Last week, I was not so subtly informed by one of my more prominent readers that the blog was a tad boring and that it was high time to get back to a little storm and fury.

 

While I am in general agreement that last week was a bit dry, it was also purposeful in that it laid the case for where M&A activity might go in this gloriously slow and painful recovery in the energy sector, something which is, of course, near and dear to my heart.

 

But, with criticism in hand, I decided to make a concerted effort to be really outraged this week, to get my lather up and let the world have it. But it was a struggle. For the life of me, I couldn’t get worked up about anything really – my personal volatility was on a par with the volatility of oil prices since the OPEC agreement – pretty subdued!

 

Then it happened, the straw that broke this camel’s back. It started as an innocuous article showed on my Twitter feed, titled “Partners pull plug on Aurora LNG project near Prince Rupert” which said that Nexen (subsidiary of CNOOC) and INPEX Gas had decided to stop work immediately on their proposed LNG project in BC. Not a big deal right? Just another one of those marginal projects that was probably never going to happen anyway.

 

But really it’s a picked off scab. It doesn’t hurt at first, but then you notice the gangrene underneath. And it stings. And whether it is a marginal project or not, it’s another vote of non-confidence in the train wreck that is energy infrastructure development in Canada.

 

When you think about the squandered economic opportunity over the last several years, it’s mind-boggling.

 

Aurora was abandoned under pretense of deteriorating “macro-economic conditions”. Fair enough, LNG is a tough game, but that hasn’t gotten in the way of any American projects and our gas is cheaper and closer to Asia. Reading between the lines in any of these LNG decisions – the fiscal and regulatory regime in Canada is hostile, unpredictable and moves at a snail’s pace, the environmental assessment is spurious and there is a growing sense that Canadian provincial and Federal governments couldn’t care less if these projects happen or not because there’s no votes involved, so the proponents do what anyone would do in similar circumstances. They leave. Done. Gone.

 

And it doesn’t matter whether it’s a project being denied a permit (Northern Gateway) or being abandoned at the last minute after getting permitted (Pacific Northwest LNG – $36 billion) or just dropped like Aurora, the onus is on government to be answerable as to why so many companies are unable to do major energy infrastructure projects in Canada. Here’s my take, it’s not them, it’s us.

 

Which brings me of course to Energy East.

 

As briefly mentioned in my notes last week, TransCanada Pipelines has asked for a 30-day stay on the oft-delayed NEB hearings on the $15 billion Energy East Pipeline project to allow it to assess the impact on cost, timing and viability of the NEB’s recently announced decision to include an analysis of the impact of upstream and downstream emissions of the project.

 

To many, this delay is assumed to be a pre-cursor to TransCanada dropping the project altogether. Bingo!

 

Look, I get the financial argument – KXL is approved and likely to happen, why should TransCanada continue down an uncertain path. I believe that. But why have the uncertain path in the first place?

 

Why put so many roadblocks in place that we get here?

 

Here, where it’s too hard for a Canadian company to get things done and the revised assessment criteria are ridiculous.

 

Why ridiculous? Because that’s not the NEB’s job. The NEB mandate is to “promote safety and security, environmental protection and economic efficiency in the Canadian public interest, in the regulation of pipelines, energy development and trade”. Their role is to assess specific projects on their own merits to ensure the protection of the various stakeholder communities including land-owners, indigenous rights and minimize the environmental impact of the project. Then it’s government’s job to determine whether something is in the national interest and to make a decision and be accountable for it – not to put the decision in the hands of unelected bureaucrats.

 

So what’s the issue with these changed criteria? Well first, let’s be clear on what we’re dealing with. It’s a pipeline – a metal tube that moves something independently developed at one end to connect to a third party processor at the other end. Making approval of this project contingent on an assessment of upstream and downstream emissions impact is fundamentally unfair because it puts the environmental onus on the conduit as opposed to the producer or emitter. Seriously, even the Alberta NDP gets it, why can’t the Feds?

 

On the upstream side, it intrudes on provincial jurisdiction – isn’t it the Alberta government’s job to assess and manage industry emissions? Don’t we have a cap on emissions from oil sands already? And a carbon tax? Weren’t these things implemented to manage upstream emissions? Isn’t that what we were told? With these rules we bought social license (approval of the upstream emissions), we’ve agreed to higher costs. Isn’t that good? Logically, any pipeline that carries oilsands oil will already be impacted by the development of resources subject to that cap. And what does it matter to any specific project anyway? By assessing upstream emissions, is the NEB saying that the Alberta government hasn’t gone far enough? What do they think? Isn’t that out of scope? Does the Alberta economy need to shrink a bit more to satisfy Ottawa?

 

On the downstream emissions assessment, it’s even sillier. What are you even going to assess? What is the scope here? Energy East is projected to deliver 1.1 million barrels a day of Canadian oil to East Coast refineries, some to be consumed here in Canada, the rest to be shipped abroad. That oil was coming to Canada and being consumed anyway. The pipeline isn’t somehow creating incremental demand, it’s just re-orienting where the supply comes from. When you burn the molecule, it’s the same emission, it doesn’t matter whether it came via pipeline from Canada or on a tanker from Saudi Arabia or Nigeria.

