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Our Unpredictable Uncle Sam – What a change of leadership in Washington will mean for the Canadian energy industry

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The United States is big, it’s brash and it does things its own way. With a November election just weeks away, global risk analysts wonder what a change of leadership in Washington will mean for North American energy



Who among the two leading U.S. presidential candidates would best serve the Canadian oil and gas industry? The answer, according to the experts, depends upon which version of the winning candidate takes over the Oval Office. Hillary Clinton is the veteran insider who, as Secretary of State, recommended the Keystone XL pipeline, but during the Democratic primaries all but promised to put an end to fracking. Donald Trump has promised the world to the fossil fuels sector, but the Republican candidate changes his policy positions—if you can call them policy positions—on a whim. Naturally, among energy watchers, uncertainty abounds.

Let’s start with the macro effects of presidential elections. Robert Skinner is an executive fellow with the School of Public Policy at the University of Calgary. He sees Clinton as the status quo candidate—Barack Obama, Jr., to some wags. “Clinton is more or less business as usual. There’s no real change in the base political approach,” he says. “It would be going from a Democratic administration to a Democratic administration.” Trump, however, is another matter altogether; all bluster and unpredictability. “If the U.S. economy goes into decline because of the acute unpredictability that would come with a Trump presidency, then Canada’s economic prospects would be affected because our trade relationship is so pervasive,” Skinner says. A more cynical view is offered by University of Houston energy economist Ed Hirs, who argues that both candidates are doing what presidential candidates always do, telling people what they want to hear.

Trump is certainly telling the American oil and gas industry what it wants to hear. His only speech on energy was delivered in the heart of the Bakken shale basin during a May oil industry conference in Bismarck, North Dakota. He led with Keystone XL, telling the largely industry crowd that he would ask Canadian pipeline operator TransCanada to resubmit its application to the State Department. The 830,000 b/d project was rejected last November by President Barack Obama, who cited Americans’ “global leadership on climate change” as the key reason behind his decision. “[F]rankly, approving this project would have undercut that global leadership,” Obama said. But there is one caveat to Trump’s support for Keystone XL. He has told media in the past that as president he would expect the government to receive “a share of the profits.” “Frankly, that’s what the income tax is for,” says Hirs. “More charges above and beyond the income tax might make this a very non-economic enterprise for TransCanada.”

Hirs expects a President Clinton would continue Obama’s opposition to Keystone XL. As Secretary of State, the department that vetted TransCanada’s application, Clinton spoke approvingly of the project in 2012, but when political winds shifted during the run up to the primaries, she switched positions and denounced the project. Does Canada’s—and Alberta’s—recent embrace of climate change mitigation policies, and the possibility of cooperating with a Clinton administration on more aggressive regulations, suggest she might have enough wiggle room to reverse herself once again? Skinner says she can “come up with some green leaf to cover her [most recent] position. There are all kinds of ways to finesse that.” Mount Royal University political scientist Keith Brownsey agrees, noting that she had left the State portfolio long before President Obama’s rejection of the Keystone XL, minimizing her political embarrassment if “maybe her government would approve a variation on Keystone XL—another route to the Cushing Depot in Oklahoma, something like that.”

During his Bismarck speech, Trump slipped in a proposal that was almost entirely ignored by the U.S. media, but could have profound consequences for Canadian oil exports. “Under my presidency, we will accomplish complete American energy independence,” he said. “American energy dominance will be declared a strategic economic and foreign policy goal of the United States.” The centerpiece of that policy, he said, will be banning OPEC and “any nations hostile to our interests” from the U.S. market. Trump is not the first to float this plan. Hirs has written about it for years, pointing out that President Eisenhower enacted crude oil import quotas in 1959 that were in place until 1974. In April, the Texas-based Panhandle Producers & Royalty Owners Association revived the idea and received national attention from the media, which may be where Trump picked up the idea. Exempting Canada and Mexico is a central part of the association’s scheme. According to the U.S. Energy Information Administration, in 2015, the U.S. imported 2.7 million b/d from OPEC members, including Venezuela and Nigeria, which both compete with Canadian heavy crude in the Gulf Coast refinery market. As of June, Venezuela shipped 653,000 b/d to the U.S. Banning that supply could open new markets for Canada at a time when IHS Markit says oil sands production is already slated to grow by almost 1 million b/d by 2025. Hirs says a President Trump wouldn’t even require Congressional approval for the move, either. Eisenhower imposed his quotas using executive authority. “Now would be a good time to impose an import quota, raise the domestic price [of oil], protect consumers from price spikes, help the industry recover, and get out of this boom and bust cycle,” says Hirs.

Or Trump could do the exact opposite, freezing out Canada from its only significant export market. During the July Republican National Convention, billionaire oilman Harold Hamm — tagged as the leading candidate to be Trump’s energy secretary—delivered a six-minute speech calling for the exclusion of all foreign oil and the doubling of American production (which reached a peak of 9.5 million b/d in 2015, compared to domestic consumption around 20 million b/d). “We could double U.S. oil production again and put America in a global league of its own,” Hamm told delegates to scattered cheers. “President Trump will fuel America’s future and become the first president to achieve American [energy] independence.”

