Will U.S. Energy Greening Stiff Canada? If It Does, U.S. Will Alienate an Ally and Probably Just Promote Self-Defeating Green Policies

By Keith Edmund White

Editor-in-Chief

When we think of Canadian energy, Keystone XL reigns supreme.  But did you know about the abundant hydropower the U.S. gets (and could get more of) from Canada?  In short, efforts to find sustainable 'green' energy alternatives are great.  But stiffing Canada in the process only alienates a partner and makes it more likely that government subsidies or other protections to green projects won't work on the global marketplace.

“Even green protectionism is protectionism nonetheless.” - Jim Prentice, former Conservative cabinet member, 2006-10 (Minister of Industry, Environment, and Indian Affairs and Northern Development)

Most Americans sympathetic to protective trade practices usually think of combating low-cost Chinese goods, not blocking our lucrative crossborder trade with Canada.

And most Americans concerned about the environment, wouldn't think that 'greening' the United States means protective trade practices.

But Jim Prentice, former Conservative three-time cabinet official from 2006-10 and now CIBC Vice President, reminded a Halifax audience of three important developments:

• North America is on the verge of being energy independent
• How the United States goes about promoting green energy could essentially lead to U.S. energy protectionism that directly affects Canada
• Canada's energy sector will rejuvenate Canada's Atlantic provinces.

From The Globe & Mail: 

“If we play our cards right, there will be profound opportunities for Atlantic Canada and for our country as a whole,” he told the Maritimes Energy Association in Halifax, according to a text of his speech.

But he said Canadians can’t take access to the U.S. market for granted.

Rather, Prentice warned that they should be vigilant about signs of protectionism coming in the form of low carbon fuel standards or regional requirements to use specific amounts of renewable energy.

“Canada must continue to fight for a continental energy marketplace that is free of national and sub-national impediments. Interventions by government, while well meaning, are nevertheless potentially damaging and counter-productive,” he said.

In short, Canada offers the United States a rich and diverse set of energy. And, frankly, both countries should to looking at a regional--not national--approach to energy.

Why? Well, because we share rich deposits of natural gas and oil along our shared border. And hydropower already links of nations.

But there's also this:  Shorting our critical energy player who can already provide abundant high and low-carbon energy sources to prop up U.S. energy production is likely to not even make the U.S. more 'green' in the long-term   

Instead, 'green' U.S. policies should incorporate the dynamics of its Canadian partner, so that both nations can focus their resources in ways that benefit both--and lead to lasting energy providers in both nations that can compete internationally.  The other option, making U.S. green energy policy in a vacuum--and ignoring the rich energy we can get from Canadian oil and hydropower--just means the policies the U.S. support just won't be the best fit for North America, or match the business dynamics of the global energy marketplace.

In short, the United States should ensure that it continues to use Canada as a partner to promote sustainable energy solutions.   The other option not only alienates a critical ally, but also makes it less likely that U.S. green initiatives will stick in the long-term. 

Snap Summary: CUSLI Nexus, Day 2, Energy Panel - Shared Energy Resources and Strategies in the Great Lakes-St. Lawrence Region

A diverse group of energy experts shared presentations on the changing North American energy relationship.  The main takeaway: Canada-U.S. energy relations are changing, and whether its short-term energy development to meet current needs, or long-term shifts to green energy through coordinating North American power generation, sustained Canadian-U.S. engagement will be critical.

Julie Dill:  “Energy Is Good for the Region…[and building] a Strong and Sustainable Future”

Natural Gas Is Here, And With It Energy Will Flow to the Great Lakes Region Increasing Not From Alberta but from the Great Lakes Itself and the Northeast.

Let's Get Over "Net Benefit" Test Carping: Or Why Political Law is Still Law...and the World's Still Here

By Keith Edmund White, Editor-in-Chief

More complaining about the dreaded political nature of Canada's revamped "net benefit" test.  Critics seem to be saying, 'If a law's a law, it should always be transparent and consistent--just like jury decisions!'  Keith Edmund White looks at Don Lenihan's criticism of the Harper government new rules of foreign takeovers (i.e. the "net benefit" test), and stands up for the messy, status quo the revamped rules leave in place.  Added bonus:  mention of Conrad Black.

Don Lenihan, Vice President at Ottawa’s Public Policy Forum, hits the Harper government’s new rules on foreign takeovers of strategic Canadian industries (and compliments Conrad Black).
From Lenihan’s iPolitics article:

If we really are at the beginning of a long-term trend that will force the federal government to begin employing controversial (possibly highly controversial) measures to protect Canada’s strategic assets, the goal of the policy should be to ensure that the decisions are transparent, effective and fair.

Unfortunately, on this score the new rules raise more questions than they answer. Do we really want to include all SOEs under one catch-all rule? If an SOE is willing to comply with the same rules as private sector companies, should this make a difference?

If the policy allows “exceptional circumstances” to override the rules, how will these be defined? How will the government deal with future private sector cases that are similar to the Saskatchewan Potash Corp? What other resources or industries could be declared strategic assets?

What options are open to the government to create the kind of “middle ground solution” proposed by Black?

Lenihan echoes the worries of many commentators about Canada’s vague “net benefit” rules.  The tacit underlying assumption of Lenihan’s critique: all legal determinations should be consistent and transparent.  But aren’t foreign takeovers of critical Canadian industries (or of any nation) as political—as say—the political and inconsistent decisions to raise or lower taxes or conclude a foreign investment treaties?  And in the case of foreign takeovers, are any two Canadian industries really the same?

But what will keep Canada from deterring smart foreign investment?  Simple:  If Canada drives away smart investment, it will feel it where it counts--the pocket-book.

