs and opportunity,” he said. “That has to change.”