Trade is a sector Trump has famously promised to shake up, repudiating or renegotiating agreements like NAFTA. Brownsey thinks Alberta technology firms, service companies, and equipment manufacturers could be deeply affected. “Canadian exports of oil technology and software sold in the United States could suffer very quickly and without a lot of consequences, either,” he says. The Canadian government’s only recourse would be to appeal to NAFTA panels. But, as softwood lumber has demonstrated, lawyers for the U.S. government are skilled at dragging out the process and getting their way in the end.

Nowhere is the difference between Trump and Clinton energy policy more stark than on Washington’s regulation of oil and gas production. In the Bismarck speech, the Republican candidate laid out a “100-day action plan” that includes overturning all Obama administration regulations inimical to greater production, revoking “policies that impose unwarranted restrictions on new drilling technologies”—presumably hydraulic fracturing, but not expressly stated—and lifting prohibitions on energy production on federal lands (a thorn in the side of Western U.S. producers, particularly). What does that have to do with Canada? Not much under a Trump administration, but a lot under Clinton.

Hamstrung by a Republican Congress in his second term, Obama leaned heavily on federal agencies under executive control, such as the Environmental Protection Agency, which enacted stricter regulations on fugitive methane emissions from oil and gas production by 40 to 45 percent, restricted Arctic drilling, toughened regulations on offshore activity, beefed up ozone standards and other rules much despised by industry. Under Obama, the Interior Department and the Bureau of Land Management also drew producers’ ire by restricting fracking and raising royalties on public lands. Under Clinton, the message from Washington would be fairly clear: Oil and gas can expect more of the same in years ahead.

The same message was also embedded in the North American Climate, Clean Energy, and Environment Partnership signed by Obama, Prime Minister Justin Trudeau and President Enrique Pena Nieto of Mexico, in late June. The agreement is meant to “show strong leadership building on the Paris Agreement and promoting its early entry into force. We recognize that our highly integrated economies and energy systems afford a tremendous opportunity to harness growth in our continuing transition to a clean energy economy.” The accord covers a lot of ground—power generation, automotive fuel efficiency, energy efficiency, even Monarch butterflies—but the primary oil and gas issue mentioned in the document is methane emissions, which the EPA and the Alberta government are already moving to regulate. Robert Skinner says the real focus is Mexico, which is just opening its energy sector to private capital and reforming its regulatory system. “It’s something Trudeau can point to and Obama can point to and say, ‘Thanks to this agreement, our Mexican colleague is catching up on the environment.’ Where are the new policy initiatives in that? I didn’t see any,” says Skinner.

The tripartite agreement may not represent new policy, but there are two areas in it that might concern the Canadian oil and gas industry. One is the emphasis on federal regulation. The Canadian Constitution is very clear that natural resources fall under provincial jurisdiction, with some exceptions, such as inter-provincial pipelines. Will the Trudeau Liberals try to horn in on the provinces in the same way the Obama administration has crowded out state governments? He may have already started. The premiers were not happy with the Prime Minister during their March meeting about a national carbon pricing scheme, which has been put on the back burner until the fall. And Alberta’s Rachel Notley must now be wondering how Ottawa will regulate oil and gas methane emissions when her government has already announced a plan to do so.

The second area is that, if elected, Hillary Clinton may take the voluntary objectives of the agreement one step further by forcing Canada and Mexico to agree to mandatory “accountability” around climate regulations. She unveiled her tripartite agreement update in September, one day after announcing her opposition to Keystone XL. “As President, I will immediately launch negotiations with Canada and Mexico to forge a North American Climate Compact that sets strong national targets to cut carbon pollution, so all three countries demonstrate a commitment to climate action; provide accountability measures, so each country has confidence that the others are living up to their end of the bargain; and creates certainty for investors and confidence in the future of our climate, so we can all marshal resources equal to the challenges we face,” Clinton said. The proposal enjoyed a brief day in the media sunlight, then disappeared and was rarely mentioned as the presidential campaign headed into the summer doldrums. But it sits on her website still and seems consistent with her current comments on energy and climate.

Whether Donald Trump or Hillary Clinton becomes the next president, change is probably in the wind for the Canadian energy industry. If it’s the Republican candidate, the possibility exists to resurrect Keystone XL and sell more bitumen to the U.S. Gulf Coast if OPEC is banned from the U.S. market. Alternatively, under Trump, Canadian crude could be banned altogether right along with OPEC’s. And if Trump follows through with his threats to renegotiate NAFTA, Alberta service companies and oilfield manufacturers would be right to be nervous about access to their southern customers. If the Democrat carries the November 8 election, then expect more of the Obama climate and energy agenda, which the Trudeau and Notley governments have already adopted, and which could be codified in a follow up tripartite agreement or treaty between the North American nations. All in all, Clinton or Trump, there are no clear winners for the Canadian oil and gas industry.

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