Sure, this approach may not have the gossamer shine (and superficiality) of administrative consistency, but there are legal issues that societies do not settle through bright-line rules. And those issues tend to be that way for a reason.

And Lenihan's critique--making a new sub-set of rules for SOEs that comply with private sector practices--shows just how illusory the quest for a Black-ian "net benefit" middle-ground is.  The more Canada tries to make rules for all possible foreign takeover scenarios, the longer the rule becomes, perhaps to the point of incomprehensibility--and the easier it is manipulated.  Just ask anti-Affordable Care advocates how they feel about the ACA being considered a 'tax' and not a 'mandate' by the controlling opinion of the Supreme Court, thereby passing U.S. constitutional muster.  The point:  rules don't always bring clarity, especially when they are voluminous and involve hot-button issues.  

Oh, and wait, we're worried, in the case of Chinese state-owned enterprise CNOOC takeover of Nexen,  of Canada's notoriously illiberal society negatively impacting the struggling, still-malleable but liberal-idolizing economy of China?   

Check out one notable exception to the chorus of "net benefit" naysayers, Jeffrey Simpson's article in last week's The Globe and Mail:

China [owner of Cnooc who put in the bid for Nexen] wants things both ways: that its SOEs can buy elsewhere but others can’t buy in China. That the Harper government has now identified a sector of the Canadian economy essentially off-limits to SOEs can’t logically be objected to by China, which puts big swaths of its economy out of reach of foreign investment or insists that foreign companies can only buy minority interests or participate in joint ventures.

China has been pursuing a policy of locking up natural resources wherever they can be profitably bought, and Canada seemed a likely next target. If China doesn’t like the new Canadian guidelines, there are plenty of other opportunities around the world. If China chooses not to test the guidelines, Alberta’s bitumen oil will still interest other investors.

The challenges of bitumen oil are so many that the new guidelines’ impact is among the least threatening. The changing oil scene in the United States, the difficulty of getting approval for pipelines, the growing emissions of greenhouse gases, the discount price for oil to the U.S. and high production costs are among the industry’s key challenges.

Mr. Harper, whose foreign policy is too often characterized by finger-waving intransigence, struck a reasonable balance in this instance between domestic interests and international concerns.

Is this the best system?  Probably not.

Is it a workable system for a sensitive topic in a democratic society?  Sure seems that way.

In any case, Lenihan should check out the Journal of Parliamentary and Political Law.

Also, to all readers, know that the world (and Canada) will survive the new "net benefit" test; just like the world (and Canada) survived the last one.

CNOOC Nexen Bid Part 3: Macleans Talks With Debra Steger

Check out Erica Alini's great Q&A with UOttawa professor, and former trade negotiator for Canada, Debra Steger.

Two main Steger snippets:

Compared to the U.S. and Australia, Canada’s Act, with the two review processes for “net benefit” and “national security,” is confusing and difficult to apply in practice, as in this case involving CNOOC. The “national security” process is also highly non-transparent in that there are no criteria specified for a review and no decisions are ever made public. The U.S. has one test for direct acquisitions: national security, with a list of 12 factors. These are wide-ranging and include: domestic production for national defence requirements, potential effects on U.S. technological leadership in areas affecting national security, potential effects on critical infrastructure in the U.S., long term projection of U.S. requirements for energy and other critical resources and materials. The U.S. approach is more specific, transparent, and integrated than the Investment Canada scheme. The U.S. CFIUS model also requires nine agencies to work together to carry out reviews. This would appear to allow for a broad range of views and better decision making than the Canadian approach in which Industry Canada plays the lead role.

...

My prediction is that the government will allow the investment, albeit with a requirement for undertakings designed to ensure that the resulting business operates in a transparent and commercial manner in accordance with Canadian corporate governance norms and likely to provide net benefit to Canada.

Afternoon Tea: Canada – U.S. News Wrap

By Keith Edmund White, Editor-in-Chief

Enjoy some mid-afternoon tea, and read about Canada and the TPP, Canada & energy, Ottawa's political misfires, just what the Governor-General does, and DHS cracks down on moose poachers.

Canada and the Trans-Pacific Partnership (TPP).  While Canada joined the TPP as an observer in October, but the ongoing 15th round of negotiations is the first to include Canada and Mexico.  The main focus of the talks, according to Western Farm Press, are sanitary and phyto-sanitary standards [or "food safety and animal and plant health measures"]:

Sanitary and phyto-sanitary (SPS) issues will be the real market access determiners in the talks.  Commitments need to go beyond those made under the WTO, often referred to as ‘WTO-plus’.  The USTR may propose new language making SPS disciplines fully enforceable, including those that go beyond WTO rules.  If they would not be enforceable under TPP dispute settlement, they would not be settled at the WTO because they would be stricter than WTO requirements.

But the National Hog Farmer highlights challenges to Canada’s pork subsidization program:

NPPC President R.C. Hunt added: “In reality, we cannot compete on a level playing field. In the upcoming TPP round, you can bet your bottom dollar we will be putting pressure on Canada to do something about its pork subsidy programs.”   

Canada Energy Updates.  Mondaq delivers, per usual, a helpful primer on Canadian energy updates prepared by Doug Black et al from Fraser Milner Casgrain LLP.  I particularly recommend checking out the On the Horizon section that shows fascinating work to both cut the amount of water used in oil sands energy development and lower GHG emissions from CNRL natural gas production.  Two additions worth mentioning: 

• Prime Minister Harper finalized federal loan support, to the tune of $1 billion (CAN), to support a hydro-megaproject in the provinces of Nova Scotia and Newfoundland and Labrador.  Learn more about the project, and Quebec complaints over the loan, from the Winnipeg Free Press.

• Read from Fuel Fix, reporting on a Manhattan Institute event, on why a strong Canada-U.S. energy relationship, along with Mexico, may just turn the energy market on its head.  Notable panelist:  John Prato, Consul General of Canada in New York.

