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‘Sweet spot’: Ottawa struggles to balance ‘green recovery’ with oilpatch’s hopes

O’Regan offers some clues on energy plan as oil and gas sector worries about being left out in economic recovery plans

Canada’s Natural Resources Minister Seamus O’Regan is a fan of the movie Fight Club and is living by at least one of its rules right now.

“Throne Speeches are like Fight Club. It’s not something I could speak about even if I was privy to it,” O’Regan said in an interview with the Financial Post on Friday, alluding to the movie’s famous first rule of being highly secretive about the club’s existence.

It may be a fitting reference, at least in the sense that many industries and lobby groups are fighting over the billions of dollars that are expected to be rolled out to restart the virus-hit economy.

Prime Minister Justin Trudeau’s Liberal government is set to deliver a highly anticipated Throne Speech next Wednesday that’s expected to focus on three main priorities including measures to protect Canadians’ health, economic support for people as the pandemic continues and longer-term measures to rebuild the economy. The last priority is expected to include a focus on green spending following reports of a rift on the issue between Trudeau and former finance minister Bill Morneau, who quit over the summer.

A report earlier this week by an independent task force recommended investing $55 billion on climate and clean energy as part of a five-year environmental economic plan. The report may have more clout than some of the others that are floating around in the run up to the speech, as Gerald Butts, a long-time Trudeau confidante and his principal secretary until February 2019, was one of the 14 task force members.

Some industry executives are concerned that while green spending may have long-term benefits, it misses the country’s short-term needs brought about by the coronavirus pandemic, including getting people back to work. There are also concerns that spending on green technologies will exclude energy and natural resource-focused parts of the country, though O’Regan tried to soothe those concerns.

“What I want to do is make sure that we build off of what we already do,” O’Regan said, and at the same time “making sure that the rest of the country understands that being hewers of wood and drawers of water are some of the highest paid and most technically advanced jobs in the country.”

The country’s oilpatch has asked the federal government to include emissions-reducing technology in the oil and gas sector and carbon capture storage technologies as part of the government’s green spending plans, Explorers and Producers Association of Canada president Tristan Goodman said.

“The federal government, hopefully, (has) recognized that a green recovery also includes 10 per cent of the GDP in this country,” said Goodman, whose association represents small- and mid-sized oil and gas companies.

That struggle to balance long-term objectives with short-term needs was on full display in O’Regan’s home province of Newfoundland and Labrador this week, when hundreds of protesters rallied outside the Confederation Building in St. John’s and chanted, “We want federal support!,” to restart Husky Energy Inc.’s stalled West White Rose offshore oil project.

Calgary-based Husky put O’Regan, Member of Parliament for St. John’s South-Mount Pearl, in an awkward position on Sept. 7 when it placed the $1.2-billion project under review and threatened to shelve its Atlantic Canada operations, even though West White Rose is 60 per cent complete. The project supports 1,500 jobs in a province of 521,000.

Charlene Johnson, president and CEO of the Newfoundland and Labrador Oil and Gas Industries Association, who spoke at the Unifor-organized rally, told the Financial Post that Newfoundland and Labrador’s government had sought federal support this past spring.

“It should have come months ago, in my view,” Johnson said of federal assistance for the project, which has been on pause since the pandemic hit.

For its part, the government is hoping the economic recovery plans can also double up and rein in the country’s carbon emissions.

“As we look at how we can stimulate the economy we ask what’s the best way we can do it in the short- medium- and long-term?” O’Regan said, adding that government spending on lowering emissions will help Canada’s competitiveness “regardless of the jurisdiction and regardless of the industry.”

But O’Regan offered some clues on what to expect on the energy front this fall. The minister said he’s an enthusiastic supporter of energy efficiency projects, which can help Canada achieve 40 per cent of its Paris Agreement targets and also benefit large and small communities across the country. A federal hydrogen strategy is also coming this fall and he sees potential in boosting hydrogen production, as well as from liquefied natural gas export facilities to reduce coal consumption globally. And the clean tech industry offers an opportunity to help the energy industry reduce its emissions, he said.

Johnson said she supports the need to reduce carbon emissions and believes investments can help the province’s offshore oil industry reduce its greenhouse gas intensity, but offshore oil from the province had a carbon intensity of 12 kilograms of CO2 per barrel, which is 30 per cent less than the global average of 18kg per barrel.

“It’s frustrating that it’s taken so long for them to recognize that we’re part of the solution here in Newfoundland and Labrador,” Johnson said. The province’s unemployment rate will hit 14 per cent by the end of the year, the highest level in the country, and will continue to remain in double digits until at least 2022, TD Bank Group forecasts.

O’Regan has previously said the federal government is “at the table right now, hammering out concrete steps needed to support the offshore (oil industry).”

