Stakeholders change Oil and Gas Investment

 

The Oil and Gas industry is dealing with stakeholder reluctance to invest in future oil and gas developments in Canada.

Looking at gas and oil investment

 

Emma Grane and Jeffrey Jones reporting in the Globe and Mail, write that  Royal Dutch Shell PLC, Exxon Mobil Corp. and Chevron Corp. were recently handed significant defeats over their approaches to fighting climate change. Canada’s Suncor Energy Inc. announced a long-awaited target to achieve net-zero emissions by 2050 that put the oil sands producer’s ambition in line with the federal government’s commitment under the Paris Agreement.

Shareholders – including the world’s largest fund managers – are also forcing companies to account for, and deal with, the risks they face in the global transition to cleaner energy sources. Suncor Energy aims to cut emissions by more than one-third while boosting oil production “Obviously, there’s an enormous amount of attention focused on how we move forward,” Mark Little, Suncor’s chief executive officer, said in an interview. “I think it actually says people are wanting energy companies and oil producers to be part of the solution, and, quite frankly, I think there’s a lot of wisdom in that. “The oil industry globally deploys enormous amounts of capital, it has massive technical project execution and operational capabilities, so it’s hard for me to envision how the world actually achieves its ambition without industries like the oil industry participating in the energy transition.” Suncor’s net-zero plan comprises strategies to meet an interim target of cutting emissions by 10 megatonnes a year by 2030. They include adoption of carbon capture, use and storage; production of low-carbon fuels and hydrogen; fuel switching in its oil sands operations; and renewable power generation, including wind energy. Importantly, Suncor is setting company-wide CO2 targets rather than intensity goals. That’s a departure from most of its Canadian peers, which measure their emissions per barrel produced.1

Nick Wells of the Canadian Press reports in the Globe and Mail that a First Nations group criticizes Woodside Petroleum’s move to sell its Kitimat LNG stake. Woodside Petroleum Ltd., an Australian company, says it plans to sell its 50 per cent stake in the 480-kilometre Pacific Trail Pipeline and the proposed LNG facility at Bish Cove.

The First Nations Limited Partnership, which represents 16 First Nations in northern B.C., says the decision to sell is both disappointing and poses a threat to its members’ commercial interests. Woodside’s announcement comes after Chevron Canada Ltd, the operator of the project, said earlier this year that it would stop funding further feasibility work on the project. The company put its interest up for sale in December 2019, but has failed to find a buyer.2

The risk associated with investment in oil and gas in Canada is connected to the need to reduce greenhouse gas emissions in line with IPCC recommendations and IEA plans to achieve global temperature targets.

 

References

1	(2021, May 26). Big Oil loses carbon emissions showdown in landmark case - The .... Retrieved May 27, 2021, from https://www.theglobeandmail.com/business/article-canadas-oil-industry-on-watch-after-dutch-court-orders-shell-to-cut/
2	(2021, May 21). First Nations group criticizes Woodside Petroleum's move to sell .... Retrieved May 27, 2021, from https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-first-nations-group-criticizes-woodside-petroleums-move-to-sell/

 

Capitalism Taxes and COVID

 

Stephan Richter and Uwe Bott, January 26, 2021 are no fans of neo-liberalism.

Rising tide floats all yachts

 

In an article for the globalist they look who is now suddenly disavowing it. Klaus Schwab and the World Economic Forum are running away from their past 50 years of tax cuts for the rich that failed to trickle down, an economics study says.

 

It also means tackling global mega corporations, especially those based in the United States. Beginning with their often-grotesque tax shenanigans, they are the real free riders in a troubled world. Their systematic effort to avoid paying their fair share — and thereby to contribute to preserving democracy and fairness in our societies — can no longer be tolerated. Holding these mega corporations to account firmly — even breaking them up — is in their own collective self-interest. For unless this happens, the essence of what these companies ultimately depend on the most — i.e., a consensus in favor of continued global integration — will vanish. It is already brittle enough.1

Aimee Picchi reports for CBS news that a paper, by David Hope of the London School of Economics and Julian Limberg of King's College London, that examines 18 developed countries — from Australia to the United States — over a 50-year period from 1965 to 2015. The study compared countries that passed tax cuts in a specific year, such as the U.S. in 1982 when President Ronald Reagan slashed taxes on the wealthy, with those that didn't, and then examined their economic outcomes.

Per capita gross domestic product and unemployment rates were nearly identical after five years in countries that slashed taxes on the rich and in those that didn't, the study found.  But the analysis discovered one major change: The incomes of the rich grew much faster in countries where tax rates were lowered. Instead of trickling down to the middle class, tax cuts for the rich may not accomplish much more than help the rich keep more of their riches and exacerbate income inequality, the research indicates. "Based on our research, we would argue that the economic rationale for keeping taxes on the rich low is weak," Julian Limberg, a co-author of the study and a lecturer in public policy at King's College London, said in an email to CBS MoneyWatch. "In fact, if we look back into history, the period with the highest taxes on the rich — the postwar period — was also a period with high economic growth and low unemployment."2 

Patrick Foulis writes in the Economist about a new type of creative destruction as Covid-19 is up-ending capitalism. Business top dogs will face a new climate in which three tenets of modern business—the primacy of shareholders, globalisation and limited government—are in flux.