Misfire Alert:  Conservatives Over-Shoot on Trudeau Alberta Comments, Trudeau Returns (Mis-)Fire On Canada’s Long Gun Registry.  Conservatives kinda-sorta-but-not really plan to drag Justin Trudeau before a parliamentary committee because of poorly chosen words on Alberta and the Progressive Conservative Party.  But, don’t worry, while this move was derided by pretty much everyone, Justin Trudeau shot himself in the foot again—over not resurrecting Canada’s long gun registry.

Governor General David Johnston’s “Invisible” But Important Role in Canadian Trade Policy.  The Globe and Mail offered a fantastic piece last week focusing on the evolving role of Canada’s Governor-General.  (For American readers, the Governor General is the acting head of State of Canada).  Not only does this article show the unique nature of Canada’s constitutional monarchy and parliamentary democracy, it shows a fascinating dimension of Canadian foreign policy—and something alien to the American experience.  From the article discussing the preparations for Governor General Johnston’s visit to Mexico, where he and other foreign dignitaries will join in swearing-in festivities for the swearing in of Mexico’s new president, Enrique Pena of the PRI:

But once the ceremony is over, Mr. Johnston’s hard work begins.

He said he intends to start by buttonholing several of the other 75 foreign leaders at the ceremony to discuss bilateral relations. Then, he’ll turn his attention to increasing two-way trade trade and investment. He also hopes to find more ways to share Canadian expertise in mining, justice, policing and governance.

He is travelling with a sizable entourage of senior officials, members of Parliament, business and education representatives, a judge and several ambassadors.

When he gets back, he’ll be reporting, in detail, straight to the prime minister. The two men speak and share ideas regularly, but after a foreign trip, Mr. Johnston has a formal responsibility to check in.

“When I come back, [I need to] be pretty candid and say, ‘Yep, this is going well,’ or, ‘No, this is not going well and here’s where we have to adjust our approaches,’” Mr. Johnston said.

The governor-general’s trip to Latin America should be the beginning of a larger Canadian attempt to revive its relationship with the region, Mr. Robertson said.

New DHS Initiative Catches Canadian Moose-Poachers.  From New Hampshire’s Nashua Telegraph:

Pittsburg [New Hampshire] shares approximately 56 miles of soft border with Canada; along the stretch are hundreds of Canadian hunting shacks and blinds. Some of the shacks are rudimentary, and others resemble elevated camps, fully equipped with propane heaters, cook stoves and sleeping bunks.

Thanks in part to a federal Homeland Security grant titled “Operation Stonegarden,” teams of officers conducted surveillance of several hunting shacks, as well as foot patrols on the border in the upper reaches of Hall Stream.

Alberta Pushes Toward Single Energy Regulator: Proposal Overview and Concerns

By Keith Edmund White

Editor-in-Chief

Single regulator: Smart, efficient government or sly accountability circumvention?  Short answer:  Time will tell.

Alberta Proposed a Single Regulator:  Mondaq Overview

Bennett Jones LLP offers a fantastic overview of the proposed October legislation to create single Alberta legislator.  From Shawn M. Munro and Bradley S. Gilmour’s Mondaq article:

Key aspects of the current regulatory regime will remain in place, with the primary change being the oversight and administration by a single body of most regulatory aspects associated with the life-cycle of energy resource activities. For example, existing authorization and approvals processes will be similar but will in many cases require only one application; hearings will still be used in the case of objections to energy resources activities; and such activities requiring approval prior to the establishment of the Regulator will continue to require approval under the new regime.4 There are, however, numerous other important changes proposed in REDA. The specific circumstances under which hearings will be held, timing and processes involved, cost awards, and other procedural matters will be dictated by rules and regulations yet to be released. At this time, however, there are a number of important proposed changes evident in REDA in addition to the inclusion of specified enactments like EPEA, the PLA and the WA in relation to energy resources and energy resource activities.

…

Changes to Enforcement

Under various consequential amendments to other legislation by REDA, enforcement penalties are substantially increased.

Corporations found guilty of an offence can be fined up to $500,000 and individuals may be subject to fines of up to $50,000, per day. This is a significant increase from penalty amounts currently levied by the ERCB under various legislation regulating energy activities. Furthermore, any person who, in the opinion of the Regulator, has received proceeds derived directly or indirectly from breaches of an ALSA regional plan,REDA or any enactment prescribed in the regulations, or non-compliance with other terms, orders, etc., may have to provide an accounting of the proceeds and pay a penalty in that amount.

Criticism of the Proposal: Calgary Sun on penalties; Environmental Law Centre’s Concerns

But, as would be expected, this proposed legislation still leaves a lot of dots to be connected by a single energy regulator.  A critical issue: how fines are assessed and where those funds go.  Check out this October 25th Calgary Sun article by Bill Kaufman:

But after reading the legislation, Wildrose utilities critic Joe Anglin said he’s concerned about the possibility landowners or industry could be arbitrarily penalized under the plan.

“There’s a possible lack of due process ... when you have an official able to issue a penalty like Court of Queen’s Bench,” said Anglin, MLA for Rimbey-Rocky Mountain House-Sundre.

…

A spokesman for the environmental activist Pembina Institute said the new regulator could be a positive step, though not enough is known about the process to be certain.

