As we careen madly to the close of this most unusual election season, Canadians can be forgiven for reaching peak election exhaustion. I am talking of course about the two simultaneous elections in BC and Saskatchewan and a narrowly averted one nationally since, as we know, each of those two elections will set Canada on an unalterable course for the foreseeable future.
Eager to show my prognosticative bona fides to my illustrious audience, let me share with you what is going to happen in each of these places.
First off, Saskatchewan will reliably deliver its own version of the UCP the reins of government. This will allow the Alberta government to at least maintain one kindred spirit in #WEXIT land and set the stage for Ottawa to… well.. to continue to ignore the concerns and grievances of Western Canada ex-BC and Manitoba.
In British Columbia, John Horgan and his NDP party will be rewarded with a massive majority government and mandate as an acknowledgement of their delivering a responsible, pragmatic and people-focused progressive government despite being in the thrall of the evil Green genius Andrew Weaver. While it is virtually certain that the Horgan NDP will misstep and destroy their goodwill in short order, for now the bloom is not off the rose. As a former resident in Vancouver, young Justin Trudeau will continue to shower largesse on Canada’s third largest province to the consternation of Jason Kenney and the UCP.
The irony of course is not lost on anyone – the province of Alberta, starved of affection, afflicted by craptacular energy prices and a lack of investment can’t even get its calls returned by the Federal government notwithstanding a carbon tax, a TIER emissions program, an Indigenous Investment Bank, a newly rolled out diversification plan that includes the word recycle and a tacit acknowledgement that maybe the environment matters. Meanwhile, the province where pretty much all fossil-fuel and other infrastructure is currently happening will receive disproportionately more attention and goodies.
What’s that? Don’t believe me? Well then, where are all the projects happening in Canada happening? BC. Think about it – Coastal Gas Link, TransMountain Expansion, LNG Canada and the Site C Dam – what’s that, $80 billion of projects with the full and unfiltered support of the Federal government? That’s impressive, don’t you think?
At any rate, well done Mr. Horgan. When you got elected I figured you were done in 18 months, but your deal with the devil worked, let’s hope you can enjoy the spoils without being too ideological, at least you won’t have to undo any policies.
Speaking of which, the Liberals avoided a fall election by running roughshod over the Conservatives and their WE obsession, which for the CPC is probably just as well because Trudeau would have quite literally stomped them. They should be happy that the only party who wanted an election less than the NDP was the Liberals (who presumably can’t bear the thought of another 5 years of Trudeau).
Which brings me to the United States. And policy. Because policy matters. So I’m going to review some now, in advance of my election preview next week, since I believe that before you make your pick, you should probably learn about the candidates, if only their energy policies.
Notwithstanding the stupid soundbites from last night’s debate – and no, Joe Biden isn’t looking to destroy oil and gas and no, Donald Trump is no champion of the oil and gas sector – we actually have two distinct visions that are more complex than you would think.
Or put another way, just as Joe Biden isn’t a no-fracking, no way, never, get this coil-tubing unit out of my yard green new deal ideological monster, so too Donald Trump and his policy set (at least the one that someone else developed for him) isn’t as simple as Big Coal, Big Oil, Crank those emissions, low gas prices and contribute to my campaign or else.
For my own personal sanity, I am going to try and distill this down into general themes that perhaps we can focus on and glean some knowledge about. And as always, I will add a Canadian perspective.
First stop…
Fracking.
Biden
Biden is not going to ban fracking. He is going to regulate it. He is going to attempt to stop it on federal land. He is going to introduce legislation that will make it more difficult. But he isn’t going to ban it, because he can’t. Even a ban on federal lands will only impact less than 10% of leases with virtually none in Texas. Most of the impacted federal land is actually in reliably blue New Mexico. So it’s kind of a nothing burger. You know what stops fracking? Oversupply, lousy pricing and companies that can’t make money.
Trump
Trump loves fracking. He thinks that the United States has the best fracking frackers out there fracking beautiful wells. He isn’t going to do anything to stop fracking. He will loosen regulations where he can and roll back environmental protections because that’s what he’s been doing for 4 years.
But when the dust settles, I highly suspect that Donald Trump hasn’t got a clue what fracking is. Come to think of it, Joe Biden probably doesn’t either. Accordingly, I respectfully request they stop saying the word, because they sound silly.
Should Canada Care?
Of course we should because our production is highly dependent on the direction set by US production. But I don’t see a particular advantage either way. As it regards fracking or not fracking, we do it better, cleaner and more efficiently than the Americans do and it isn’t required for 75% of our production, since we have oilsands. So they can actually do what they want and so will we.
