The Morning Brief – 04.09.20

By Bruce Carson

NATIONAL ISSUES

Economy—Survival of Canada’s Energy Industry

OPEC+ Meeting Today—G20 Energy Ministers Meeting Tomorrow

Aid from the Trudeau Government?

The next few days will be crucial ones for the survival of Canada’s beleaguered energy industry


OPEC+

Today, the OPEC+ meeting occurs by video conference, a meeting in which Alberta’s Energy Minister Sonja Savage will participate and perhaps the premier as well. The meeting is to deal with the oil glut with the idea that production cuts take place and the crazy price war for market share between Russia and Saudi Arabia come to an end.

But as usual in oil politics nothing is simple as it seems one of the main goals of the OPEC+ group is to extend whatever output cuts are agreed to, to the United States so that the U.S. would reduce output as well. OPEC+ will probably want production cuts to apply to Alberta and there may be an inclination to agree.

The main prize for OPEC+ is to have agreement from the U.S. and from his most recent press conference on this subject; this is not something with which President Trump will agree. However he did sound optimistic that a deal to reduce output would be reached, but then added as he usually does in these situations added, we will see what happens. Trump has also said that he would not hesitate to impose “tariffs on oil coming to the US from outside.”

The question then becomes, if the United States does not agree to limit output, will there be a deal including Russia to cut output?

Trump has said that he would not order U.S. companies to reduce output and since a voluntary reduction across the board may violate U.S. anti-trust laws, there may be no agreement today, or an agreement contingent on U.S. participation in the cutback. However, as someone writing about this situation yesterday opined, getting this cutback done and agreed to will probably take more than one meeting.

G20 Energy Ministers

The second important day occurs tomorrow as G20 energy ministers meet in a video conference chaired by Saudi Arabia. This meeting was set to discuss the current oversupply of oil and methods by which production could be reduced so that it will be brought into line with demand.

Canada, as well as the United States and Mexico will be participating and federal Natural Resources Minister Seamus O’Regan has initiated a call with his U.S. and Mexico counterparts to take place today to develop a strategy so the three countries will be able to present a united North American position tomorrow.

It is in the interest of all three North American countries that this Saudi Arabia – Russia price war end. With O’Regan taking the initiative in this matter, it does show interest from the federal government in solving the output dilemma.

Aid from the Trudeau Government

With regard to direct aid to the energy industry in Alberta, Saskatchewan and Newfoundland and Labrador, Prime Minister Trudeau has continuously responded during his daily media availabilities that the government has developed programs to help workers.

Two weeks ago Finance Minister Morneau said that aid for the energy industry was coming in a matter of “hours, if not days” and of course that has not happened.

However, a CBC article quotes Alberta’s energy minister Sonja Savage as saying “we’re working very closely with them” (federal government). She anticipates a package from the federal government “very shortly” and it would provide help with the financing challenges that the oil patch is facing. She made these remarks during the annual CAPP conference, held this year online.

She pointed out that there are three factors which have combined together to cause severe pain; the Saudi Arabia –Russia oil output, problems with accessing funding from equity markets and COVID-19 which has cut demand as Canadian business shuts down and people self-isolate.

Savage said “I still believe that they’re working very diligently on it, the federal government.”

When asked recently about a bailout package for the energy industry, Trudeau’s response was that his government has concentrated on help for workers and his only mention of the industry itself came as he lumped airlines and tourism together with the energy as suffering from the economic challenges occasioned by COVID-19.

Columnist Lorne Gunter in his April 7 piece wrote that the Liberals are being pushed to ignore the energy industry during the pandemic. However as he points out, the pandemic has demonstrated how important the industry is in the building of personal protection equipment such as acrylic masks, chemicals needed for COVID-19 tests, keeping the power on in the ICU and heating manufacturing plants with natural gas.

Gunter alleges that there is a split in cabinet with Environment and Climate Change John Wilkinson looking at this time as a perfect opportunity to transition to new, green energy. Money should be directed to workers so they can train for green jobs. No doubt he would be joined in this by cabinet ministers McKenna and Guilbeault.

There is no question, as pointed out yesterday in the Canada 2020 discussion that the energy industry will be transitioning at some point as it innovates to reduce emissions and more renewable energy is available. However, surely at this time of great health and economic upheaval, the survival of the industry and the welfare of its employees should be of paramount concern to policy makers. Energy is Canada’s largest export, the industry employs, directly and indirectly 500,000 people, contributed $108 billion to GDP and $8 billion in tax revenues to governments in Canada.

We should know whether Gunter is right in the next few days.

Suggestions for Help

There is no shortage of advice for the federal government should it decide to help the energy industry. RBC Capital Markets has suggested that Ottawa buy crude that would be shut in from Alberta producers at a mutually agreed upon price and when prices increase, refund to the government the price paid for the oil, therefore smoothing out producer’s revenue stream while keeping taxpayers whole.

Former Saskatchewan Premier Brad Wall has laid out short, medium and long term solutions in an opinion piece in the National Post. Short term, it is recommended that the federal government fund the cleanup of orphan wells. This would provide jobs and would be good for the environment. Liquidity could be addressed through loans with strict criteria and repayment conditions. Provincial and local governments could help by reducing costs through tax and royalty breaks. The federal Stabilization Fund needs to be updated.

Mid-term, Canada, the U.S. and Mexico develop a North America response to Saudi Arabia’s attempt to crush the North America energy industry. And the Trans Mountain Pipeline must be completed.

Long term work to develop a stable and predictable regulatory environment through changes or the repeal of C-69, the no more pipelines act and repeal C-48 the tanker ban act.

But most importantly at this crucial time, the federal government should celebrate publicly Canada’s role as an environmentally responsible supplier of oil and gas.

The Trudeau government seems once again to be faced with the choice it didn’t have to make a few months ago in relation to the Teck Resources Frontier oil sands mine. Its choice of direction at this troubled time will be as much a defining moment for this government as whether it is able to get financial aid quickly into the hands of employees and employers in a comprehensive aid program.

The Coming Days

This is not the situation Canadians thought they would be in, when shoveling snow in January while dreaming of warm spring weather.

This is the time when Passover, Easter and Ramadan come together for people of faith and for people of no faith, it can be a time for reflection as flowers begin to bloom and wildlife awakens from the frosts of winter.

As noted here last week, COVID-19 has not shut down our ability to think about the positives in life. It is important during the next few days that kindness and mutual respect prevail as we obey the rules set out by our public health leaders and we concentrate on maintaining physical and mental health. Now, perhaps more than ever the greater good must prevail.

Rev. Dr. Brent Hawkes who was helpful last week in providing a list of activities not shut down by the virus has a few recorded short videos on his Facebook page which may be easily accessed by those looking for support over the next few days.

And a word of caution if you are out during the weekend, the Easter Bunny has been designated as an essential worker, so keep out of the Bunny’s way so all chocolate hungry humans can be visited.

To Come

Today
  • A very unpleasant jobs report for March will be released
  • OPEC+ meeting
April 10
  • G20 energy ministers meet
April 15
  • Bank of Canada deals with interest rates and releases its Monetary Policy Update
TBD
  • Still no date set for the return of parliament

The Morning Brief may take a short break but will return on Wednesday, April 15. Have a safe and socially distant long weekend.

– BC