The best plain reading overview of the bill, albeit from a critical eye, must go to the Environmental Law Centre’s November 1st posting by Cindy Chiasson.  Beyond making clear why the proposed legislation omits many details, Chiasson makes clear four concerns: narrower standing test to challenge regulatory actions, cutting out one aspect of judicial review, increased political control of the regulatory process, and unclear accountability standards.  From her post:

While this initiative has been touted as addressing energy and environment as two sides of the same coin, it seems the coin is loaded in favor of energy. Existing environmental regulatory processes would be curtailed and limited:

-the current standing test of “directly affected” under the Environmental Protection and Enhancement Act (EPEA)and Water Act would be changed to the narrower “directly and adversely affected” test for energy developments; and

-appeals under EPEA and the Water Act to the Environmental Appeals Board, an independent quasi-judicial body, would be eliminated for energy developments and replaced with self-reviews by the Regulator of its own decisions.

The Bill would also give Cabinet the ability to modify how environmental legislation applies to the Regulator.

…

We also have concerns regarding the potential transparency and accountability of the Regulator. Bill 2 specifically states that the Regulator is not a Crown agent. There is no clear accountability of the Regulator directly to the public.

Other Resources

Blakes November 2, 2012 backgrounder on the proposed legislation.

Huffington Post October 24, 2012 article by Bill Graveland.

Excellent October 26 article that highlights property-owner and political viewpoints on creating a single Alberta regulator by the Calgary Herald’s Tamara Gignac.

CBC’s Jennifer Lee has an excellent news report trumpeting the energy sector’s support for a single Alberta regulator, while also highlighting some of the accountability issues with creating a single regulator.  Two quotes worth particular mention if you have trouble loading up the 2 minute report:

Brad Herald, Cdn Assoc. of Petroleum Producers: “It’s a once-in-a generation opportunity to really calibrate, recalibrate a major system for Alberta.”

Keith Wilson: “They’re essentially going to make this super energy regulator the appeal body of its own decisions. So you’re going to have to go back to that body and say, ‘Well, we don’t think you went fair enough.’ And they’re going to say, ‘Well we’re happy with or decision, get out of here.’ And I think that’s wrong.”

More On the Other Side of Mapping Out a Canadian Energy Strategy: The Shifting Landscape of Canadian Environmental Regulation

By Keith Edmund White
Editor-in-Chief 

Courtesy of this morning’s Mondaq news-update, we get a view of another challenge to Canada crafting a national energy strategy:  environmental regulation.

On this issue, Dianne Saxe—of the Saxe Law Office and the Environmental Law and Litigation website—offers some excellent analysis* on the three-layered cake of Canadian federalism re:  environmental regulation. 

For a recap of her environmental regulation presentation, I'll just re-post Mondaq's summary:

What happens when municipal bylaws try to control energy or resource projects authorized by the federal or provincial governments? (They have some scope). How far will the Spraytech precedent take them? Can corporations use federal insolvency laws to cleanse themselves of irksome environmental liabilities, such as contaminated sites? (sometimes). These are the type of jurisdictional conflicts that Dianne discussed during her keynote address at last week's Hazmat West Conference in Saskatoon. She also discussed shared responsibilities for waste, as in Enviro West v Copper Mountain Mining.

Here is the presentation: Shared Authority, Shared Risks

The Big Insights:

• Limited, But Still Real, Role in Environmental Regulation.  Municipalities, as political creations of Canada’s provinces, have no constitutional status—so they have limited room to maneuver when it comes to environmental regulation. So, according to Saxe’s presentation, a municipality can’t band fracking through a bylaw, but can probably limit toxic substances especially in certain areas (Presentation Page 8). 
• The New CEAA Scales Back Federal Environmental Assessments.  Federal Environmental Assessments are leaner, faster, and perhaps lesser ‘meaner’? The Harper government in Ottawa reworked the federal government’s role in environment assessment this summer by passing a new Canadian Environmental Assessment Act (CEAA). A May 2012 Ecojustice Legal Backgrounder blasted the new legislation: 

Ecojustice believes that improvements to CEAA are achievable, but not by eviscerating the federal role in environmental assessment, devolving reviews to provincial/territorial governments, and by imposing artificial timelines on a much small number of projects.

• Constitutional Showdown.  There’s a tension between the federal government regulation of bankruptcy (and, from that, the discharge of debt) and the provinces wanting companies to pay for environmental damages. So is letting provinces bill bankrupt companies for environmental clean-up costs counter Canada’s constitutional division of powers? We’ll have to wait and see. (Presentation Pages 29-31; And if you like graphs, check out Saxe's helpful Page 11 Presentation graphic). 
• Sum-Up.  Could the Harper's government-spurred CEAA reform come back to bite them by pushing provinces to step-up their regulation--delaying the energy projects so critical to Canada's near-term economic success?  Maybe.  But, then again, will provinces really step on their own energy futures? 
• *Key Caveat:  And, just in case you don’t see if on the Mondaq page, Saxe's presentation is legal research and analysis—not legal advice. 

Canadians Gaga for Obama on Energy; Americans Not So Much

On energy policy, it turns out Canadians and Americans have very different views of the U.S. presidential candidates.  Given the importance of the U.S.-Canada energy relationship, along with the recent candidate kerfuffle at the second presidential debate when it came to energy policy, this difference seems more than just an interesting polling side-note.

• A recent poll finds U.S. voters support President Obama on energy policy over Governor Romney by a 37% - 28% margin.  But that means 35% of U.S. voters are either unsure or undecided.  (Source:  University of Texas on-line poll of ~2,000 individuals)

• But when you look at Canadians, when asked specifically on which presidential candidate would do more to spur Canadian energy imports, 49% favor Obama, 26% favor Romney, and only 26% of Canadians either not knowing or finding no difference between the candidates.  (Source:  Sept. 29, 2012 Forum Research poll of 1,000 Canadian adults) 

Sure, this difference if just polling fluff, Canadians favoring consistency over change, or--perhaps--just the echo of Canada's more left-leaning political scene.  Or, most likely, the lack of coal being a big issue in the Canada-U.S. energy relationship.

