Infrastructure at Risk in Canada Amid Shifting Policies, Speakers Say at SAIS Event

The successes and challenges of energy trade, infrastructure development in North America and cooperation among countries in an era of global competition were heard from a variety of speakers at an April 13 conference at Johns Hopkins University’s School of Advanced International Studies (SAIS).

Compared with U.S. oil and natural gas resources that are being moved to domestic and international markets in higher numbers, Canadian resources are at risk of being stranded due to policy decisions at the federal and provincial level, a few speakers said at the conference, sponsored by the Canadian Gas Association (CGA). Opposition to pipelines and policy uncertainty is creating hurdles for TransCanada Corp., which pulled the plug on its Energy East oil pipeline, Enbridge Inc., facing challenges on its Line 3 replacement project, and Kinder Morgan Canada Ltd., which halted non-essential spending on its Trans Mountain oil pipeline expansion, speakers noted.

“We’re faced with serious headwinds on regulations, policy changes and public perception” about fossil fuels, said Tim McEwan, senior vice president at the Independent Contractors and Businesses Association (ICBA) of British Columbia.

Others highlighted positive developments for energy market growth and increasing energy trade among the U.S., Canada and Mexico. As the North American Free Trade Agreement (NAFTA) goes through renegotiation, collaboration among the U.S. and Canada can improve energy security in both countries, officials said.

With the production gains and low costs stemming from private sector investments in the oil and gas industry, “North America should be seen as an energy superpower,” said Ed Heartney, deputy director at the Bureau of Energy Resources with the U.S. State Department.

While other countries have heavy government control in energy markets, the U.S. and Canada foster competitive markets and private investment, and Mexico is opening its energy market to more private investment, Heartney said. If the three countries are viewed as a bloc, with more cooperation, they can be “an example for the world,” he said.

“While other countries have heavy government control in energy markets, the U.S. and Canada foster competitive markets and private investment”.

Although the priorities of the three countries may not always align, “it is in our economic interest to realize the full potential of our North American energy assets,” said Yiota Kokkinos, director general for the energy sector at Natural Resources Canada. Removing barriers to energy development, enabling more cross-border infrastructure, advancing clean energy resources and fostering innovative technologies can benefit all three countries, she said.

More use of renewable resources and efficiency gains to help consumers use less energy does not mean oil and gas will be phased out anytime soon, said Kokkinos.  “Traditional sources of energy will be an important part of the energy mix for decades to come,” she said.

Natural gas is often referred to as a “bridge fuel” to link current power generation resources with a future that has heavy reliance on solar, wind and renewable resources, but that is not a certainty, said Nikos Tsafos, adjunct lecturer at SAIS.

As a fossil fuel, “natural gas has a branding problem and a pricing problem“ if the industry hopes to fare as well as it has in the past in a carbon constrained world in the future, he said. Commodity costs are so low that the price gap between the Henry Hub in the U.S. and the AECO-C Hub in Alberta has widened, he noted. For natural gas companies, “it’s going to take a lot of hard work to gain market share and displace other fuels,” said Tsafos, who also is president and CEO at enalytica, a company he co-founded in 2014 to change how the energy industry uses information.

With environmental goals being pursued in provinces and at the federal level in Canada, the country is showing a lot of leadership in that area, while federal counterparts in the U.S. are backing away from such issues as methane leaks in the production sector, said Nancy Meyer, director of corporate engagement at the Center for Climate and Energy Solutions.

The gas industry has an opportunity to play the role of a bridge fuel, but actions on methane emissions in the upstream sector will gain more scrutiny due to the potency of methane as a greenhouse gas emission, said Meyer.

Public opinions about natural gas in Canada have shifted such that “there is a new paradigm” threatening the increased use of the fuel, said Leigh Ann Shoji-Lee, president of Pacific Northern Gas Ltd. A strong focus on electricity from renewable resources to replace gas use in different sectors of the economy stems from a lack of education among politicians about the costs tied to such a move, she said. Such a heavy reliance on electricity from renewables would make the power grid less reliable, less resilient and much more expensive than most people understand, she said.

The natural gas industry may be a victim of its own success in that the public does not appreciate the low-cost supplies that are available in North America and contribute so much toward economic growth and consumer benefits, according to Timothy Egan, president and CEO of CGA.

“Heavy reliance on electricity from renewables would make the power grid less reliable, less resilient and much more expensive than most people understand.”

In the consumer sector, energy costs are not that high of a priority for most energy consumers, including large industrial users, according to Tsafos. Industrial customers will relocate because of tax treatments, but not energy costs, he said.

LNG Canada, the large joint venture among Shell Canada Energy, PetroChina, Korea Gas Corp. and Mitsubishi Corp. to build an LNG export terminal at Kitimat, British Columbia, stands to gain from favorable tax breaks announced recently by the B.C. government if the project is built, speakers noted.

The LNG Canada project offers a “glimmer of hope” compared with the hurdles facing pipeline development, particularly in B.C., said McEwan of ICBA. The regulatory developments in B.C. are making headlines for Premier John Horgan and policymakers’ opposition to the $7.4 billion (Canadian) Trans Mountain oil pipeline expansion, he said.

The political picture in B.C. has brought elected officials without a clear understanding of how important energy resources are to the economy and the services people desire, said McEwan.

Given the increasing independence of the U.S. and less reliance on Canadian oil and gas resources, “we need to get our resources offshore,” he told the SAIS gathering. As a project approved by the National Energy Board, the Trans Mountain expansion “has to get done for the national interest,” said McEwan.

Prime Minister Justin Trudeau was set to meet with Horgan and Alberta Premier Rachel Notley on April 15 to try and reach some type of solution, and “how this plays out is going to be very interesting,” he said.

Addressing trade relations and NAFTA, Heartney, Kokkinos and others acknowledged that modernizing NAFTA is no small task, with the energy portion of the agreement a success story over its history. The prospects for a quick resolution are not good, however, with plenty of sticking points among the countries and question marks related to upcoming Congressional elections in the U.S. and a presidential election in Mexico, said Laura Dawson, director of the Canada Institute at the Wilson Centre. “We’ll not see anything until 2019,” she said.

Egan of CGA said even as NAFTA is being renegotiated, there are plenty of opportunities for increased energy cooperation among the three countries. “Natural gas is the best part of the North American energy story,” he said in a brief interview after the SAIS event.

“All of us are concerned about the opposition to infrastructure projects,” and the gas industry needs to do a better job of responding to that opposition than it has in the past, he said. “There needs to be a deeper understanding on the affordability and reliability of natural gas,” Egan said.

As for the stance of Horgan in B.C., Egan said he understands the political realm he operates in and his opposition to moving more hydrocarbons through the province. “That is his political calculus. I understand it, but I don’t think it’s in the long-term interest of B.C.,” he said.

“Even as NAFTA is being renegotiated, there are plenty of opportunities for increased energy cooperation among the three countries.”

This article was produced for the Foster Report and has been reprinted with permission of the publisher, Concentric Energy Publications Inc.”