Trudeau’s Likely Pact With Pipeline Foes Spurs Oil Sector Angst

(Bloomberg) -- The prospect of Canadian Prime Minister Justin Trudeau sharing power with parties that are more stridently in favor of fighting climate-change is already causing concern among leaders of the nation’s energy industry.

Trudeau won reelection Monday night, but lost his majority in parliament, meaning the New Democratic Party will likely have a say in how the nation is governed. NDP Leader Jagmeet Singh has said the federal government shouldn’t be allowed to push through pipelines in provinces that don’t want them. The Liberals and NDP combined have more than enough seats to form a majority, though Trudeau can also turn to other parties for support.

Tim Pickering, founder and chief investment officer of Auspice Capital Advisors in Calgary, said a minority government may delay the Trans Mountain expansion amid opposition from the NDP and the Green Party.

“It’s pretty negative outcome from an energy-sector perspective,“ he said in an interview. “This is a very, very bad outcome for Alberta.”

While Trudeau shelled out $3.5 billion to save the critical Trans Mountain pipeline expansion from cancellation, many in the industry criticized him for implementing a carbon tax and a new system for project approvals that they say will make pipelines impossible to build. With Singh having a say in the government, the fear is that Trudeau’s attempts at support for the industry -- which accounts for a 10th of the country’s economy and a fifth of its exports -- may wane.

International investors, who have been wary of the Canadian energy industry, needed this election to send them a clear signal about the government’s attitude toward the sector, and Monday’s results failed to provide that, according to the head of the largest Canadian energy industry trade group. Trudeau’s Liberals were on track to win 155 seats in the House of Commons, short of the 170 needed for a majority. The NDP took 25 districts, giving the two parties a combined 180.

No Clear Direction

“A minority government does not give them that clear direction, so it will be incumbent on the government to be very clear, very early on, about what their plans are, and I hope that’s a positive message to global investors around energy,” Tim McMillan, president of the Canadian Association of Petroleum Producers, said in an interview Monday night.

McMillan said he’s not concerned about the Trans Mountain expansion being canceled because it has all of its approvals, and there are no remaining “decision points” that the federal government could use to block it.

Others in the industry are more worried about how they’ll fare under a Liberal-led minority government. Whitecap Resources Inc. Chief Executive Officer Grant Fagerheim said the election’s outcome will be a factor in the oil producer’s capital spending plans for next year, with the results probably prompting the company to spend less and keep production steady.

“This result brings a significant amount of uncertainty for the industry for a significant amount of time,” Fagerheim said in an interview. “These results will be perceived as a negative for all businesses across Canada, but especially for the oil and gas sector.”

Tristan Goodman, president of the Explorers & Producers Association of Canada, which represents small- and mid-sized energy companies, said he doesn’t think that the results are a “crisis” for the industry, but that companies will be seeking more clarity on the new government’s priorities.

“We’ll be looking for stability and looking for them to fulfill commitments that already have been made,” Goodman said in an interview.

To contact the reporters on this story: Kevin Orland in Calgary at korland@bloomberg.net;Robert Tuttle in Calgary at rtuttle@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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