Woodrow Wilson Center Talks Shale Gas With Jim Slutz

Jim Slutz, president and managing director of Global Energy Strategies LLC, talks on American shale gas production in this informative interview with Lynann Butkiewcz.

Some highlights:

• America has tons of natural gas. "[America's] natural-gas resource base, which includes proven and unproven reserves, is now estimated at 2203.0 TCF, or almost 90 years of supply."

•  Shale gas will soon be leading source of U.S. natural gas.  "EIA (Energy Information Administration) projects that from 2010 to 2035, natural gas production from shale formations will rise from 23% to 49% of the U.S. gas supply. The term “game-changer” is often used and is very appropriate for this development." 

• FTAs and U.S. regulation of natural gas exports.  The Department of Energy (DOE) authorizes natural gas exporters, using a two-tiered process.  For countries that America has free-trade agreements (FTAs), the export automatically considered in the public interest and, once all regulatory steps are taken,  DOE authorization is granted.  But for those nations with FTAs, a more complicated process follows.  In short, America's trade relations and review process has a direct impact on American natural gas exporters.  Learn more about DOE's natural gas regulation, which is governed by the Natural Gas Act of 1938.  Finally, check out Michael Levi's discussion paper, A Strategy for U.S. Natural Gas Exports, a publication of the Brookings Institute's Hamilton Center.  The paper reviews U.S. gas regulation, and puts forward a trade strategy for the U.S. to push for global market-based pricing and transparency.

• America and Canada's energy relationship--and Canadian pipeline concerns.  "The United States can be a partner to Canada as a market for additional crude oil from the oil sands. The only restriction is the need for added pipeline capacity. The United States has extra capacity in oil refineries, which are specifically designed to process heavy oil, so it makes economic sense to ship more oil to the United States. The regulatory delays by the U.S. government regarding the Keystone XL pipeline are directly responsible for Canada’s increased urgency in seeking oil-export opportunities in Asia. This has also raised concerns by Canadians about whether Canada is overly reliant on the United States as a trading partner."

• Challenges to exporting natural gas to Asia:  Asia's long-term gas lock & oil-pricing pegs. America's short-term contracts put barriers to exporting cheaper U.S. natural gas to Asia. 

"It will be a long time before a global gas market develops. While there may be movement in that direction, challenges exist to the development of a U.S.-style, Henry Hub–type market. Gas markets in Asia and the United States function quite differently. In Asia, much of the gas supply depends on LNG, which requires huge upfront investment and therefore is predicated on long-term contracts, typically twenty years. These contracts use oil prices as a basis for determining gas value. In the United States, gas is traded independently of oil price and on a much shorter-term basis. A typical contract in the United States is measured in months, not years. Long-term contracts will remain a key component of LNG project development because of the financing required to undertake the infrastructure construction. The other important component of pricing is to remember is that there is a significant cost to liquefy and transport LNG, in most cases more than the cost of the gas. Therefore, just because there is a current significant differential between U.S. and Asia prices does not automatically mean that exporting gas to Asia will be economically attractive for the long term." 

News Round-Up

Don't miss out!  Get these headlines and more by following us on Twitter (@CUSLI_Nexus) and Facebook.  And to our loyal social media followers, fear not, there's new stuff to check out below.

Ottawa ordered to hand over long-gun registry data collected in Quebec, The Gazette.  Canada's long-gun registry lives--at least in Quebec pending appeal to the Canadian Supreme Court.  Even though the Conservative government abolished and destroy all data in the long-gun registry.  Why?  In short, the quirks of Canadian federalism.  Learn more about Canada's gun control debate and unique blend of federalism from a leading Montreal publication.

Strategic Shifts:  The Future of Energy, World Economic Forum.  Watch Christy Clark, Premier of British Columbia, talk on the global energy industry landscape with energy experts from America, Japan, and China at the World Economic Forum. 

Liberals says they want a competitive leadership race, 'best thing,' especially if Trudeau enters the fray, The Hill Times.  Trudeau or Bust? Inside the Liberals (or Grits) leadership race-it's looking like a free-for-all--for better or worse.

U.S. boom in oil product spells peril for Canadian crude, The Globe and Mail.  Forget the Keystone kurfuffle! Is  booming U.S. natural gas production the real threat to the Canada-United States energy relationship?

It's the permanent campaign, Harper's team never rests, says Flanagan, The Hill Times.  Have Canada's politics been Americanized?  Tom Flanagan, former top adviser and campaign manager to Prime Minister Stephen Harper, shows how the minority status of previous Conservative governments triggered a state of permanent campaigning in Canada, and how it's not stopped with the Conservatives decisive win at last year's election.  Check out the book that Flanagan contributed to, How Canadians Communicate IV:  Media and Politics.  You can even read the whole book.

So-Called "North American Energy Independence" and China's Planned Acquisition of Canada's Nexen

By Keith Edmund White

China wants to buy Canadian energy producer Nexen for over $15 billion.  And guess who's Nexen number one buyer?  The United States.  Should this matter?  And does it hold an opprotunity to promote U.S. economic interests in China.  Side-note:  To get a sense of just how big $15 billion is, keep in mind that the New England Patriots are worth a paltry $1.2 billion.  And one more thing:  did you know Canada's very murky "net benefit" rule basically allows the Canadian government to block any instance of foreign investment it doesn't like?  Gotta love the rule of (international trade) law.

Oh the joys of a liberalized trading system.  Is America really more energy independent when it buys Canadian energy?  Sure.  But what happens when the company drilling that energy in Canada is owned by China?

Yup, you heard right.  The government owned Chinese government-owned firm Cnooc is going through Canadian and American governments' reviews of their planned acquisition of Alberta-based energy company Nexen.  If the deal is approved, America will be buying energy based in Canada but profiting China.