The minister agrees the historic collapse in global oil prices this year following the pandemic and Saudi-Russian oil price war has been challenging for the industry across the country and especially on paused activity offshore Newfoundland.

But asked whether there would be support going to Husky, O’Regan said, “Certainly for the industry.”

Back West, the oilpatch is watching for signals from Ottawa, amid a deteriorating environment for the industry.

According to a report released this week by the Canada Energy Research Institute, 14,000 jobs were lost in Alberta’s oil and gas industry between March and May 2020 alone.

The majority of those jobs — 11,000 — were lost in the oilfield services industry, CERI vice-president research Dinara Millington said, adding that federal spending on reclaiming orphaned wells will help put 8,200 people back to work in the province but not fully offset the losses.

“So there’s obviously still a gap but one of the bigger conclusions we arrive at is, looking at the stimulus package, it’s still not enough to get the sector back to the pre-COVID trend line,” Calgary-based Millington said.

Whether Canada’s economy fully recovers by the end of next year “will depend on both the success in developing a solution to the health crisis and the ability of workers to return to work,” Royal Bank of Canada economists wrote in a Sept. 10 research note. The report shows that real GDP declined 13.4 per cent in the second quarter. Overall, RBC expects real GDP to shrink 6 per cent this year.

The immediate economic pressures following the pandemic are being felt across the country, with the retail, hospitality, aviation and energy sectors hardest hit and vulnerable to further declines.

“We need to focus the limited money that we have on the areas that will have the greatest impact,” Canadian Chamber of Commerce president and CEO Perrin Beatty said, adding the federal government needs to focus “less on the rainbow and more on the pot of gold.”

Beatty said he’s concerned the federal government’s focus on green spending could be at the expense of existing industries that can be provide a quicker economic rebound.

Indeed, the federal deficit is expected to climb to $343-billion this year, with the Liberals proposing another $37-billion income-support package of benefits and changes to employment insurance when the Canada Emergency Response Benefit winds down soon.

TD Bank also expects provincial deficits to rise to a combined $100 billion, or 4.5 per cent of GDP, this fiscal year, sending their combined net debt-to-GDP ratio to around 38 per cent, the highest level since the mid-80s.

While no province will be spared from the pandemic, resource-focused Alberta is set to record a deficit-to-GDP ratio approaching 8.1 per cent this fiscal year, followed by Newfoundland & Labrador with 7.3 per cent.

Amid this backdrop, Beatty said he was encouraged by Deputy Prime Minister and Finance Minister Chrystia Freeland’s comments this week, where she emphasized that the best economic stimulus that Ottawa can offer is to keep COVID-19 levels under control in Canada.

In recent speeches, O’Regan has signalled the federal government believes existing industries, including natural resource industries like the oil and gas industry, will be needed to stimulate a broader economic recovery.

“We’ll get where we need to go tomorrow by using what we have at our fingertips today. No better example exists than our existing energy and natural resources, helping to build innovation and economic growth,” O’Regan said in a speech to the Gastech Conference on Sept. 7.

“The Canadian petroleum sector is by far our country’s largest investor in the clean tech sector, routinely accounting for more than 70 per cent of all private sector investment in R&D, more than half a billion dollars every year,” O’Regan said.

Clean-tech industry leaders, meanwhile, say there’s an existing roadmap to economic growth, which was developed by the Liberal government. Dominic Barton, now Canada’s ambassador to China, chaired the Economic Strategy Tables that identified and laid out seven industries, including the clean tech industry, which could be scaled up in the country.

Audrey Mascarenhas, who chaired the strategy sessions for the clean tech strategy table and is president and CEO of clean-tech darling Questor Technologies Ltd., is concerned the federal government is too focused on “moonshots” after a string of funding announcements for early stage clean power projects, including tidal power and small-scale nuclear funding.

“The challenge that we have right now is we have to recover. We have to create opportunities for young people,” Mascarenhas said. “It’s easy to get hung up on shiny and sexy and moonshots.”

Focus on exploratory and promising technologies and sectors have merit in the very long term, but Canada is facing a severe economic challenge now, she said.

O’Regan said the government’s Clean Technology Economic Strategy Table does offer a roadmap for helping the industry scale up. “There’s significant momentum in the clean tech space,” he said.

Asked whether or not the Throne Speech would would focus on meeting the short-term needs of getting people back work, O’Regan said: “Whenever you hit the sweet spot of the short-term working for the long-term, that’s where you want to be.”

Source: Financial Post | This text was excerpted from the media outlet cited on September 18, 2020 and is provided to Noia members for information purposes only. Any opinion expressed therein is neither attributable to nor endorsed by Noia.