The energy divide: Winner of U.S. election to play key role in Canadian industry8/31/2012
Whoever is sitting in the oval office come January will have a large say on the future of Canada’s energy industry.
The president of the United States will, of course, have no power to make decisions on behalf of a foreign industry. Yet just the knowledge of whether Barack Obama will win a second term or whether Mitt Romney gets to unseat the country’s first African-American leader to become its first Mormon leader could determine where Canada’s best energy customers will be found.
After struggling for years to gain access to China and other Asian markets with little success, many in the industry may be tempted by the policy paper the Romney campaign released last week calling for closer ties with Canada and Mexico to achieve North American energy independence by 2020.
Ottawa, meanwhile, has finally begun the formal process of deciding whether to open the floodgates to Chinese energy investment by allowing CNOOC Ltd., China’s largest state-owned offshore oil producer, to pay $15.1-billion for complete ownership of Calgary-based Nexen Inc.
Industry Canada only this week began its review of the bid, announced July 23, to determine the project’s “net benefit” to the country. The Investment Canada Act gives Ottawa a maximum of 75 days to make a decision – meaning the result of the process may not be known until about a week after Americans cast their votes on Nov. 6.
Much of the debate over which candidate would be the best friend to Canada’s oil patch has been framed by Mr. Obama’s initial rejection of TransCanada Corp.’s Keystone XL pipeline, which would deliver more than one million barrels of oil from northern Alberta to U.S. refineries each day. The 1,900-kilometre pipeline has come to symbolize the division between the energy policies of the two candidates.
“Keystone is a marker for, at the edge, whether or not you’re going to lean towards more sources of supply or only those sources of supply that are under the renewables banner,” said Mark Kennedy, head of the Graduate School of Political Management at George Washington University who, as a former Republican member of the U.S. House of Representatives, was appointed to the Presidential Advisory Committee on Trade by both George W. Bush and Barack Obama.
“Romney would make decisions in support of more sources of supply either quicker or more often than Obama would,” he said, adding it is still far from assured that, if re-elected, Mr. Obama would approve the crucial northern leg of the pipeline, while Mr. Romney has been emphatic in his support of the project.
Many Canadians took offence to the rejection and Prime Minister Stephen Harper took the opportunity to remind the country that “the very fact that a ‘no’ could even be said underscores to our country that we must diversify our energy export markets.
“We cannot be, as a country, in a situation where our one and, in many cases, only energy partner could say ‘no’ to our energy projects,” he said in April.
Efforts to access new partners by building a pipeline from Alberta across northern British Columbia to the Pacific Ocean, however, have met resistance, especially among British Columbians and Aboriginal groups who live along its proposed route.
Christopher Sands, a senior fellow at the Hudson Institute in Washington, D.C., specializing in North American economic integration, said most people believe Mr. Obama wanted only to delay Keystone and that he most likely will approve the northern leg once the electoral winds have died down.
“The problem is that is just an issue, not his overall energy policy,” he said. “I think it is not clear to most of us here, and certainly not to most Canadians, what his overall energy strategy is.”
That could prove to be a problem for Mr. Obama, who has been heavily criticized for investing hundreds of millions of stimulus dollars in renewable-energy companies that went bust and for throwing his weight behind the Waxman-Markey Bill in 2010 to establish a carbon cap-and-trade system in the U.S., a move that suffered a crushing defeat in Congress.
“Even those who are advocates of doing something about carbon emissions would say that bill was badly, badly designed,” said Douglas Holtz-Eakin, president of the American Action Forum, who served as chief economic policy advisor to Senator John McCain’s 2008 White House bid.
The uncertainty that has permeated the president’s energy policy made it easy for Mr. Romney to put forward an alternative plan, although some wonder about the ability of the former governor of Massachusetts, who has never held a national public office and so has the benefit of not having to defend his own track record, to make his plan happen.
“We don’t know if Romney can implement his strategy,” Mr. Sands said. “It would rely to a great extent on the calibre of people he brought in and on Congress because they would have to change things as well to make this happen.”
CNN also noted in an online editorial comparing energy policies of the two candidates that achieving Mr. Romney’s plan would require “a simultaneous focus on reducing consumption” that would undoubtedly be opposed by his supporters.
According to Mr. Kennedy, what Mr. Romney is really trying to do is “communicate that there are forms of energy that Canada has, whether they be oil sands or otherwise, that could be a path towards more energy independence that he is going to look at in a more open manner than Obama would.”
One thing Canada’s energy industry need not fear from a Romney administration is any action on climate change. Meanwhile, Jack Mintz, chairman of the public policy school at the University of Calgary, worries Mr. Obama might use his second term to retackle climate change as his “legacy” issue.
But the climate change issue “has become toxic in the United States,” countered Mr. Holtz-Eakin. “The term ‘cap-and-trade’ is now a political non-starter … it is simply not going to come up in the first couple years of any next administration.”
In the end, little either candidate says about energy between now and November is likely to make or break their respective chances. As the slogan famous for propelling Bill Clinton to the White House in 1992 goes: “It’s the economy, stupid!”
“The problem for Canada is you are infected by [our economic] uncertainty,” Mr. Sands said. “You don’t know which way the Americans are going to go and it could go very much in your favour or we [the U.S.] could end up tying ourselves in knots again, and you could end up poorer because the Americans are getting poorer and they’re not buying your stuff and they’re dragging you down.”