Dennis McConaghy was for many years an executive with TransCanada. He now spends his time as an author (most recently of Dysfunction: Canada After Keystone XL) and commentator on energy and carbon issues in Canada. I spoke with Mr. McConaghy about a range of topics current to Canada’s oil and gas business and in the below Q & A interview, his observations are wide and many.
McCall: What is the biggest frustration facing Alberta oil and gas in a year of big frustrations?
McConaghy: As a country we can’t actually have projects approved in regulatory process, have them sustained in the courts and actually have them get to construction. This was never more frustratingly evident than what occurred with respect to the Trans Mountain Expansion (TMX) this year which is much like what happened to Northern Gateway and the frustrations visited on Keystone XL under the Obama administration.
McCall: What does the failure of the federal government to support the construction of TMX mean to Alberta and Canada?
McConaghy: It is a classic example of a breakdown in our institutions. It is a signal to investors that we can’t even get projects done that have gone through the regulatory process and been sanctioned by a newly elected democratic government. I don’t think things were ever more difficult given the fact that Alberta was promised that if they had chinned up to a credible carbon policy by the Notley government, the Trudeau government would facilitate some market access option. In fact, one can concede that they spent $4.5 billion dollars ensuring that TMX was preserved as a project, only to be upended by the federal courts. And of course, the Trudeau government has decided to take a fairly protracted way of dealing with remedying that court decision.
McCall: Is it realistic to expect we can get the Trans Mountain Expansion re-approved and built in the next few years?
McConaghy: I’m still one who thinks the odds of three pipelines, Trans Mountain, KXL and Line 3 are still slightly better than 50/50 that they will actually be constructed. Each one of them faces different final risk. The two American pipelines at this point can only really be undone by the US courts – basically forcing them to redo the whole regulatory process again. I think most people would say the likelihood of that happening is slim. In the case of TMX, the approach the federal government has taken is to try to remedy the deficiencies that the federal court of appeal cited. I think we’ll actually be able to be responsive to the issues that were cited by the court with respect to impacts on killer whales in the Burrard Inlet. As far as the consultation deficiencies, I think at some point the Trudeau government is going to have to say simply ‘enough is enough’ and at some point, dare the courts to say their determination of ‘enough is enough’ is good enough.
McCall: Bill C-69 purports to shorten approval timelines but could actually lengthen timelines because the Minister of the Environment has absolute discretion over timelines. What’s your take on the Bill’s implications to industry?
McConaghy: Bill C-69 doesn’t really do what it needed to do, which was reduce risk for proponents. It’s actually created more risk because it’s created many more subjective standards that have to be addressed in the regulatory process. For instance, how is the carbon test supposed to be dealt with? ( i.e. consideration of carbon impacts attributable to the project) Does a project that has any incremental emissions attributed to it automatically get disqualified because it takes Canada further away from meeting its Paris commitments?
McCall: Does Bill C-69 do enough to include advice to project proponents of significant roadblocks to success?
McConaghy: There is the failure of Bill C-69 to give more guidance to proponents with respect to whether there are certain cumulative effects or ‘show stoppers’ that if a proponent proceeds the application may get undone or rejected because of the eventual assessment of the incremental impact (be it on caribou or whales) is too close to the tipping point for species at risk. Bill C-69 does not compel the federal government to identify early in the process that it is a potential show stopper. This all adds to risk. We can also look at the other procedural issues -there no standards regarding who should have standing, how much more expansive prohibitive tests should be etc. All these things are going to stretch out timelines. Fundamentally, Bill C-69 doesn’t do what it could have done. It only goes to questions of the motives of the Trudeau government that it would actually want to create a Bill that is so naive, so culpable, and so accommodating to those who want to oppose hydrocarbon development.”
McCall: Where do you stand on the reality that carbon pricing is perhaps here to stay?
McConaghy: In the short run, Alberta shouldn’t exceed the current carbon tax until it actually gets some pipelines built. And it also should not exceed the current carbon tax until the federal government takes down Bill C-69. If we get past that, $30-50 a tonne seems like an appropriate level of tax in the short run. The question is, if the rest of the world goes to $200 a tonne, Canada will have no choice but to follow. But the converse is also true. If the world can’t bring itself to impose carbon taxes much higher than $30-$50, surely Canada cannot go there either. And Canada ought not to impose that cost on itself in some kind of altruistic desire to outperform the rest of the world on reducing its Carbon emissions when the other parts of the world, most notably the US, China and India may never come anywhere close to that level of Carbon tax stringency.
Maureen McCall is a freelance writer and has over 14 years’ experience in the oil and gas industry from operations to land and joint ventures