Major Shift by Two Canadian Energy Giants to US
If you can’t build pipelines at home, then buy them elsewhere. That is exactly what Canada’s two pipeline giants have done.
The ink is barely dry on two separate mega deals — by Enbridge Inc. and TransCanada Corp., valued at $37 billion and $22 billion, respectively — but they have already become industry leaders in the U.S.
And these new entities will be headquartered in Calgary, not Houston, which will catapult Cowtown into the pipeline capital of North America.
That’s good news in an otherwise bleak industry, captive in a beleaguered province. But their astute risk-taking is hardly surprising. Canada’s oilpatch contains more cubic feet of entrepreneurship than does any other industry in Canada.
Despite challenges and inept politics at home, they rolled up their sleeves and solved the problem. Their transactions will make them two of the 10 biggest public corporations by market capitalization. (Enbridge will be Canada’s fourth-largest public corporation, and North America’s largest pipeline company.)
The Enbridge-Spectra Energy Corp. “colossus” is not a defensive play. The conglomerate will grow organically and will have a portfolio of $26 billion in projects underway and a planned $48 billion more after 2019. In addition, Enbridge also acquired a stake in the Bakken oil pipeline play for $2.5 billion in August, and, in its first major foray into renewables, also won an auction to participate in Europe’s largest offshore wind power project.
Enbridge’s deal in the Bakken will result in more Canadian crude and oilsands barrels flowing to the Gulf Coast refineries, somewhat mitigating the effects of the Keystone XL Pipeline rejection. And there will be other benefits.
“What we have here is a tremendous menu of options,” Al Monaco, president and CEO, told the Financial Post this week. “That’s what you want in this business is an ability to pick and choose the best projects.”
The same strategy underpinned the TransCanada Corp. buyout in July involving Houston-based Columbia Pipeline Group. That combination will create a massive gas pipeline network serving the prolific U.S. fracking regions and exporters. As CEO Russ Girling said: “We will be well-positioned to transport North America’s abundant natural gas supply to liquefied natural gas terminals for export to international markets.”
The bad news is that the backdrop to these deals is the fact Canada is squandering, and its politicians sabotaging, the country’s principal engine of economic growth, exports and job creation. Oil has suffered as protectionism by provinces has been allowed to balkanize and stunt the Canadian economy and reduced politics to posturing and trade-offs among sub-national governments that are allowed to behave as though they were sovereign nations. Then there’s the problem of federal inertia.
Delays have dogged the industry for years and still do. Days ago, a National Energy Board hearing in Quebec erupted into violence and was postponed after protesters opposed TransCanada’s proposed Energy East oil pipeline.
Bigger battles have taken place in British Columbia by opponents to any pipelines or enlargements to existing pipelines whatsoever. The controversies have pitted the industry against greens, politicians, interest groups, foreigners and the public. Some First Nations are dramatically divided. The Haida Nation stripped two hereditary chiefs of their titles for supporting a pipeline project, thus undermining their own governance structure which will make future decisions impossible.
Perhaps the single biggest blow was Alberta’s election of an NDP government without experience, sophistication or any ability to get out from under vociferous anti-oil, trade killers.
For years now, many of us have warned about the hazards of this Great Canadian Oil and Gas War but now the results are afflicting every one. As the industry limps along, the Canadian dollar slumps and the country feels like it’s in a recession.
What we are witnessing is a political pivot to an anti-oil paradigm that is not only foolish but ruinous. Fossil fuels may be doomed, but this will take decades. In the meantime, the country and the industry need to optimize their resource assets if they expect to meet the enormous financial challenges of transitioning into emerging technologies.
Cannabis, lopsided trade deals with China or selling condos to foreigners with cash isn’t going to cut it. If the oil industry does not prosper and if exports are not made a priority, then living standards will continue to decline and more Canadians will be forced to export themselves.
And that’s what happened this summer. Two of our most important corporations shifted their capital and growth efforts to the U.S.
Ironically, the first deal closed on Canada Day, July 1 and next one will bring in the new year.
First published National Post Sept. 9, 2016