Regina – Taking a page from the federal government’s involvement with the Trans Mountain Pipeline Expansion, the government of Saskatchewan is going to seriously look at investing in pipeline project to increase takeaway capacity for this province’s energy industry.
On Feb. 4 Premier Scott Moe announced the establishment of the Pipeline Projects Assessment Committee (PPAC), a cabinet committee focused on evaluating potential pipeline projects in Saskatchewan.
That committee was formed to review and assess the viability of pipeline projects in Saskatchewan and possible government involvement in investing, stimulating, or generally advancing these projects, the government said in a release.
The government said the decision to establish the PPAC stems from a number of proposals from businesses, indigenous groups, and communities that are looking at pipeline projects to advance access for Saskatchewan’s energy products to market. This includes projects expanding access south through the United States, and projects that would create access through the port of Churchill.
The PPAC will be comprised of Minister of Finance Donna Harpauer, Minister of Trade and Export Development Jeremy Harrison, Minister of Energy and Resources Bronwyn Eyre and Minister of Environment Dustin Duncan.
On Feb. 4, Harrison spoke to Pipeline News in depth about what this committee is seeking to accomplish.
Newfoundland stipulates an ownership stake in offshore oil projects in its jurisdiction, but Harrison said this is not along those lines.
“What we’re looking at, in terms of the committee being established, is a mechanism and process to review, to examine, to consider proposals on pipelines,” he said on Feb. 4.
As for the motivation for this, he said, “We’re constantly meeting with proponents and listening to different proposals and thoughts. We’ve been doing that for a lengthy period of time.
“What’s really become apparent, though, in the last couple of years, particularly, has been the reluctance of financial institutions to finance pipeline projects because of political risk. We’ve got to the point where, I think you would find for proponents, the actual process of going through the financing of a potential pipeline is next to impossible. The reality is financial institutions will not finance them.
“Our provincial interest, very much, is that we need to have additional access to market, to tidewater, for our energy products. That is a provincial imperative. And the number one way of doing that is by pipeline. We’ve made no secret of our support for the pipeline industry, for the energy sector in a broader context, and for the construction of new energy infrastructure,” Harrison said.
“What is new, what we announced today, is our willingness to look at, from advocacy to other elements along the way, to along the spectrum to equity ownership, and points in between. We are prepared, as a government, to have the discussions with proponents in order to have these pipelines constructed and to have this energy infrastructure built.
“That is something that is different, and we are going to continue to have discussions with proponent companies. This wasn’t done with a particular project in mind, but we have been talking with a number of different proponents on a number of different projects.”
“In an ideal world, we wouldn’t have to do this. But the reality is, at this point, because of litigation, because of targeted measures taken by activist groups, largely from the left, who are seeking to shut down the energy sector in a lot of cases.
“In addition to that, we have federal government policies and rules like C-69 which have created a great deal of regulatory uncertainty. Because of that political risk, proponents aren’t able to actually get projects financed, so government has to be involved, and we are announcing, through this committee and through what we said today, we’re prepared to have those discussions,” Harrison said.
There have been no decisions on how this would look like, such as being going through the Crown Investment Corporation (holding company for the province’s Crown corporations), as there have been no decisions on any deals, he explained. “Those will be considerations the committee will look at,” he said.
The differential is the imperative
Asked if this would be exclusively for projects that pass through Saskatchewan or whether it could include the Trans Mountain Expansion (which the federal government has said it wants to sell), or the Eagle Spirit project, or a project entirely in Manitoba to Churchill, he said, “I wouldn’t limit necessarily options around that. The reality is, if we get additional energy into a pipe, that’s going to impact on the differential. That’s going to make a major difference if we can close the differential gap to taxpayers in Saskatchewan, who own the resources, who are not getting world price, because we can’t get that energy to market. Whether it be through the Trans Mountain Pipeline or other energy infrastructure projects, either proposed or actually underway, we wouldn’t put a box around what we would consider. There are not specific terms of reference for the committee as far as what projects we would talk about and not talk about.”
