5 Reasons Why the Canadian Oilpatch Could be in for Another Turbulent Year in 2019

Canada’s oilpatch will be glad to see the back of 2018 — a year that saw domestic crude prices plunge, pipeline construction stall and tensions grow with Ottawa.

But the coming year doesn’t promise much relief. Big questions loom over the future of the Trans Mountain pipeline, Ottawa’s overhaul of the project approval process and Alberta’s decision to impose oil production cuts.

Here are the major challenges for the energy sector that will make headlines in 2019.

1. The Trans Mountain saga

The plot twists continue for Canada’s most contentious energy project, the Trans Mountain pipeline expansion, which would send oilsands crude to the West Coast for export.

Weeks after Ottawa rescued the project by buying it from Kinder Morgan for $4.5 billion, the Federal Court of Appeal overturned the pipeline’s approval, partly on grounds the federal government failed to properly consult First Nations.

The government is redoing that work, but there are no guarantees the project will move forward.

Warren Mabee, director of the Institute for Energy and Environmental Policy at Queen’s University, says pipelines could be an issue that splits voters in next fall’s federal election.

“[Justin] Trudeau has a fine line to walk into the election,” he said. “Is he going to be the prime minister who battles climate change or is he going to be the prime minister who builds pipelines? Can he be both?

“It’s a big question.”

2. Oil production cuts

With a growing oil glut triggering a steep fall in the price of Canadian oil, Alberta did something it hadn’t done in decades — imposed mandatory production cuts.

The policy takes effect Jan. 1, and Albertans will soon see how well it works.

Prices improved significantly following the announcement on Dec. 2, but some experts are uncertain that will continue.

People will also be watching for “unintended consequences,” including harm to investment and trade.

There are also questions about whether the curtailment will actually save jobs — an important matter for Premier Rachel Notley with an election call potentially coming as early as February.

3. The battle over a carbon tax

A cornerstone of the federal government’s environmental plans is its national carbon tax strategy, but it’s facing mounting political pushback as implementation nears.

Ontario is taking the federal government to court on the constitutionality of the carbon tax and Saskatchewan is also mounting a legal challenge.

New Brunswick and Manitoba haven’t signed on either. And if Alberta changes governments this spring, there’s little chance its carbon tax survives in its current form.

This could spell trouble for a strategy that supporters see as a critical step in Canada’s efforts to help address climate change. Critics argue the policy will damage the economy and achieve little.

“You have a federal government that is really trying to find a way to get this in place,” Mabee said.

If carbon taxes “start to change behaviour,” then the government can invest in infrastructure such as pipelines “with a clear conscience,” he said. “But without the carbon tax, it’s a problem.”

4. Oil’s rough ride

The benchmark prices for oil in North American and international markets strengthened in 2018. West Texas Intermediate (WTI) peaked at over $76 US a barrel in October, while Brent crude nearly reached $87.

But fear there’s too much oil being produced for a slowing global economy sent oil tumbling in December to lows not seen in more than a year, with WTI dropping below $50 a barrel.

The geopolitical factors affecting oil prices can change quickly, and OPEC policy, trade disputes and U.S. shale production are all wild cards to some degree.

With so much volatility, opinions vary on where prices are headed. For one, Judith Dwarkin, chief economist at RS Energy Group, expects global crude stocks to build through next year and prices to continue to be “soft-ish.”

That could be good news for consumers, as lower oil prices typically mean relief at the pumps.

5. The future of Bill C-69

There’s much at stake for Canadians in how the federal government proceeds with Bill C-69, which includes an overhaul of the assessment process for major energy projects across the country.

The bill sets in place new timelines and parameters for reviews, lifts limits on who can participate in the process and creates an early-phase consultation with Indigenous communities and anyone else who could be impacted by a project.

There are fears in the oilpatch that a new process will scare off investment, though executives who met Trudeau in Calgary in November said they were confident he heard their concerns.

The government argues reform is needed to restore trust in the system.

Indigenous leaders want to ensure they have a bigger role in the decision-making process, while environmental groups have long wanted to see a more transparent approval process that relies on solid science.

Crafting the final legislation will require hard work and careful politics.