The Morning Brief – 05.05.20

By Bruce Carson


Economy—Energy Liquidity Help May be Coming

Prime Minister Trudeau’s Daily Briefing offers no details, but indicates it may be Coming

Irving Oil and its solution to the Energy East Pipeline

Canada’s energy sector has been waiting for help from the federal government that would address liquidly issues affecting the large companies both before and certainly after the government’s announcement of some help to the sector on April 17.

On that date $1.7 billion was committed to help clean up orphan or abandoned wells in British Columbia, Alberta and Saskatchewan. Also, $750 million was designated to help companies reduce methane emissions and money was designated to address environmental issues in the offshore in relation to Newfoundland and Labrador.  Both EDC and BDC were to deal with loans ranging between $15 million and $60 million to mid-sized oil and gas companies.

This was looked upon as the first tranche of help coming from the federal government. Premier Kenney and Alberta’s Energy Minister Sonya Savage said that the next aid announcement would have to address the liquidly issues facing the large energy companies and be in the range of $20 billion.

Until yesterday, when this matter has been raised with Prime Minister Trudeau, his answer would focus on help to workers provided through the Canadian Emergency Response Benefit (CERB) and the wage subsidy. Yesterday, with the first quarter loss of over one billion dollars reported by Air Canada, there was another opportunity with a real life issue to ask Trudeau about aid to large companies.

Bloomberg posed the first question and it was in the context of aid being provided by various countries to airlines. The question was “airlines are getting a lot of help in other countries and they are direct competitors of the Canadian industry. What is the government looking at doing beyond wage subsidies for the airline industry?”

Trudeau answered by saying “we need to continue to have a strong airline sector once this is all done, so of course we are looking very carefully at how to support industries like that that are so important to Canada and Canadians.

Trudeau then launched into his defence of CERB and the wage subsidy saying that his government was there to help workers. As has been said many times in this space, if the employers disappear, there will few jobs for these measures to address.

However, this time Trudeau went on and said “we will have more to say about sectoral supports in the future, but for now the support that we’ve given to workers right across the country is making a real difference.”

Later in his media availability he was asked again about aid to the airline sector. The question was “Air Canada posted a first quarter billion dollar loss, or in excess of one billion. I just want to clarify your answer; it seems that; are bailouts for affected industries that have been especially hard hit during the pandemic, off the table? Is there any possibility outside of the programs you have already announced?”

Trudeau began his answer by praising his government’s response through CERB and the wage subsidy. But he added for the first time in a positive fashion the real possibility of aid to large companies.

He responded “but we recognize that companies large and small in various sectors across the country are particularly hard hit by COVID-19. I thing of the airline sector, I think of the tourism sector , I think of the energy sector and other significant sectors that will require more support on that. We will be making an announcement on that in the coming days or week. It is something we have to get right, but we will be looking at measures to ensure that some of our most important sectors for the Canadian economy continue to stay strong through this pandemic and mostly beyond it.”

It is not a direct commitment of help for the three sectors Trudeau mentions, but it is an indication that help, in whatever form, is under consideration.

There was more clarification yesterday afternoon when Canada 2020 convened another session of its dialogue, the Recovery Project. One of the panellists in this session was Michael Denham, who heads up the Business Development Bank of Canada.

He spoke about the need to sustain job creators and went on to say that BDC and EDC are working together to deal with corporations’ liquidity issues to get them through to three to four years from now.

So if one ties Trudeau’s answers with Denham’s statement, one can conclude that there is definitely some movement towards liquidity help on the part of the federal government. Of course what we don’t know is which sectors will benefit and what form that benefit will take.

What we do know from the head of Cenovus Energy Alex Pourbaix is that help is desperately needed. Last week Cenovus posted a $1.8 billion first quarter loss and Pourbaix was quoted as saying “we’ve been hearing for weeks that support is coming. Weeks have passed and the industry is still waiting and particularly the larger side of the industry.”

It is Pourbaix’s view that the energy industry will be needed to help pull Canada out of this recession.

In addition to the first quarter loss incurred by Cenovus, Husky Energy lost $1.7 billion and this week we hear from Suncor and Meg Energy. Pourbaix said that in order to deal with times like these one first shuts in production, then growth is deferred, dividends are cut and then capital spending is slashed.

The aid that Trudeau spoke of is needed if as Pourbaix says, a functioning energy industry will be necessary to help pull Canada out of the present recession.

So the large corporations in the sectors hurt most by COVID-19 wait for help, which yesterday, seemed close to being a reality.

At the end of last week it was announced that Irving Oil’s application to the Canadian Transpiration Agency to bring oil from British Columbia by tanker, through the Panama Canal to its refinery in Saint John, New Brunswick had been approved.

It is also Irving’s intention to pick up Canadian oil from locations along the Gulf Coast and to bring oil from Newfoundland and Labrador to Saint John for refining.

Having received approval, the company is now working on securing ships to carry the oil.

The plan is to begin shipment in late June or early July.

Peter Tertzakian, commenting on this concept said it provides security of supply and a shield against price wars.

With the completion of the Trans Mountain pipeline and Keystone XL, more Canadian oil will be available for transport in this fashion.

To Come

  • Trade stats for March will be released
  • Virtual sitting of the House of Commons
May 6
  • In person sitting of the House of Commons
May 7
  • Virtual First Ministers’ Meeting
May 8
  • Job numbers for April to be released