That differential he referred to is the price difference between Western Canadian Select, the benchmark price for heavy oil produced in Canada, and West Texas Intermediate, the North American benchmark. Saskatchewan’s heavy oil accounts for 211,000 bpd of our current production of 501,000 bpd, as of November 2019. From November to February differential has varied between US$18 and US$22 per barrel. At an average of US$20 per barrel, that’s a loss to the Saskatchewan economy of US$4.2 per day. While there is a natural differential due to the quality of oil, this calculation also does not include the differential to the Brent price of oil, which has been consistently US$5 per barrel higher than the WTI price over the same period. The Brent price is considered the benchmark for oil shipped by tanker, once it has reached tidewater; in other words, the world price.
Harrison said, “The policy objective, in all of this, at the end of the day, is that Saskatchewan taxpayers maximize the value of the resource, and that means we need to get as close to world prices as we can possibly get for the resource, and that means we need energy infrastructure in order to get it to market.
“Whether that’s a particular project, and a particular location, we’d be prepared to look at different options.”
He pointed to one example: before Christmas the government sat down with the Project Reconciliation group, a group of Indigenous leaders looking to have an equity position in the Trans Mountain project. It’s a Saskatchewan-based group.
Asked how much of this effort is driven by the fact that the Energy East project, now defunct, was supposed to be in service by the end of 2018, he said, “The reality is there is not sufficient capacity on the pipes to get the resources from Western Canadian jurisdictions, where it’s produced, to market. So we don’t have enough pipeline capacity. The projects the industry felt would be able to have the takeaway capacity to accommodate the production we have here haven’t come online for a variety of reasons.”
Harrison continued, “This is such an essential component of our economic future, we need to be involved. It’s not ideal. In a perfect world, we would absolutely not want to be involved in this way. But the reality is, if we’re not going to be involved in this way, these projects are not going to happen. And we need them to happen.”
He said the government’s approach is “All the above,” be it a pipeline to the West Coast, to the East Coast, northeast to Churchill, Manitoba, or south to the U.S. Gulf Coast.
“We need to have capacity, because that’s going to ensure the future of the energy sector in Western Canada, which we know will be an important part of our economic base, and which we believe needs to be an essential part of our economic base.”
They’re not limiting involvement to projects which reach tidewater. “Our guiding principle will be, is this in the interest of the people of Saskatchewan?” he said.
With a recently balanced provincial budget, where will the money come from? Harrison said, “We have no project in front of us, that we’re considering, as far as a dollar value. There would be several mechanisms we would be looking at, potentially, as far as funding, financing, other sort of participatory vehicles where governments can be involved. The primary thing is the political derisking. That’s the most important component for this for proponent companies.”
In late January and early February, several court processes have finally cleared, both in Canada with regards to the Trans Mountain Expansion and the Enbridge Line 3 project in Minnesota. But Harrison doesn’t think that means the courts have finally sorted out the derisking he referred to.
“There still is uncertainty in the regulatory process around Bill C-69. The Federal Court ruling was very welcome on TMX. I would say that without equivocation. It was a very welcome ruling,” he said, noting he still has to look at it in greater depth.
“What I saw was a pretty clear statement about how consultation doesn’t constitute a veto. I think there had been a developing narrative with at least some elements that there was a veto that was implied in a number of different things,” he said.
50 per cent decline in direct energy-related jobs
With regards to the dramatic decline in the size of the Canadian drilling rig fleet over the last five years, from 811 in October 2014 to 515 today, Harrison said, “That’s a reflection of what we’ve been seeing in the labour force numbers. There has been a 50 per cent decline in employment in direct energy-related jobs in this province in the last 18 months,” he said.
“Fifty per cent! Can you imagine if this was Ontario, and there was 50 per cent decline in the auto industry? You know what the answer to that is. It’s a rhetorical question. It’s just unbelievable, and it’s very, very frustrating. So we’re going to keep fighting the fight, and we’re going to continue to be a strong proponent and advocate for the industry as we can.”
He said those number came from a recent Statistics Canada labour force survey.