I held off on writing too much or really about this week’s topic last week because it was all so fresh and I hadn’t had a chance to absorb it – not to mention it is an excruciatingly boring topic. Anyway, last week, the Liberal government released its long-awaited reforms to the way energy projects are assessed and approved in Canada (already bored right?). And, of course, as in all things Liberal, it’s a bit confusing.

 

Called the Impact Assessment Act, much of the bill itself wasn’t unexpected as some of the reforms were floated months ago. But true to form, in addition to resetting the regulatory landscape for resource and energy projects – ONCE AGAIN – it also incorporates all the of the weird touchy-feely Liberal party of Canada virtue signalling, progressive, immeasurable and impossible to define social agenda requirements.

 

That out of the way, I thought I might as well check out some of the highlights and bring to your attention the hidden zinger that no one is talking about, except me and a friend. I noticed a reference to it, he explained it to me. I promise to tell you about it, but first you gotta read the boring stuff. And then I’ll tell you. And rest assured, it’s marginally less boring.

 

Some New Names!

 

So the whole review process and regulator now has a new name. Exciting, isn’t it?

 

The National Energy Board is now to be called the Canadian Energy Regulator and, I guess, has responsibility to determine which projects need to be reviewed. At least they will still be based in Calgary – so that’s a win! The CER will have responsibility to regulate the energy sector and have ultimate responsibility for project review. Much like the NEB, but with a new name. In addition, the CER will have requirements to include indigenous representation on its board – which should be a plus as there is a wealth of energy knowledge in many First Nations communities and it will placate many stakeholders to have that representation. In addition, expert panels will be required to include experts in indigenous issues, engineering, environmental and municipal issues. Again, not a bad thing.

 

No word yet on if we get an Energy Information Agency (EIA) type of outfit to give us industry data and research like they have in the US, but we can hope.

 

Another new agency is being created to actually assess projects and it will be called the Impact Assessment Agency of Canada (acronymically IAAC, or phonetically “yack” but I digress).  The IAAC/yack really replaces the National Energy Board and the Canadian Environmental Assessment Agency and the Canadian Nuclear Safety Commission in the assessment of any new projects. I think. It’s a bit confusing. And I admit to dozing off while reading.

 

By combining all of these talents under one big tent, the government hopes to create a one-stop shop for assessments, combining environmental, social and economic reviews into one big group hug.

 

It is also hoped that provincial regulators will be able to rely on conclusions reached by the IAAC, although, come on, like that will ever happen. To be a bit more specific on that point, the provinces are free to do their own assessments as long as their standards and criteria are similar to the IAAC so really, the provinces should rely on the IAAC.

 

One significant change is the concept of a preliminary review. In essence, once a project is proposed, the proponent will have to run the project by affected local communities, stakeholders and the like. If a review is required, the IAAC will give the proponent some parameter and basic consultation that it will need to see done before sending to the full review process. While this sounds just like prudent business planning and any self-respecting proponent would, in essence, do their homework first, formalizing this first step and forcing the consultation should add legitimacy to the ultimate review. The biggest problem of course is that the terms of the preliminary review are poorly defined, if at all. On the plus side, this part of the process is capped at 180 days, which in government terms could be called downright hasty. On the negative side, this isn’t a form of pre-approval, it’s a gate-keeping exercise to the big enchilada – it’s where it is determined which projects require a review – remember that, it’s important.

 

Assuming a project passes the preliminary review, the subsequent referral to the full review will occur and the government commits to a process no longer than 300 days for a typical project and 600 days for a project requiring a joint review.

 

So worst case scenario, assuming no delays, a big project such as, for example, Energy East would have a decision from the Cabinet (which retains final authority) within two and a half years of submitting its initial project. In addition, Cabinet can no longer overrule and NEB decision (sorry, CER, no IAAC – told you it was confusing!) but it can ask them to reconsider, which really is kinda the same thing, right?

 

So like me, you’re probably thinking, so far so good. . Until you start thinking about things…

 

Things!

 

In addition to the standard “science-based evidence”, there are a number of other, more floofy criteria that will be part of the review process. Specifically I am referring to such impossible to define and measure criteria such as:

 

Indigenous rights – OK, so this one is probably the clearest. Consultation with First Nations has always been a part of the approval process so it makes sense to include this as an assessment criteria. And I get why it isn’t really defined, because really I don’t think anyone knows anymore what they mean by indigenous rights. It would be preferable to have some concrete assessment criteria along the lines of economic benefit tests and the like, or, put in blunter terms – if you’re going to run this pipe across our land, at the very least are you creating jobs for my people. But failing that specificity, having a requirement to respect the rights of people and treaties is generally a good thing.

 

The Gender Card – this one really has me confused. The wording says “gender-based impacts” but I don’t actually know what it means, how you measure it, what you would be looking for, or, to be frank, what it has to do with an energy infrastructure project. I suspect much the same for the government. I read a quote from Minister McKenna which led me to believe she had no idea what it meant either so it seems to me that this was included more for show than for anything else.

