Unlike rosy outlook in U.S., Canadian oil sector struggles with competitiveness
- 5 Jan 2017
- Saskatoon StarPhoenix
- CLAUDIA CATTANEO Financial Post
ANXIETY BUILDS OVER DIVERGING ENERGY PATHS
Unlike rosy outlook in U.S., Canadian sector struggles with competitiveness
Canada and the United States have highly integrated oil and gas markets, but their governments will pursue opposite energy policies starting this year: Canada is taxing and restricting oil and gas activity and infrastructure to meet international climate change commitments, while the U.S. under Donald Trump will be liberalizing it and pushing its energy renaissance to the next level.
According to Jack Gerard, president and CEO of the powerful American Petroleum Institute — the U.S. oil industry lobby group that is expected to have big influence in the Trump White House — the U.S. renaissance will continue to keep energy costs low, repatriate manufacturing, create jobs and boost the U.S. as a world energy superpower and exporter, while reducing environmental impacts through privatesector-funded innovation.
Canada’s policy choices aim for balance between energy development and environmental protection.
What’s certain is that the U.S. oil and gas sector seems very excited about the years ahead. On the other hand, the Canadian sector is very anxious about its declining competitiveness and the hurdles it continues to face to build export pipelines, even as oil and gas prices recover. The jury is still out about whether energy companies that are still active will stick around.
In a speech Tuesday in Washington on the state of American energy, Gerard said his group will advocate to re-examine the “regulatory onslaught” and repeal many of the 145 regulations and other executive actions implemented by U.S. President Obama that are stifling oil and gas activity. It will also push for the quick approval of energy infrastructure, increased access for oil and gas drilling and reduced taxes.
There is a good chance it will get what it wants, given Trump’s profossil fuel cabinet picks, including former Exxon Mobil Corp. chairman Rex Tillerson as secretary of state, and former Texas governor Rick Perry as energy secretary.
“We occupy an important point in our nation’s history,” Gerard said in his speech. “For the first time in our lifetime, we can now say that North America has the potential to become a net energy exporter. That’s a revolutionary change, a significant shift from where we were just a few short years ago.”
Gerard said the U.S. energy revolution, the result of horizontal drilling and hydraulic fracturing innovations that unlocked shale oil and gas, has made U.S. energy more affordable, resulting in US$1,337 savings in 2015 for the average household on electricity bills and a further US$550 in savings in transportation fuel costs.
Lower energy costs are also supporting the repatriation of manufacturing.
“U.S. industrial electricity costs are 30 to 50 per cent lower than those of our foreign competitors,” Gerard said. “And American manufacturing costs are now 10 to 20 per cent lower than those in Europe and could be two to three per cent lower than in China by 2018, an important competitive edge. These lower energy costs are helping attract a return of manufacturing to the United States. For example, according to an analysis by the American Chemistry Council, chemical production grew 3.6 per cent in 2015 and is projected to continue to increase through 2020 as new capacity from 266 new, announced projects comes to fruition.”
Compare that to Canada, where the introduction of a national carbon price means the manufacturing sector will be struggling even more with high energy costs, while consumers are facing even higher energy bills.
Gerard said it’s untrue that growing oil and gas production has resulted in a dirtier environment. Increased use of natural gas has meant the lowest carbon emissions for electricity generation in the U.S. in 25 years, a success that has received little credit from the Obama administration, which has been focused on transitioning to renewable energy.
Speaking to reporters, Gerard predicted the Canadian oil and gas sector would be more impacted by Canadian policy than by any policy implemented in the U.S. under Trump.
“Whatever regulations and costs are imposed in Canada obviously play into that broader economic competitiveness,” Gerard said. “My expectation is that we will find a balance and further integration and synergy between the two nations — or the three nations including Mexico — so as we look at it long term, the North American energy infrastructure is truly integrated.”
That infrastructure is likely to include quick approval of the Keystone XL pipeline from Alberta to the U.S. Gulf Coast. Gerard didn’t mention the project by name, only that Trump is expected to approve two pipeline projects early on, which could be the main upside for the Canadian oilpatch of the new administration.