Canada's oil producers are facing new risks with the stunning election victory of Justin Trudeau, who campaigned on promises of tougher environmental rules and greater ambition in the fight against climate change.
With the Alberta New Democratic Party government already pursuing policies that could drive up industry costs, the Liberals' win on Monday raises the prospect of delays in regulatory hearings for proposed oil-sands pipelines; greater pressure on the industry to reduce its greenhouse-gas emissions; and a government that is less inclined to defend the oil sands in the global marketplace.
The industry remains focused on enhancing market access through new pipeline capacity to the U.S. and offshore markets, and maintaining the regulatory changes imposed by the previous Conservative government, Tim McMillan, president of the Canadian Association of Petroleum Producers, said in a post-election statement.
CAPP worries that new governments in Edmonton and Ottawa will ratchet up carbon regulations and impose new costs on the industry, which is already struggling with low prices.
Prior to and during the campaign, Mr. Trudeau proclaimed his support for the oil industry during visits to Alberta. While he opposed Enbridge Inc.'s proposed Northern Gateway pipeline, he has supported TransCanada Corp.'s Keystone XL to the U.S. Gulf Coast, and offered a qualified endorsement of TransCanada's Energy East project and Kinder Morgan Inc.'s Trans Mountain expansion.
However, he slammed Conservative changes to environmental-assessment procedures for pipeline projects, saying they resulted in a loss of confidence among Canadians. Both Energy East and Trans Mountain have applied for approval to the National Energy Board, and those reviews are governed by the Conservatives' controversial changes to process.
Environmentalists and opposition critics on Tuesday urged the Liberals to reverse the Harper government's conditional approval of Northern Gateway and to suspend the reviews of Trans Mountain and Energy East until they can strengthen the review process.
On Northern Gateway, it's not clear what power the new government would have to overturn a certificate issued by its predecessor, particularly since Enbridge has signed up a number of aboriginal communities as partners and those First Nations would have to be fully consulted before such a decision was taken.
"If there is an existing approval, it becomes challenging [for the new government] to unwind that approval," said lawyer Alan Ross, a Calgary-based partner in Border Ladner Gervais LLP and former Alberta government representative in Ottawa. "It will raise some legal concerns."
However, the Liberals pledge to impose a ban on oil-tanker traffic in environmentally sensitive waters off the British Columbia coast, including the Dixon Entrance and Hecate Strait that leads to the planned Gateway terminus at Kitimat. Such a move would amount to a de facto rejection of the Gateway project, but it too could face a court challenge by the proponents.
TransCanada and Kinder Morgan also face the possibility that their project will be sidelined as the Liberals consider changes to environmental regulations.
In his now-famous memo to TransCanada, former Liberal campaign co-chair Daniel Gagnier warned that Energy East was likely to face such a delay, and encouraged the company to establish relations early with a new government and promote the prospect of investment and jobs. Mr. Gagnier's memo was leaked last week, causing a brief controversy in what was otherwise a virtually flawless campaign.
Typically, projects already submitted for approval would be grandfathered when a government changes regulatory rules. But Mr. Ross said a Liberal cabinet will find it politically difficult to approve controversial pipeline projects that were reviewed under a process that Mr. Trudeau had publicly condemned as lacking in credibility.
The industry insists the regulatory process for major projects remains rigorous, but was merely streamlined to avoid duplication between agencies and levels of government. The changes "in no way undermined the rigour with which a breadth of issues are being reviewed," Brenda Kenny, president of the Canadian Energy Pipeline Association, said Tuesday.