U.S. President Donald Trump’s on-again, off-again “reciprocal” tariffs on America’s trading partners and his increasingly nasty trade war with China have been triggering meltdowns in world markets, with oil taking a major hit. It has fallen this week to 3½-year lows. Now, prospects of a global recession have heaped worry on Canadian energy executives as they simultaneously try to navigate politics ahead of a federal election.
On that front, 14 oil and gas CEOs recently wrote to the federal party leaders, calling for a host of policies to be scrapped to allow for the expansion of fossil fuel projects amid a trade crisis that threatens their companies’ financial well-being. They want an end to environmental legislation they say restricts pipeline construction, a lifting of the cap on oil and gas emissions and the scrapping of the federal carbon levy on large emitters.
Oil-patch decision-makers, industry experts and investors converged on Toronto at the BMO Canadian Association of Petroleum Producers Energy Symposium this week and spoke with The Globe and Mail between sessions.
How does this uncertainty compare with previous industry shocks?
Peter Tertzakian, deputy director of ARC Energy Research Institute: “It doesn’t rank at the top of chaos. I was more concerned with the 2008 financial crisis, when there was an outright loss of liquidity, freezing up of markets and the potential for entire financial institutions to collapse. The pandemic was also more serious. Specific to the oil and gas industry, the 2015-2016 price wars were significant and existential. The difference today is that financial institutions aren’t freezing up, everybody’s still trading and credit is still flowing.”
But it’s the unknown unknowns, right?
Randy Ollenberger, head of oil and gas research at BMO Capital Markets: “I’ve been involved in the oil and gas sector since the mid-1980s, so I’ve seen quite a few of these cycles. One thing that makes this time different is it’s artificial. We’re talking about a recession being forced by a substantial policy change by one country, and we don’t know how that’s going to play out.”
Is Canada a safe place to be in the maelstrom?
Eric Nuttall, senior portfolio manager at Ninepoint Partners: “Balance sheets today are the strongest I’ve seen in my career. There are companies that have no debt, low cost structures and low operating costs. But we’re in the death zone now – sub-US$60 a barrel – for U.S. shale companies. They are going to have a massive decline rate versus their Canadian peers.”
So the consensus is this shock isn’t as bad as those in the past, yet markets are quaking. How do you deal with that?
Jon McKenzie, CEO, Cenovus Energy: “We’ve all drank the Kool-Aid in terms of underleveraging our balance sheets, making sure our costs are competitive and becoming viable businesses. Do we like the fact we’ve got US$60 oil today? No. Is it something that we can deal with? Yes. And at the end of the day, lower oil prices tend to cure lower oil prices. Longer term, I think people are going to see that this is not anywhere near an existential crisis. This is not a situation that puts companies or balance sheets in jeopardy. This too shall pass.”
With the oil markets creaking, are prospects brighter for natural gas?
Chris Carlsen, CEO, Birchcliff Energy: “Our business is 80 per cent natural gas. We’ve got massive amounts of demand coming in the next two years, including all these AI and data centre proposals which will need more gas-fired power, and we’ve got LNG Canada [an export terminal in B.C.] finally coming on after 15 years. These will probably be some of the biggest years in my career, where we’ve got positive demand and infrastructure being put on stream.”
Sure, but how about this year? How could politics change your industry’s calculus in the coming weeks?
Jon McKenzie: “Energy is something that’s going to matter in the future, particularly hydrocarbon energy. It’s the backbone of our energy system. What we really need is political leadership to agree that that’s a good starting place. The more you impose additional regulation and additional taxes on industry, the more uncompetitive you make it.”
Dean Setoguchi, CEO, Keyera Corp.: ”We’re facing an unprecedented affordability crisis – everybody is feeling the pinch. So we have to think about how to boost our economy. Whatever your top issue is for the election, we can do more of it with a healthier economy. I feel like both major parties – the Liberals and the Conservatives – are more in the centre now. We’ll see what happens with the Liberals, because they’re still talking about emissions caps and maybe not repealing Bill C-69, but they say they’re pro-energy development. We will have to see how that actually plays out.”
Interviews were edited and condensed for length.