 

Here’s my assessment of downstream emissions – they will be the same – you’re welcome NEB, condition met . But maybe, just maybe, there will be less oil tankers plying the Saint Lawrence River because the refineries in Montreal can now get their feedstock via pipeline. Isn’t that a good result? Canadian refineries will also be sourcing oil from in Canada (supporting jobs and industry) subject to aggressive emissions restrictions (see above), paying taxes and royalties in Canada and displacing oil arriving from countries with piss-poor human rights and environmental records. Isn’t that a good thing?

 

Apparently not for the NEB.

 

This is such a fundamental over-reach by the NEB and the newly appointed panel, but what did you expect? This is Canada. We don’t want to develop our resources and grow further the 10%-15% of the economy they support. We are much happier getting some good press from the foreign media and Rolling Stone than creating prosperity.

 

Is it any real surprise that with a government that is pretty much addicted to environmental over-reach, feel-good nonsense policy and buzzword virtue signalling that this has happened? That the NEB, in seeing the direction of the day and being mindful of who its paymasters are, has determined that this is the path they want to take to assess pipeline projects?

 

Seriously, in its zeal to appease the vocal minority and revamp the NEB the Liberal government has managed to politicize that which should be forever above politics.

 

And I am starting to suspect that they really don’t care.

 

By my count we are now almost at $100 billion of privately funded industrial and infrastructure development that is not going to happen in Canada, about equal to the debt the Liberals are likely to add during what is really shaping up to be a fiscally disastrous first term back in the captain’s seat.

 

Do you want to know why the government is so obsessed with shutting down 40 year old tax policy that allows flower sellers, hairdressers, doctors and, yes, “rich people” to allocate dividends to non-active private company shareholders and recover some $250 million a year in incremental tax revenue? Your answer is in the deliberately squandered opportunity of LNG and pipeline development.

 

It really makes you think about what the government’s priorities really are.

 

You know what? We don’t deserve this project. It’s a game-changing national project 100% funded by a seminal Canadian success story – Trans Canada Pipelines. I mean seriously, it’s in their NAME! If we won’t let them do it, what chance does anyone else have.

 

Someone told me yesterday that China is building 3000 hockey rinks in advance of their Winter Olympics because they want to win at hockey like they have in gymnastics and other sports and they are willing to invest, heavily, perhaps a bit manically, to win.

 

Here? We can’t even get out of our own way long enough to accept close to $100 billion in private money and allow our energy industry to create wealth, opportunity, energy security and to further enhance our tax base.

 

Canada? We’re winning at losing. Sheesh.

 

Prices as at September 15, 2017 (September 8, 2017)

• The price of oil rose during the week as refineries came back online post Harvey and demand numbers were robust
  • Storage posted a large increase
  • Production recovered partially
  • The rig count in the US appears to have plateaued
• Natural gas rose slightly during the week on fears regarding demand disruptions.

 

• WTI Crude: $49.83 ($47.58)
• Nymex Gas: $3.035 ($2.897)
• US/Canadian Dollar: $0.8198 ($ 0.8235)

Highlights

• As at September 8, 2017, US crude oil supplies were at 468.2 million barrels, a increase of 5.8 million barrels from the previous week and 12.0 million barrels below last year.
  • The number of days oil supply in storage was 29.4 behind last year’s 30.5.
  • Production was up for the week by 572,000 barrels a day at 9.383 million barrels per day. Production last year at the same time was 8.493 million barrels per day. The change in production this week came from an increase in Alaska deliveries and recovering Lower 48 production.
  • Imports fell from 7.083 million barrels a day to 6.480 compared to 8.062 million barrels per day last year.
  • Refinery inputs were down during the week at 14.078 million barrels a day
• As at September 8, 2017, US natural gas in storage was 3.311 billion cubic feet (Bcf), which is 1% above the 5-year average and about 5% less than last year’s level, following an implied net injection of 91 Bcf during the report week.
  • Overall U.S. natural gas consumption was down 7% during the week on Irma and cooler weather
  • Production for the week was up 2%. Imports from Canada were down 6% compared to the week before. Exports to Mexico were down 3%.
  • LNG exports totalled 18.1 Bcf.
• As of September 12 the Canadian rig count was 192 (30% utilization), 128 Alberta (30%), 24 BC (34%), 35 Saskatchewan (30%), 5 Manitoba (33%)). Utilization for the same period last year was just above 15%.
• US Onshore Oil rig count at September 8 was at 749, 6 less than week prior.
  • Peak rig count was October 10, 2014 at 1,609
• Natural gas rigs drilling in the United States was down 1 at 186.
  • 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 1 at 17
  • Offshore rig count at January 1, 2015 was 55

• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 56%/44%

Drillbits

• Enbridge’s Line 3 oil pipeline upgrade challenged by Minnesota government, of course
• Shell Canada shuts some gas operations due to southern Alberta wildfire
• Trump Watch: Quiet on the Trump front this week. Hmm. There’s a tax plan coming I’m told.