This shows just how complicated energy strategy can be in a world where foreign companies--if not foreign countries--can buy companies anywhere in the world.

But, then again, perhaps this purchase is just what's needed to help U.S. industries facing Chinese government resistance to foreign investment and suffering from Chinese-based copyright infringement.

From MarketWatch.com:

Chinese energy giant Cnooc Ltd.’s $15.1 billion deal to buy Nexen Inc. is under increasing political scrutiny in the U.S. even as it faces a long regulatory review in Canada.

“It is rare that we have so much leverage to exert upon China. We should not let this window of opportunity pass us by. At some point, we have to put our foot down over China’s refusal to play by the rules of free trade,” U.S. Sen. Charles Schumer, a New York Democrat, wrote Friday in a letter to Treasury Secretary Timothy Geithner.

Geithner and the Treasury Department chair the Committee on Foreign Investment in the U.S., or CFIUS, an interagency board that reviews deals for national security implications. Cnooc, or the China National Offshore Oil Corp., is a government-owned company.
The deal is subject to CFIUS review because Calgary, Canada-based Nexen has substantial drilling operations in the U.S. portion of the Gulf of Mexico.

It is expected that the Cnooc-Nexen (CA:NXY) deal will be reviewed by CFIUS in Washington and by securities regulators and courts at the federal level in Ottawa, Canada.

But, what about the big question:  is this deal good for the United States?  Well, Christopher Helman argues that there's no un-"lame" reason to reject the deal, and--whatever concerns there might be about the deal--it's going to happen:

From Helman's article Cnooc-Nexen Deal Is Just the Beginning of American Oil and Gas Grab (July 2012):

The only conceivable reason to block Cnooc would be its government connection. Cnooc is publicly traded, but like its sister companies PetroChina and Sinopec, a majority of its shares are held by the government, which wields a heavy hand of influence over multinational acquisitions, especially one so potentially loaded as this.

My point is that if dwindling oil resources was the arguable (but lame) rationale for America’s rejection of the Unocal deal in 2005, there is no basis for that rationale today. In fact, even if all of Cnooc’s $19.5 billion Nexen investment went to acquire North American assets, it would still be a drop in the bucket. Most of Nexen’s 5.6 billion barrels of estimates resources are tied to the oil sands, but roughly 45% of Nexen’s 210,000 bpd of flowing production is in the U.K.’s North Sea waters.

If Canada were to reject Cnooc’s bid it would almost certainly have to block Malaysian state oil company Petronas in its $5.5 billion takeover of British Columbia-based Progress Energy. Don’t count on it.

Canada welcomes this foreign investment, especially in the western provinces, because it wants to diversify its customer base for oil and gas exports. Judging by the Obama administration’s rejection of the Keystone XL pipeline, American consumers seem to prefer importing crude oil from Saudi Arabia and Venezuela than from Canada’s oil sands. No wonder the Canadian government sees the long-term boon of building export terminals on the Pacific coast both for oil and liquefied natural gas.

...

Until the Nexen deal, the two national oil companies with the biggest investments in North America were Statoil, with roughly $20 billion and Korea National Oil Company, with roughly $9 billion.

The foreign land grab for America’s oil and gas has only just begun. Who’s next? Well as I pointed out last month, Sinopec has already been in talks with Chesapeake Energy to acquire acreage in big plays like the Permian Basin. Whether or not Sinopec pulls the trigger will likely depend on how Cnooc’s Nexen deal is received by regulators. Considering that China holds $1.2 trillion in U.S. treasuries, Washington is in no position to say no.

But Helman does omit an interesting legal aspect of Canada's review process.  The Canadian government can review (and block) significant foreign investments in Canada under the Investment Canada Act.  The purpose:  to make sure Canadians benefit from big infusions of foreign investment in Canada.

A critical part of this Act is that a significant foreign investment in Canada must be a "net benefit" to Canada.  If government regulators find that a certain foreign investment in Canada is not, the deal is off.

And what guides this rather powerful tool of government control over the selling of Canadian industries to foreigners?  A very flabby six-prong test that can allow anyone to 'prove' any investment is or is not a net benefit to Canada.  (For those interested, read Canadian economist William Watson's No Rules for Net Benefit Test Financial Post opinion piece.)

So, while this deal may be on track to pass Canadian and American review, what will be interesting to watch is what conditions U.S. and Canadian regulators put on the deal--and how these conditions may be critical to developing America and Canada's trade relationship with China.

The NYTimes Gets It Wrong: The Keystone XL Pipeline and Understanding the Canada-U.S. Energy Relationship

By Keith Edmund White

Editor-in-Chief

If you gave quick glance to yesterday’s NYTimes article detailing Canadian blowback from the Obama administration’s rejection of the Keystone XL pipeline, you might think that the Canada-U.S. energy relationship is now in grave jeopardy—and that the Keystone rejection has come with irreversible and grave economic costs to the United States.  But that impression has less to do with the actual facts surrounding Keystone than the NYTimes article’s poor and misleading structure, which suggests the NYTimes was more interested in getting ‘lazy clicks’ than actually informing the public on the state of the post-Keystone XL Canada-U.S. energy relationship.  

The short answer:  (1) there is no post-Keystone XL Canada-U.S. energy relationship--the southern leg of Keystone is already under construction and Keystone XL's reapplication is very likely to be approved after the presidential election; (2) the US isn’t losing energy security from its Keystone rejection; and (3) any loss of jobs from not constructing the northern portion of Keystone now seem delayed—not lost—because Canada is running into the same, if not stronger, environmental roadblocks that triggered the Obama administration’s Keystone rejection.  But even if you don't buy any of that, there's one glaring omission from Rosenthal’s article:  actually spelling out what was lost by the United States when the Obama administration rejected Keystone XL.