 

Last Man Standing – the new act proposes to eliminate the Standing Test – this change is a real head-scratcher. In the old NEB system, if you wanted time to address the review panel, you needed what is called “standing”. In simpler terms, you need to be a directly impacted stakeholder in the project or represent one or be a special interest group or at least be reasonably relevant. But now the government is saying that all Canadians should get a say. Really? Are you sure you want that? Have you thought it through? Been on Twitter lately? Read the comments on a National Post article? By eliminating standing, the government runs the risk of making these committee hearings and processes even more of a gong show than they actually are as they are in essence saying that the SmartCar driving enviro-warrior from the Beaches neighbourhood in Toronto or the guy on a street corner yelling “taxi” has the same standing in a pipeline assessment as a First Nations or a rancher whose land is going to be dug up for a right of way. If you give everyone and their dog an equal say, you are being incredibly inclusive but it’s hard to see how you get anything done. Word to the government – it’s about nuance, not gesture.

 

Sustainability and climate change – Again, a very subjective measure, what does it mean? I think what the government is getting at is that projects will be assessed against the government’s goals regarding climate change and overall environmental sustainability. All very good, all very subjective. What goals? Paris goals? Carbon tax goals? Social licence goals? Emission elimination or responsible development?

Obviously we are now moving fully into the upstream/downstream emissions assessment, which many would argue is an unfair criteria to measure a pipeline project that is mainly a conduit between a producer and a consumer. Previously, the emissions and environmental test applied only to the project itself – can we manage the footprint and emissions there. Now the pipeline will be subject to the actions of parties it cannot control and may not even know. Along with sustainability, this risks politicizing the process. In addition, since no specifically measurable criteria have been mentioned, the rules of the game could change from one project to another and long delays could arise from legal challenges (see Last Man Standing). Environmental groups of course don’t think the government is going far enough, instead preferring the “all roads lead to nowhere” approach to infrastructure development.

 

Selfie-Time – this one kind of slipped by most in the media. But apparently all projects and meetings and expert panels should expect to be photobombed at least once by Justin Trudeau who will take a selfie while coincidentally jogging by at just the right time. Shirtless. I kid you not. Section 79 (a) sub bullet iii. I have no opinion on this.

 

The Poison Pill

 

Are you ready for it? Because it’s big. Notoriously big. Well maybe not that big. Biggie small. Anyway, I alluded to this earlier and it seems to have gone unnoticed by the public/media at large. But in the original news release carried on Bloomberg, there was a single mention and discussion about what projects the review process would apply to. On top of pipelines the article mentioned major energy projects and, seemingly as throw away, in situ mining and fracking. Never mind that in-situ mining is not a thing, it was notable.

 

Why you may ask? First, aren’t those items under provincial jurisdiction? Presumably the AER will have something to say, no? But then I never saw it mentioned again so I figured it was just Bloomberg and typical American erroneous reportage. Until the smoking gun, the poison pill, the Trojan rabbit – you get the picture – was pointed out to me by a colleague similarly suffering from insomnia who actually read material relating to the bill.

 

And this is what was found in the consultation paper relating to what projects could fall under the IAAC purview:

 

Where appropriate, and as is the case for certain existing entries, proposed entries could have qualifier conditions associated with them to require an impact assessment when those conditions are present (e.g., section1 of the current Regulations Designating Physical Activities include projects located in a migratory bird sanctuary). Proposed entries may also have conditions associated with them that would exempt the activity from assessment if the conditions are present. For example, insitu oil sands facilities could be added to the Project list due to potential effects on areas of federal jurisdiction, in particular greenhouse gas emissions, but exempted from federal assessment where a jurisdiction has in place a hard cap on greenhouse gas emissions. Similarly, marine terminals which are currently on the Project List, could be considered for exemption if in conformance with a current land-use plan.

 

Wait. What?

 

Follow along here if you didn’t fall asleep reading that. If there is a cap on emissions, in-situ projects would be exempt, but where there is no cap, they might be subject to IAAC review. Given that the only place where in-situ projects currently happen is in Alberta and that we have a cap, we are good. But we also have an election coming up and a UCP party that stands a good chance of winning that is sure to ditch the cap on emissions, thus subjecting new in-situ projects to potential IAAC review. Or, consider you are Saskatchewan, with your own oil sands deposits, and no cap, and no carbon tax… Kinda limiting, isn’t it?

 

I don’t know about you, but to me this seems quite insidious, a back door, a gotcha, a ghost in the machine, and a bit of dirty pool. It may be nothing, or it may be something but it sure seems like someone wanting to poke a stick at Jason Kenney. It also makes you wonder how many other little stink bombs are sitting in the legislation and related documentation.

 

I think this is part of the problem with an update and upgrade to a regulatory regime that is at once driven by a political and an economic agenda. It will never be perfect. And the real devil is found in the most mundane detail.

