Musings: Low Prices And Liberal Politics Change Canada's Energy Biz
Source: Natural Resources Canada
Another analysis prepared by Natural Resources Canada shows the value of major new projects both planned and under construction. Given the substantial decline in commodity prices and the poor price outlook, the bulk of projects listed as of 2014 as planned are likely to be delayed or cancelled. That means there will be a meaningful slowdown in future investment, which will create a drag on Canada’s economy, and quite possibly send it into a recession.
For energy companies, not only are managers dealing with low commodity prices but they now have less support from local and national politicians. In Alberta, the political shift happened with the provincial election last May that propelled the New Democratic Party (NDP) into power. The newly elected NDP legislators elevated Rachel Notley, the head of their party, to be premier for the province. Shortly after assuming control of the provincial government, the NDP raised corporate and personal taxes. Premier Notley also announced she would appoint a commission to review the province’s royalty structure that had last been examined in 2007.
Source: Natural Resources Canada
The NDP charged that the people of the province were not receiving their ‘fair share’ of the income from the natural resources industries. The NDP’s election platform also emphasized that it would redirect the provinces’ policies with regards to climate change.
Because the watchwords behind the royalty review was ‘the province’s fair share,’ the people in the oil and gas industry became convinced that the examination would lead to higher royalty payments. This review came just as the energy world began experiencing sharply lower prices. At the time of the campaign and election, oil prices were higher than currently and industry forecasters held out hopes that a recovery leading to higher prices might occur before the end of 2015. However, energy executives feared higher royalties could derail the impending industry recovery.
Last week, the commission appointed to review the royalty structure delivered its report. It concluded that the province was being paid its fair share based on current prices. As Ms. Notley told CBC Radio in an interview, “If we were still in a $100-a-barrel environment, I would suggest that perhaps we could have done better as a province. But the fact of the matter is that what we’re dealing with now is fundamentally different.” For the oil and gas industry, Ms. Notley’s observations were welcomed.
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