Yesterday, the NYTimes’ Elisabeth Rosenthal documented Canadian blowback resulting from the Obama administration's rejection of the Keystone XL pipeline.  While tightly written and not inaccurate, the article’s structure and considerable cherry-picking of facts implies the Keystone rejection has damaged America's energy relationship with Canada, a Saudi Arabian-sized energy supplier.  In fact, the real cost of not building the Keystone XL appears most likely to be only a delay in jobs related to constructing Keystone's northern portion and exporting Canadian oil outside North America through U.S. ports.

But you wouldn’t get that from reading Rosenthal opening paragraph: 

As the United States continues to play political Ping-Pong with the fate of the Keystone XL pipeline, Canadian officials and companies are desperately seeking alternatives to get the country’s nearly 200 billion barrels in oil reserves — almost equal to that of Saudi Arabia — to market from landlocked Alberta.

Six paragraphs down Rosenthal finally gets to discussing Canada’s ‘response’ to Keystone—three westward pipelines in Canada. Oh, but wait, in the next paragraph Rosenthal discusses a small problem with those plans:

Together, the new westward [Canadian] pipelines would carry more oil than Keystone XL would. But even with aggressive government backing, creating new pipelines may prove as difficult in Canada as it has been in the United States, though for different reasons.

And Rosenthal entirely omits another aspect of the Keystone XL debate: construction has already started on the Keystone XL’s southern portion. Why’s this important? Well, at the very least, it makes clear that the Canada-U.S. energy relationship isn’t fading anytime soon. From a February 2012 Mining.com article:

In a move that should go a long away to relieve the oil glut in the US Midwest TransCanada said on Monday it is going ahead with construction of the $2.3 billion southern leg of the Keystone XL oil pipeline from Cushing Oklahoma to the US Gulf Coast. 

The Calgary based company said the shortened pipeline could be operational by June-July next year. Keystone XL was designed to carry 830,000 barrels per day.

...

Canada exports 2 million barrels of oil per day to the US and almost all of it ends up at Cushing – the pricing point for US crude – where inventories have been piling up and refining capacity is limited.

Oh, and that brings up an interesting point about Keystone XL. The additional oil that Keystone would have flowed into the United States would then be likely exported out of the United States. Why’s that? Because the United States can already take in the Canadian oil it needs—with or without Keystone. From a March 2012 MSNBC article:   

Most analysts agree that more Canadian oil flowing south would help reduce imports from other regions. Less obvious, however, is the fact that the Keystone XL pipeline is not actually needed to bring all that new Canadian oil to the US – a flow now projected to rise to 1.7 million barrels per day by 2030, according to the same DOE study. Often characterized by proponents as validating the need for the pipeline, that study actually found that Canadian oil import growth will go on at “almost identical” levels through 2030 using existing and new pipeline capacity as well as rail shipments – whether or not Keystone XL is built.

This brings us an important point: what’s at cost for the US economically in rejecting Keystone is not energy security, but--again--additional pipeline construction, refinery, and export-related jobs tied to being Canada’s access point to non-U.S. consumers of Canadian oil.

Now if you read Rosenthal’s piece that point was probably lost one you, since the entire narrative she constructs comes awfully close to:  ‘The U.S. Rejection of Canada’s Pipeline Jeopardizes the Canada-U.S. Energy Relationship.’   Sure, the Keystone rejection was driven by domestic politics, and did come at an economic cost to the United States.  But the scale of this cost seems rather minimal:  (1) Canada was pushing a pipeline in the US to avoid its own domestic opposition to westward pipelines in Canada, (2) the U.S.-Canada energy relationship (whether in terms of oil supply, refinery operations, or construction of pipelines) is still ongoing and growing, and (3) work on Keystone continues.  And the environmental concerns that led Obama to ‘cave’ to an interest group, well guess what?  They're even stronger in Canada.

And then there's the underlying point that makes most of this article, and this blog post, moot:  a modified Keystone XL pipeline will likely be approved after the presidential election--regardless of the election's outcome. A May 2012 Fox Business report states: 

TransCanada Corp is taking its second shot at asking Washington to approve the contentious Keystone XL oil pipeline, betting that a new route through Nebraska and post-U.S. election time frame for a decision will push the project forward.

… 

"This project has been caught up in presidential politics long enough, it's time to get to work," Senator Lisa Murkowski, an Alaska Republican and ranking member of the Senate Energy and Natural Resources Committee, said in a statement.  

[Alex] Pourbaix said he believes the Nebraska Department of Environmental Quality will be able to decide on a new route that skirts environmentally sensitive areas by September or October. [Pourbaix is TransCanada's pipeline division president.]

Now, perhaps this criticism of Ronsenthal’s piece is asking too much for a moderately sized news article, which has to boil down complicated ideas and can’t inject every wrinkle into a story.  This posting—if it has succeeded—has brought up some nuanced--if easy to find--points, and perhaps crafting a compact NYTimes article including these points is simply impractical.  And, admittedly, she does—six paragraphs down—discuss Canada’s own challenges in getting their western pipelines off the ground.  But wait, what about this: 

As Canadian officials and companies desperately seek alternatives to get the country’s nearly 200 billion barrels in oil reserves – almost equal to that of Saudi Arabia – to market from landlocked Alberta, Canada pushes forward with Keystone XL alternatives forcing the United States to gauge the cost of Keystone’s rejection.

Now this opening paragraph, while still buying into the misleading narrative pushed by Rosenthal, at least lays a groundwork for understanding the micro-topic (Canada wants to get its oil out) without suggesting the United States is sacrificing its own energy relationship with Canada, let alone its energy security, by rejecting a portion of the pipeline. Furthermore, at the very least, it focuses on what matters to readers: spelling out the actual costs of the Obama administration's decision to reject Keystone XL.