 

Ultimately, a large part of the core technical NEB review mandate is rolling over and is largely unchanged, which is good. The sentiment for tighter timelines and the “one-stop shop” make absolute sense, but the touchy-feely subjective stuff raises suspicion – what is the real intent of all this non-quantifiable stuff? It all seems like so much insincere base pandering, like with NAFTA and TPP, although you have to be some kind of true believer to introduce all these concepts into every single piece of legislation you propose. Who knows. But throwaway paragraphs like the one above are going to be a problem.

 

When the dust settles, a lot will come down to perception from all sides. Will project proponents be able to get projects done and approved? Will they be confident enough to put major projects forward? Does the regulatory regime give enough comfort to a proponent to invest the hundreds of millions of dollars  in a process that may be perceived as unfair – in all directions. Will Canadians approve of the new regime? Will they even care? Will the changes get the Liberals votes? And will the investment community have their confidence in Canada’s regulatory landscape restored relative to other jurisdictions such as, oh, I don’t know, that country to the south?

 

I mention this last point because North American dollars are up for grabs and there are a lot of projects wanting to get built and, well, the Trump administration just released an infrastructure plan that appears on the surface to propose running rough shod over existing regulations holding back pipeline expansion. This includes changes like giving the interior ministry authority to allow pipelines to cross national parks, authority that used to belong to congress. Another change is to speed up the time allowed for states to issue water crossing permits and other regulatory reduction initiatives. The general consensus is that these changes all serve to facilitate and speed up the approval of energy infrastructure projects. It can be debated whether the proposed changes are appropriate or not, but directionally, the intent is crystal clear.

 

And like Ottawa, with these changes, Washington is attempting to create a one-stop shop for environmental and infrastructure approvals, but unlike Ottawa, it is doing it by reducing the size of the rule book, eliminating duplicate reviews, subjective assessment criteria and otherwise steamrolling opposition.

 

To use an NFL football analogy – Canada is trying to define a catch. The US is just catching it.

 

Prices as at February 16, 2018 (February 9, 2018)

• The price of oil held recovered during the week along with the stock market.
  • Storage posted an increase
  • Production was up marginally
  • The rig count in the US was mixed
• Despite another large withdrawal, natural gas remained in the doldrums – expect continued volatility…

 

• WTI Crude: $61.65 ($59.20)
• Nymex Gas: $2.564 ($2.584)
• US/Canadian Dollar: $0.7968 ($ 0.7947)

 

Highlights

• As at February 9, 2018, US crude oil supplies were at 422.1 million barrels, a increase of 1.8 million barrels from the previous week and 96.0 million barrels below last year.
  • The number of days oil supply in storage was 25.8 behind last year’s 32.7.
  • Production was up for the week by 20,000 barrels a day at 10.271 million barrels per day. Production last year at the same time was 8.977 million barrels per day. The change in production this week came from flat Alaska deliveries and a increase in Lower 48 production.
  • Imports fell from 7.892 million barrels a day to 7.888 compared to 8.491 million barrels per day last year.
  • Exports from the US rose to 1.322 million barrels a day from 1.287 and 1.026 a year ago
  • Canadian exports to the US were 3.523 million barrels a day, down from 3.618
  • Refinery inputs were downduring the week at 16.162 million barrels a day
• As at February 9, 2018, US natural gas in storage was 1.884 billion cubic feet (Bcf), which is 19% lower than the 5-year average and about 23% less than last year’s level, following an implied net withdrawal of 184 Bcf during the report week.
  • Overall U.S. natural gas consumption was down during the report week by 7%, influenced by weather
  • Production for the week was flat. Imports from Canada were down 4% compared to the week before. Exports to Mexico fell 1%.
  • LNG exports totalled 17.2 Bcf.
• As of February 5 the Canadian rig count was 306 – 217 Alberta, 24 BC, 60 Saskatchewan, 5 Manitoba. Rig count for the same period last year was about 270. Note that at “press-time” the CAODC web site was off line for maintenance so updated numbers will come next week.
• US Onshore Oil rig count at February 9, 2018 was at 798, up 7 from the week prior.
  • The bulk of the additional rigs were in the Permian Basin and North Dakota
  • Peak rig count was October 10, 2014 at 1,609
• Natural gas rigs drilling in the United States was down 7 at 177.
  • Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
• Offshore rig count was up 2 at 18
  • Offshore rig count at January 1, 2015 was 55

• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 70%/30%

 

Drillbits

• The NEB issued a ruling on Thursday allowing Kinder Morgan to proceed with construction of the Burnaby Mountain tunnel to link to their Westridge Terminal, effectively over-riding the slow permitting from the City of Burnaby
• Justin Trudeau came out swinging against BC Premier John Horgan, calling him a threat to the Canadian Climate Action Plan for his TransMountain pipeline intransigence. This marks a significant escalation of the Federal government’s involvement in this file
• TransCanada Corporation announced that it will move forward with a $2.4 billion expansion of its NGTL System to expand basin export capacity by one billion cubic feet of natural gas per day
• Trump Watch: Amid swirling rumours of marital infidelity with not one but two women, the Trump administration introduced its trillion dollar infrastructure plan that involves streamlined regulation and the sale of non-core government owned assets like airports etc.