News
13/01/25
Trudeau exit may spur Canadian energy growth
Calgary, 13 January (Argus) — Canadian prime minister Justin Trudeau's place in
federal politics is winding down after nine years of driving change in climate
policy, but those environmental advances came at a cost for the world's
fourth-largest oil producer, helping to stifle foreign investment in the
country's oil and gas sector. Support for Trudeau fell nationwide over the past
year, as inflation and rising housing costs fueled by a relaxed immigration
policy and carbon taxes became too much for many to bear. Trudeau, seemingly
immune to scandal and high-profile exits on his team, was dealt his biggest blow
when his deputy prime minister and finance minister Chrystia Freeland resigned
in December, citing his approach to the "aggressive economic nationalism" of US
president-elect Donald Trump's threatened trade tariffs, prompting his 6 January
decision to step down. Canadian crude producers still managed to lift output by
30pc during Trudeau's tenure since 2015, even as major foreign players abandoned
the oil sands for friendlier jurisdictions and upstream projects and pipelines
were either mothballed or cancelled outright. Provincial jurisdiction over
resources prompted frequent fights between Trudeau and Albertan premiers who
guarded their claim to energy and the right to explore and extract within their
borders. "We could've done so much more," Alberta premier Danielle Smith said
hours after Trudeau's announcement, lamenting missed opportunities for Canada's
oil patch over the past decade, including the failed Energy East, Northern
Gateway and Keystone XL export pipelines. A tanker ban, tighter regulation and
an onerous project approval process were among the tools Trudeau used to try to
rein in the oil and gas sector, saying in 2017 that Canada's oil sands needed to
be "phased out" before naming a former Greenpeace director as his environment
minister. Smith did give Trudeau a nod for his commitment to keeping midstream
giant Enbridge's Line 5 pipeline from shutting down, and for helping to get the
massive Trans Mountain Expansion (TMX) pipeline and Coastal GasLink export
projects from Alberta to Canada's Pacific coast across the finish line. But
while Smith welcomes Trudeau's resignation, Canada now faces a period of lame
duck leadership before it holds federal elections, while cross-border tensions
are rising. Your new best frenemy Its largest trading partner is quickly
becoming its newest antagonist, with Trump threatening a 25pc tariff on all
imports from Canada and Mexico. Unencumbered movement of oil is critical on both
sides of the border, with 80pc of Canada's 5mn b/d of crude production aimed at
refineries in the US. Many landlocked Canadian producers have no practical
alternative, like refiners in the US midcontinent connected by pipeline. As
political chaos unfolds in Ottawa, Trump has lobbed insults at Trudeau and made
calls for the northern neighbour to become the US' "51st state", a taunt that
has struck a nerve in Canada. "There isn't a snowball's chance in hell that
Canada would become part of the US," Trudeau said on X on 7 January. "Trump's
comments show a complete lack of understanding of what makes Canada a strong
country," wrote minister of foreign affairs Melanie Joly. Trump will have
spotted Canada's weakness months ago, with support for Trudeau tumbling to the
benefit of the Conservative Party and its leader Pierre Poilievre. Recent polls
indicate the centre-right party would win a majority of seats in the House of
Commons if an election were held today. That is likely to happen in May,
assuming opposition parties bring down the government when Parliament resumes in
late March. Should Poilievre win, Trump will have a partner better aligned on
more policies than Trudeau was, but the suggestion that Canada could become part
of the US will get the same response. "We will never be the 51st state. Period,"
Poilievre said. His primary ambitions are to undo Trudeau's work, with the
federal carbon tax being the first to go. Rescinding the tanker ban, killing
proposed emissions caps and promoting pipeline construction are also on the
agenda. Poilievre plans to "take back control" of Canada's resources through
permitting and cutting taxes on pipeline and LNG projects to become less reliant
on the US. "Canadians will give me a mandate to take the country in a completely
opposite direction," Poilievre said on the Jordan B Peterson Podcast earlier
this month, describing how vanquishing Trudeau's energy policy will "cause a
massive resource boom in our country." The lengthy exchange touched on
minimising government, artificial intelligence and immigration, and was shared
by Trump's ally, Tesla chief executive Elon Musk, who called it a "great
interview". Priming for another Pacific pipeline Canada's energy industry has
returned to profit and received a much-needed boost from the federally owned
590,000 b/d TMX pipeline, but rising oil sands production means the newly
commissioned system is destined to fill up soon. The prospect of an
industry-friendly federal government reinvigorating a relatively dormant
midstream sector is positive for investment in Canada, and the US could play an
unintended role in deciding where any pipelines are proposed. Enbridge and the
Alberta government are teaming up to find ways to expand pipeline capacity.
Smith singled out the US as a customer she wants to enhance ties with amid
looming tariff threats, but those threats may prompt a revival of pipeline
projects to Canada's west coast to reduce dependence on the US market.
Enbridge's Northern Gateway pipeline was approved in 2014, but a Liberal Party
led by Trudeau came to power in 2015 with sweeping changes for the oil and gas
sector, including a tanker ban on the country's Pacific coast, effectively
killing the project. The C$7.9bn ($7.3bn) Northern Gateway was not in the
interest of local communities, Trudeau said in late 2016, when he officially
reversed the previous government's approval. The pipeline would have shipped
525,000 b/d of diluted bitumen westward and 193,000 b/d of imported condensate
eastbound to the oil sands region for blending. Construction would have avoided
large populations and was seen as the most practical option for getting more
Canadian crude to Asia-Pacific. Its northern terminal may not have had the same
tanker limitations as TMX faces at Vancouver, and could have seen reduced voyage
times. Enbridge now has added support from the Alberta government by way of
crude volumes the province collects as tax from some oil companies in lieu of
cash payments. These in-kind barrels would be the first to backstop a major
pipeline expansion by Enbridge, giving both the midstream company and other
producers something to latch onto to advance a future project. This is a new
approach for Alberta, after sacrificing C$1.5bn it paid in a last-ditch effort
to keep the doomed 830,000 b/d Keystone XL project to the US alive. Outgoing US
president Joe Biden revoked that troubled line's permit in 2021. Like Keystone
XL, Northern Gateway is no more. Reviving such a project would still require
significant stakeholder engagement along any route, and face substantially
higher construction costs than a decade ago. The C$34bn TMX put into service in
May 2024 was originally pegged at C$5.4bn in 2013, even less than Northern
Gateway as TMX was the twinning of an existing system. This would be a big
hurdle to clear, even if governments were to allay regulatory concerns. But with
an unpredictable Trump returning to the White House, the prospect of shipping
more Canadian crude west might soon hold a heightened appeal. By Brett Holmes
Canadian oil production Canadian upstream investment Send comments and request
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