Perhaps that type of article lacks the (misleading) black-and-white narrative that drives readership in today's newsmedia marketplace. But, at the very least, aren't these the type of topics that a world-class news organization—with their voluminous research database, rolodex-bursting access to public officials and experts, and supposed commitment to fostering informed discourse—should answer? And wouldn’t that article get more ‘clicks’ than an article that simply documents Canadian discontent without giving readers the context necessary to assess the Keystone XL delay's impact?

Ottawa Citizen Highlights: Canadian and U.S. Productivity Difference, Harper's Green Isolation

By Keith Edmund White
Editor-in-Chief


Harper deals with the internal strife any governing party faces. For now, with a federal election 3-4 years away, Harper's position and Conservative governance are assured. But Harper's aggressive natural resource development push and resulting tone-deaf appearance to environmental concerns is bringing divides to the party. But is this green divide really just about the environment, or could be also be the economic trade-offs that have come with Harper's push to make Canada an increasingly resource-based economy? Whatever the cause, Harper's push for resource exploitation--while perhaps needed to buffer a fragile global economy--could come at a big political and economic costs down the line.

Two interesting articles, one new and one from last week, from the Ottawa Citizen.

First, while the U.S. and Canadian economies are inextricably linked, the Ottawa Citizen points out the interesting and profound productivity difference between the two neighboring economies. Before highlight sections from the article, why does this matter?

Well, because it shows the contradiction that is keep Canada's GDP--in the short-term--trucking (albeit slowly) along. Canada has pushed its economic growth through expanding its labor market (good for employment numbers!), but this has come at a cost: worker productivity. In the U.S. the opposite trend line occurred. The culprit (perhaps): the strong Canadian dollar, that allows its economy to be relatively inefficient owing to strong demand for its commodities. The interesting effect: this probably isn't a good long-term strategy: with a declining labor market (people are getting old!), labor market expansion can't push up the GDP. Also, Canada's manufacturing market may become increasingly unable to compete with other nations.

From the May 29, 2012 article by the Financial Post's Ian Martin:

“Canada should actually be celebrating this remarkable balancing act,” Mr. Lascelles said. “As much as we all would love the Canadian manufacturing and resource sectors to be firing on all cylinders at the same time, the reality is, it’s usually one or the other.”

Either way, prices have helped to ensure Canadian economic health.
But given demographic trends, Canada can’t just rely on shifting fortunes to level out growth prospects, Mr. Cross argued. 

“We’ve gotten away for 20 years in this country with not-great productivity because we’ve had offsetting developments in the price mechanism. Can you count on that forever? Probably not,” he said. “It’s hard to imagine how you’re going to get another break in the price mechanism that will help you offset the aging of the population.”

What makes this more interesting? Harper is doubling down on the natural resource-focused Canadian economy. Why? Well, this keeps the Canadian going in the right direction. And, arguably, dealing with other economic sectors weaknesses is easier to do with a raising GDP than a falling GDP. Furthermore, with Europe's economic woes, its probably best to push off dealing with Canada's delicate balancing after Europe gets his house in order. And, anyway, Harper has time (3-4 years) to revisit the issue, hopefully when the international economic picture looks a bit rosier.

But whether or no Harper's economy strategy may be tipping Canada's "remarkable balancing act" closer to its inevitable tipping point, one things for certain: the now-majority Conservative government lead by Harper , as is common with long-standing administrations, is facing internal dissent. The focus: environmental concerns over Harper's natural resource push.

Side-note: Though, again, note that the environmental murmurings find political strength in the Canadian Atlantic coast, which is also an area that relies on manufacturing--a sector that is not enjoying the natural resource-fueled high Canadian dollar.

From today's article (Harper's new enemy: conservatives, by Susan Riley) that highlights progressive Conservative unease with Harper's all-out push for natural resource expansion:

There is a new front opening, as opposition to Stephen Harper’s budget — and his broader agenda — gathers strength. Increasingly, criticism is coming from dismayed conservatives offended by Harper’s hostility, or indifference, to the environment. And to democratic tradition. 

The dissidents are mostly Progressive Conservatives, but not exclusively. This week, for instance, former Alberta Reform MP Bob Mills joined Green Party Leader Elizabeth May in decrying the elimination of the National Roundtable on the Environment and the Economy (a Mulroney-era initiative).
... 

There have even been rumblings in the mostly docile, Conservative-controlled Senate. Senators Nancy Ruth and Hugh Segal, a Red Tory stalwart, have both strongly objected to the government’s crackdown on environmental charities. 

Credible criticism of other aspects of the omnibus bill — notably the weakening of the fisheries act — has come from Tom Siddon and John Fraser, Mulroney-era cabinet ministers. Siddon, now 70, lambasted the government for undoing decades of environmental progress, returning Canada to the status of “hewers of wood,” and for ramming changes through Parliament. “This is unbecoming of the Conservative party I belonged to,” he said.

To some, this will sound like the grumbling of old warhorses, but, elsewhere, Progressive Conservatives are enjoying a moment. Former Alberta premier Peter Lougheed, now 83, was feted in Calgary this week. Lougheed — who serves as a role model, and influential cheerleader, for Redford — reminded his audience, pointedly, that he always put Canada first. 

Harper wasn’t feeling much love from Atlantic Canadian conservatives this week, either. New Brunswick’s David Alward and Kathy Dunderdale, of Newfoundland and Labrador, questioned federal EI reforms that, they argue, fundamentally misunderstand and devalue the Atlantic Canadian economy. 

Premiers will always put regional loyalties before party, but there is little evidence of kinship between Harper and Atlantic conservatives. They don’t even seem to belong to the same party.