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U.S. Shale & Trudeau’s Climate Policy Have Totally Devastated Canada’s Energy Industry

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Bloomberg

Petroliam Nasional Bhd.’s decision to back out of a giant gas-export project on Canada’s Pacific Coast is the latest hit to the country’s energy sector — and to Prime Minister Justin Trudeau’s plan of balancing energy exports and climate action.

The Malaysian state-run oil and natural gas producer cited an “extremely challenging environment” of low prices and other changes in declining to proceed with the liquefied natural gas project, which Trudeau approved last year after sweeping to power on pro-environment pledges.

Petronas’s cancellation follows a string of exits from Canada’s oil patch as global producers focus on lower-cost areas. So far this year, ConocoPhillips and Royal Dutch Shell Plc have sold more than $20 billion in oil-sands assets to local producers Cenovus Energy Inc. and Canadian Natural Resources Ltd.

“It’s another negative data point for doing business in Canada,” said Swanzy Quarshie, who manages about C$100 million ($80 million) in assets at Sentry Investments Inc. in Toronto. “The biggest concern is the perception that investors are not seeking Canada as an investment opportunity, and what does that do to other investment opportunities?”

Canadian energy projects face tightening regulations, years-long approval processes, environmental opposition and legal uncertainty, particularly around the rights of indigenous people. Trudeau is trying to balance expanding energy exports while cutting Canada’s greenhouse-gas emissions. LNG is generally less controversial than crude oil, but still faced similar hurdles. The $27 billion Petronas proposal was already weighing a different site to quell opposition. That wasn’t the only challenge, though.

‘Bloated Cost’

“More specifically on this project, the challenge was the bloated cost,” Robert Norfleet, managing director at Alembic Global Advisors in New York, said by phone Tuesday. “The economics just did not seem to justify bringing that into the market.”

In the long run, only a fraction of proposed North American LNG terminals will be built, mostly in the U.S., which has more LNG infrastructure than Canada, said Muhammed Ghulam, associate of equity research at Raymond James in Houston. “There is simply too much LNG export capacity planned in North America and cancellations, especially of Canadian projects, are likely to continue,” Ghulam said.

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