Onshore and Offshore Oil Production
Biden
Joe Biden is proposing to ban all new leases on public lands and waters. Sounds ominous, but most of that is already leased out and automatically renews. Expect a court challenge of epic proportion if he tries to rescind any of these already granted leases. On the offshore front, this ban will have more teeth, shutting off access to close to a quarter of Gulf of Mexico reserves as just one example or a reduction in production in excess of 5%.
Trump
On the onshore front, it is business as usual for a Trump administration. Leases would continue to be granted and the show would go on, assuming commodity pricing cooperates. On the offshore front, Donald Trump has renewed some vote-buying bans on drilling in such sensitive areas as offshore Florida (eastern GoM), Georgia and the Carolinas, but those were long shot development areas anyway and drilling bans have been in place for decades. So really he hasn’t done anything except not change existing rules, and taken credit for that. One area where the Trump administration took specific action is the opening up of leases in the Arctic National Wildlife Refuge, which had been banned under Obama. Like a lot of politics, this is just for show, no self-respecting producer wants the headache of trying to open that area up and fighting the myriad lawsuits that will ensue and at current short and medium term price decks, the rest of them can’t afford to explore or produce there.
Should Canada Care?
Again, our production and levels of investment depend on the United States. I for one am happy to see a world where US production is more tightly constrained by regulation, it will reverberate into Alberta in the form of higher capex as well as higher realized prices and royalties. Yay!
Natural Gas
Biden
While neither candidate has a focused natural gas policy platform, Biden’s approach to introduce tougher regulations on methane leakage and flaring are a net negative for the natural gas industry as are aspirational targets relating to decarbonization of the grid and net-zero emissions by 2050. The problem of course is the massive installed infrastructure base and the inconvenient fact that natural gas powers US industry and that if you want it “made in America” you need to actually “power America”.
Trump
Trump is a fan of gas. A big fan. He loves gas so much. Big beautiful gas. Trump’s policies and rollbacks of environmental regulations have been bullish for gas, at least as much as gas could be bullish in such a terrible market. Infrastructure got built (primarily a massive expansion of export capacity) including pipelines to Mexico, offtake from the Permian and LNG facilities. The long sought-after East Coast gas pipeline projects have been abandoned though so it’s a wash. In a sign of the times for the energy industry and the gas sector in particular, just this week, France’s Engie showcased the unintended consequences of all these environmental rollbacks when the government of France ordered them to delay a $7 billion contract to import American LNG because it was “too dirty”. Oops! Note to American producers, now you know what it’s like to be a Canadian producer.
Should Canada Care?
Absolutely. The United States is Canada’s relief valve for natural gas and as long as we don’t have our own LNG capacity built, the rapid growth in US export capacity and consumption serves to prop up our industry. It is arguable about which administration will be better for Canadian gas, it is more of a long term secular play, but recently announced acquisition moves by some of the larger players in the continental market in the face of a Biden win suggest consolidation in advance of a hoped for bull market. I have been writing this blog for five years and predicting a gas boom for longer than that. Eventually I will get it right.
Infrastructure
Biden
Ugh. That is an easy one to say. Joe Biden has pledged in his platform to cancel the presidential permit for the oft-maligned Keystone XL and vowed to make it more demanding to build critical energy infrastructure. He wants to include the effects of “downstream emissions and climate change” in the federal permitting process – sound familiar? All the changes proposed by Biden will make the development of large infrastructure projects harder, longer and more expensive. This will also embolden opponents of existing projects currently being challenged, including Dakota Access and Line 3 (gulp!).
Trump
Donald Trump is a big fan of energy infrastructure and his administration has approved a lot of stuff. He sent out the national guard to help get Dakota Access built (currently under threat of shutdown) and approved KXL upon inauguration. But the lack of finish or closure on many of these projects should be worrisome. It is one thing to be a fan and supporter, it is entirely another to be able to execute and complete against a backdrop of state and first nations protest.
Should Canada Care
Heck ya. The United States is the dumping ground for 80% of our fossil fuel production. We need pipeline capacity to get it there. KXL and Line 3 are critical infrastructure for Canada. Anything that makes developing these projects harder is a major deal for us, in particular the province of Alberta which is an investor and loan guarantor on the KXL project. I believe Line 3 will be built and am currently 25% on KXL, a number than can only be influenced higher upon a Biden win if Trudeau can pull off the biggest charm offensive in history. On the other hand, when it comes to new projects, anything that makes life tougher for greenfield development in the United States makes brownfield development here just a little bit easier.
Canada, which has a decade-long head start on pipeline and infrastructure obstructionism and regulatory overhaul should actually emerge ahead on this file, just don’t expect immediate results.
The Environment
Biden
Clearly Biden is way ahead on the green report card when it comes to a commitment to the environment, emissions targets and decarbonization. Some signature policies include rejoining the Paris Accord, trying to achieve decarbonization of the grid through a seven fold expansion of wind and solar capacity and restoring the EV tax credit thereby allowing rich people to once again buy fancy Teslas at a lower price.
