Cancellation of $4 Billion Investment in Canada’s Energy Sector the New Normal, Says Former Energy Exec

March 12, 2020 Updated: March 12, 2020
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The man who built EnCana into one of Canada’s largest energy companies says blows to the nation’s resource sector, such as Berkshire Hathaway’s decision against investing $4 billion in Quebec’s LNG project last week, has become the new normal.

“We’ve had symptoms of companies, including the one I founded, leaving the country and the oil industry,” said Gwyn Morgan in an interview.

“We basically have a country where you can’t get anything done to do with the development of resources requiring any infrastructure. And the irony is, every competitor we have in business internationally is saying ‘this is great—Canada used to compete with us and now we don’t have to even worry about them.’”

As Énergie Saguenay is short nearly half of the $9 billion required to complete the 750-kilometre pipeline from northeastern Ontario to pump Alberta natural gas to an export terminal outside Quebec City, it’s the latest example of money fleeing Canada for more predictable locales.

“Canada’s current political context” was the reason provided by Énergie Saguenay for the Warren Buffett-owned Berkshire Hathaway’s decision to pull out of the project as the spectre of rail blockades and freight delays continued over protests related to opposition of the $6.6 billion Coastal GasLink pipeline.

“When I was in business, if I had people who are totally opposed and entrenched against something—I didn’t try to talk to them. I went around them. I went to the supporters,” Morgan said, contrasting how Ottawa handled dissent over the 670-kilometre pipeline in northeastern B.C. backed by 20 First Nations communities on its right-of-way, including the Wet’suwet’en elected band councils.

“[Ottawa] has the built-in support of 20 tribes and most of their members, so why didn’t they go there and say, well we want to have this pipeline and we need your help. Instead they’re giving the farm away to five or six unelected Wet’suwet’en leaders and they haven’t even told us what the deal is.”

While construction on the pipeline moves ahead between blockades and negotiations, most recently adding to the pile of over $100 billion in abandoned energy plays under the federal government’s watch was Teck’s February bombshell that it was pulling the plug on its $20 billion Frontier oilsands mine.

“Foreign direct investment has collapsed, and on top of that, Canadian foreign investment has skyrocketed; in other words, Canadians are sending their money elsewhere to invest,” said Morgan. “So that is a toxic mix.”

Last October, barely a year after EnCana spent $7.7 billion to acquire Texas-based Newfield Exploration, the company moved its headquarters from Calgary to Denver and rebranded itself as Ovintiv.

The list of recent capital exodus from Canada’s resource sector includes the $15 billion Energy East (abandoned by proponents), the $8 billion Northern Gateway (cancelled due to an Ottawa-imposed ban on oil tanker traffic), and Petronas’s $36 billion LNG project (scrapped in 2017).

“I lived through the National Energy Program … which was a horrible time. A lot of companies went bankrupt and it was just survival,” said Morgan. “I guess we always knew it couldn’t continue, but ultimately the comparison between the two situations is the same.”

The NEP, established by former prime minister Pierre Trudeau, essentially nationalized Canada’s energy reserves by setting a national price below the global markets in an attempt to give the federal government more control of the wealth produced.

Petro-Canada and Western resentment are the tangible NEP remnants, the latter of which has seen a resurgence as Alberta sheds more oilpatch jobs and succession from the Canadian federation percolates in the province.

“Albertans are resilient and resourceful and I’ve never seen them give up, even in the worst situations. But now when I talk to people I know in the industry, they’ve pretty much given up hope,” Morgan said.

In his view, the project cancellations are a result of “an intrinsically socialist approach to the economy.”

He says if Canada restricts itself in energy production, “then the Chinese, the Venezuelans, the Saudis, the Iranians, and the Nigerians” will reap the benefits.

“Our country’s based on resources, it’s our number one advantage. We’ve managed to kill our number one advantage.”