Job losses, a chronic capacity shortage in the pipeline, a “spill bill” and a carbon tax – these are just some of the problems the Canadian energy industry is currently facing and likely to face in the future. While some of these issues are shared by much of the global oil industry, others are uniquely Canadian and make the future of the industry quite bleak.
Those pesky pipelines
Canada’s rail crude oil exports to its main customer, the United States, have increased significantly in recent months as pipelines remain scarce. An extension of Line 3 – One of the major oil transport arteries between Canada and the US is underway and is meeting resistance every step of the way. Line 5 – Another major export channel – faced its greatest challenge recently when Michigan Governor Gretchen Whitmer ordered a shutdown of infrastructure and cited repeated easement violations and the need to protect the Great Lakes.
Work is currently underway on Like 3, and Enbridge is suing Michigan for the suspension, which it believes was unlawful. Three other states have since entered the dispute to defend the pipeline. The attorneys general of Ohio, Louisiana, and Indiana recently filed a request for Amici status – when a party not involved in a case helps the court with information or insight into the issue in question. In it, the Ohio official said there were few alternatives to Line 5, and shutting it down would hurt not just Ohio but entire regions in the Midwest. There also seem to be few alternatives to complaining. According to energy advisor Adrian Travis, CEO of Trindent Consulting in Canada, besides litigation, the only two options the Canadian oil industry has in the Line 5 dispute are arbitration, which is based on a bilateral agreement from 1977 that prohibits pipeline interference and retaliation by “making it prohibitively expensive for Michigan residents to heat their homes as a result of Governor Whitmer’s decisions.”
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The latter option might sound like a radical move, but while the Line 5 saga, while not as dramatic or lengthy as the Dakota Access or Keystone XL saga, has been a major contributor to the uncertainty Canadian Oil faces, and it does really not. I don’t need any more of it now. Plus, Travis says, Governor Whitmer’s actions are actually hurting Michigan residents – something that the most recent support testimony in the Michigan Congress.
“It comes as no surprise that Michigan Governor Whitmer has planned to close the pipeline in May as the pipeline feeds 55% of Michigan’s propane supply for winter heating,” Travis told Oilprice. “In all likelihood, it assumes that the Trudeau administration will be ready and not respond with serious trade measures against the state of Michigan.”
Jobs on the line
The pipeline shortage has made it much more expensive to export crude oil to the US than before, but until the Trans Mountain expansion is complete – if it does not meet a terminal obstacle – Canadian oil companies have practically no participation in the global oil market. This indirectly costs the industry jobs as Canadian crude is uncompetitive in the largest and busiest oil market in the world, Asia.
Have the last two oil price crises costs Canada’s oil industry employs 26 percent of its workforce, according to Energy Safety Canada’s Petroleum Labor Market Information. More job losses are expected this year and next before any signs of improvement appear.
For one, Canadian crude oil continues to trade at a steep discount to West Texas Intermediate due to pipeline problems and global demand trends. For the industry, too, there is more headwind in the form of a carbon tax that the Supreme Court of Canada recently upheld it after Alberta, Saskatchewan and Ontario challenged its legitimacy.
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Canada’s oil province has been opposed to a carbon tax for some time. Still, it may now be forced to implement the federal rule, making life harder for oil companies. Incidentally, these are consolidating at record speed, which also costs jobs. Since the beginning of this year alone, mergers and acquisitions have had success in the Canadian oil field recording 18 billion dollars and more are coming.
Canada’s regulatory system for the energy industry has become notorious in recent years as one of the main reasons for the state in which the industry is located: a tough regulatory environment not only makes everything more difficult and slower; Foreign investment, which is vital in times of crisis, is significantly discouraged.
“It takes up to 12 months to drill new holes to meet regulations and permits prior to drilling,” Trindent’s Travis told Oilessene. “Drilling and finishing usually takes another 3 to 6 months. Our energy services industry has been decimated since 2014 and is unable to respond to future capacities.”
In addition, there is an additional regulation under the federal standards for clean fuels, which will increase an already significant burden on the oil industry for reporting and compliance. And as if domestic problems weren’t enough, two US Congressmen launched a so-called “Bill for spills“That could impose an excise tax on Canadian crude. If passed, it would reverse a 2011 IRS ruling that found that Canadian heavy oil is technically not crude and therefore cannot be taxed as such . “
Things are not looking good for the Canadian oil industry. Some may say the less oil the country produces, the better, but it should be noted that the oil produced in Canada is the primary raw material for heavy fuel oil for numerous US refiners. An uncertain future for Canadian oil would inevitably impact US prices in the pump years – if not decades – before pump prices stopped playing a role as most people would drive electric vehicles.
By Irina Slav for Oil Genealogie
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