All kidding aside, the Biden renewables plan is probably the last nail in the coffin for thermal coal in the United States, with predictive evidence of its decline being seen daily, including retirements of the last coal baron’s and the constantly reducing production guidance from the largest domestic producers. Granted, coal’s decline is secular and driven by cost and environment, but a Biden administration would accelerate that. The Biden platform also includes a carbon tax on emitters and producers. One would assume this requires control of the Senate to implement, but surprisingly from what I have read, a carbon tax could have bipartisan support, at least until it is politicized. Also, be on the lookout for carbon levies or fees on imported products, Canada needs to get as far in front of this possibility as possible.
Trump
Not to be outdone, Trump promises more of the same for coal. He supports the industry but was powerless to stop global and market forces. Consumption of coal is down by close to one third since his election and as a result the United States is one of the few global jurisdictions to record lower carbon emissions since the Paris Accord was floated. This is objectively a good thing. Air quality in the United States (absent raging climate change induced forest fires) is at its highest in decades. Look, I know this is not an actual policy driven achievement, but it happened on Trump’s watch so I am going to give him credit for that. Oh, and there is a less than zero chance of a carbon tax with Trump 2.0.
Should Canada Care
Of course we should! Over the past four years Canada has been going it alone in North America on the environment, the carbon tax and the Paris Accord front. It’s about time somebody else started implementing these things – we are lonely! From an industry competitiveness standpoint, my own personal view is that any sane oil and gas executive in Canada should be hoping for a Biden victory and subsequent implementation of his carbon tax and green plan because it almost immediately makes Canadian energy more competitive.
Summary
Biden
The Biden platform wants to reengage the United States in the global climate change movement and invest massively in renewables to transition the United States from fossil fuel energy independence to renewables independence. It is going to be a tough road and cost trillions of dollars. But the Biden plan is heavily invested in climate change as an existential crisis. But like any transition plan, it isn’t going to be easy and it is, as reality dictates, more aspirational than executable.
First off, Biden like Trump is an economic nationalist. But the more Made in America the plan is, the harder it will be to achieve his goals in the aggressive timeframes planned. Additionally, rollouts of EV’s even under his optimistic plans will barely make a dent in the US fleet. The aspirational targets for solar buildout so far outstrip domestic manufacturing capacity as to be laughable. But where there’s momentum there is opportunity. This doesn’t mean that the oil and gas industry is toast in the US. We have already talked about how the gas and the oil industry isn’t going anywhere even if the Biden Harris ticket serves a second term. But the direction is clear and the full weight of the United States government pointed at a “green recovery” is no small thing and should be paid attention to.
Trump
Donald Trump’s platform and approach to the energy sector has always been about energy independence and he measures success through oil and gas production, low gas prices and with a minimal focus on the total energy package. We already know he hates windmills. He wants to use the United States energy abundance to project power domestically and abroad, but as we have seen during his tenure, it just doesn’t work that way. The US produces the marginal barrel and has very little influence on global prices. Its abundant domestic supply gives it a cushion in a volatile global market but it’s not a super comfy one. A second Trump term would be more of the same economic nationalism and more attempts to control the energy narrative domestically by reducing regulations on production and trying to wrest regulatory control from states on the consumption side, such as what is occurring in California. With a laissez-faire attitude to the environment and open hostility to at least half of the renewables world, it is safe to say that climate change is not likely to get any relevant attention at any time during a second Trump term. That is just the way it is.
Should Canada Care
Yes. Either way, the meth lab downstairs is going to affect our energy markets for decades so we should never lose sight of what is happening. Either candidate should prove to be medium term bullish for Canadian energy and oil and gas producers because we have so much of each in the form of reserves and installed capacity and the US is nothing if not an energy addict.
Given a choice and assuming a continued Trudeau/Liberal government in power, on balance the policy alignment that comes from a Biden win might prove to be of more net benefit to Canada, but economic nationalism and diplomacy will play a big part of that.
If Trump wins, we likely get KXL and a continuation of the market forces induced gradual decline in the Permian. Demand for Canadian oil and gas is a constant. The US doesn’t produce enough heavy oil, Mexico production is declining and Venezuela is in deep trouble. Canada is the only real option.
On the environment and climate, the Biden plan is head and shoulders ahead of the Trump non-plan. That is simple, non-partisan fact since Trump has no policy.
Ultimately, I give a slight edge to the Biden energy platform for Canada. Bullish for gas, medium bullish for oil, neutral on pipelines and bullish for renewable cross-border investment. If somehow Trudeau can convince a Biden White House to slide KXL through, we have years of energy economy prosperity ahead of us.
Next week – my bold prediction on what will happen November 3rd. Or a Trick or Treat special. Or both. Who knows!
