Canada’s oil and gas sector “needs to bat four-for-four” this year on key macroeconomic issues in order to restore investor confidence, according to analysts with GMP FirstEnergy.
This year will crystallize major outcomes that have been developing for years, including at the polls. Here’s GMP FirstEnergy’s look at the four key issues that will unfold in 2019.
4. Coastal GasLink pipeline review by National Energy Board
The Coastal GasLink pipeline that will supply the $40-billion LNG Canada export project received all regulatory approvals from the province of B.C. in 2016. The project is currently under construction but could be put on hold if Michael Sawyer and the West Coast Environmental Law Association are successful in their effort to have the pipeline undergo federal review by the National Energy Board.
The NEB is currently reviewing whether the project, which is wholly located in B.C., falls under federal jurisdiction. The review is expected to be completed by March 2019 with a decision expected shortly thereafter, GMP FirstEnergy notes.
3. Enbridge’s Line 3 Replacement Project in-service date
While the price of Canadian heavy crude has improved in recent weeks, largely as a result of announced mandatory production curtailments in Alberta, the boost is believed to be temporary. Major new pipeline egress capacity is required, analysts noted, and in terms of timelines, first up is Enbridge’s Line 3 Replacement Project from Hardisty, Alta. to Superior, WI.
“The most recent Line 3 Replacement update from Enbridge in December 2018 was that the in-service date remains for November 1, 2019. However, a formal appeal for the project has since been filed by the Minnesota Department of Commerce, which could potentially delay the in-service date. our modelling assumes the project comes into service January 1, 2020.”
2. Alberta's provincial election
While the analysts concede that Alberta’s NDP government “has in time come to publicly endorse the oil and natural gas industries efforts to bolster market access via pipelines to various export markets as personified through the Premier of Alberta, the Honourable Rachel Notley,” they do not expect her to win this spring’s provincial election.
“We believe the market anticipates a return to a unified right-leaning government in the United Conservative Party, which will likely reassert a more independent, pro-industry platform with less cheerleading for federal policies such as firm adherence to United Nations agreements,” GMP FirstEnergy said.
“A UCP majority win would be a positive for the energy sector as we expect Mr. Jason Kenney will likely take a more combative tone with the federal government in terms of supporting the energy industry. However, we think the outcome of this election pales in importance to the outcome of the federal election.”
1. Canada's federal election
The federal election that is expected to occur this October is the most significant Canadian energy market event anticipated this year, analysts said.
“We believe this is a key event for the Canadian energy sector as most industry participants (ourselves included) believe the government currently in place has done little to help move major Canadian energy projects forward nor provided little of the desired support the industry needs (eg. shortened regulatory processes without constant intervention).
“Rather, the Liberal government has provided the type of support the industry does not want (or need), such as the nationalization of a pipeline, and incremental credit availability. Moreover, the current market would view any sort of incremental borrowing as a negative.
“In our view, a return to power by the Conservatives, a Conservative minority or a Liberal minority would be a positive outcome for the energy sector. A second consecutive Liberal majority is likely to be viewed as significant negative for the Canadian energy industry.”
While positive news on each of these four issues will be beneficial for the industry, “conversely, negative outcomes will increase the headwinds for exploration and production capital investment, investor confidence and a generally strong Canadian energy sector,” analysts said.
GMP FirstEnergy also reiterated its concerns about Bill C-69, which is expected to come into law this year.
“We expect a negative reaction if this bill is approved and becomes the new regulatory process for energy projects in the federal purview, acknowledging that the market is seemingly prepared for this,” analysts said.
“The proposed legislation appears to create significant new barriers to timely decision making. We believe it effectively prevents any major new project from reaching any form of positive recommendation, or to impose such a massive series of requirements under any such positive recommendation as to make the project untenable and cost uncompetitive.
“A fifth bonus would be Bill C-69 being repealed.”