A stakeholder capitalism

 

Firms will be under pressure to pay less attention to shareholders and more to workers. The pace of global buybacks almost halved in mid-2020 and won’t bounce back fully even as profits recover. The stagnation of globalisation means that more multinationals will have to operate as federations of national businesses and will be unable to reap the full efficiency gains from being run as a single globally integrated organisation. And as the size of government expands everywhere, the levels of regulation and taxes will inevitably rise. For the top 3,000 global firms the median effective tax rate paid has dropped from 33% two decades ago to just 22% now; the only way is up. At the end of this recession the world of business will have been shaken up—and so will the rules of capitalism.3 

The business that survives COVID 19 will likely increase responsibility to stakeholders, balance global trade with local production, and work in greater partnership with government policy objectives.

 

References

1	(2021, January 26). Klaus Schwab and the World Economic Forum Run Away from .... Retrieved January 26, 2021, from https://www.theglobalist.com/world-economic-forum-klaus-schwab-neoliberalism-capitalism-corporate-responsibility/
2	(2020, December 17). 50 years of tax cuts for the rich failed to trickle down, economics .... Retrieved February 8, 2021, from https://www.cbsnews.com/news/tax-cuts-rich-50-years-no-trickle-down/
3	(2020, November 17). The World in 2021 - Covid-19 is up-ending capitalism | The World .... Retrieved February 9, 2021, from https://www.economist.com/the-world-ahead/2020/11/17/covid-19-is-up-ending-capitalism

 

Lobster Fear and Corporate Power

 

Three decades ago, when my children were young, my parents acquired a small piece of land on the Cabot Trail at Birch Plain. One of the many memories during visits to “BP” is sunrise over the Atlantic coast and the many small lobster boats on the water hauling traps in the early dawn.

Fishing off BP

 

One concern for these lobster fishers and those around the coasts of Atlantic Canada is the role of large corporate fishing interests in the harvest of the lobster stock. Cliff White reports on Clearwater sale of lobster licenses to Membertou First Nation for CAD 25 million in September 9, 2020.

 

“This transaction builds on and strengthens the business relationship between Clearwater and Membertou, which already includes operating agreements in other Clearwater species, Indigenous employment, and procurement commitments,” the company said. “Clearwater and Membertou First Nation will work collaboratively on our mutual objectives for the offshore lobster fishery: sustainable science-based management of the resource, positive economic growth, and increasing the value of the resource, continued research and development, benefits to local communities, and quality employment.” The Membertou Development Corporation is the business arm of Membertou's operations, and includes a dozen corporate entities across involved in fisheries, hospitality, tourism, and casinos. “Membertou is pleased to make this historic strategic investment in the sustainable and well-managed offshore lobster fishery,” Membertou Chief Terry Paul said. “It further strengthens our relationship with Clearwater, leverages their expertise in offshore fisheries, and builds value for our community and provides additional employment and growth opportunities for our people.".1

 

The financial resources and large scale fishing technology of the corporate players have allowed them to harvest enormous quantities of lobster and to acquire lobster licences that often result in converting small independently owned operations into employees of the corporate fishery. Paul Withers of CBC reported in 2018 that Clearwater Seafoods held exclusive rights to the entire Nova Scotia offshore lobster fishery.

 

Wedgeport lobster fisherman Lucien LeBlanc has watched the big blue Clearwater Seafoods trawler Randell Dominaux hauling lobster traps 80 kilometres off the southern tip of Nova Scotia… The Clearwater trawler is working its side of what's known as Lobster Fishing Area 41 — a vast area reserved exclusively for Clearwater in a lobster fishery unique in Canada… It's the only lobster fishing area in Canada with a quota, a yearlong season and no trap limit. All of its annual total allowable catch of 720 tonnes — or nearly 1.6 million pounds of lobster — is caught off southern Nova Scotia.2

This transformation of the lobster harvest to the hands of large corporations is may be the “elephant in the room”

 

https://i.cbc.ca/1.4597787.1522271051!/fileImage/httpImage/image.jpg_gen/derivatives/16x9_780/randell-dominaux-clearwater-offshore-lobster-fishing-vessel.jpg

that lies behind the aggressive response of some non-indigenous fishers in Nova Scotia to the Mi'kmaw fishers exercising their Supreme Court confirmed treaty right to a “moderate income” harvest of fish

 

http://www.capebretonliving.com/wp-content/uploads/2018/05/cape-breton-photo-weekmay418-300x225.jpg 

Some argue that the interpretation of this right should limit Mi'kmaw fishers to small craft with an emphasis on moderate catches for moderate income. On the other hand, partnerships of Mi'kmaw communities with corporate fishing interests may provide greater economic benefits to build infrastructure and provide training to community members in the high tech field of deep ocean fishing. The question of economic inequality also needs to be considered. There is one question we can ask ourselves when trying to assess economic inequality in this situation. “Would you change places with a member of a Mi'kmaw community in Nova Scotia?” Neoliberal, poorly regulated, shareholder focused, capitalist corporate interests have a poor record of sharing wealth. The profitability of these corporate interests is often enhanced by paying low wages to foreign workers. The Covid pandemic has shed light on corporate greed. The evolution of the “shareholder first” version of capitalism to the more community responsible, government regulated, “stakeholder capitalism” may be able to provide well paying work for Nova Scotians, indigenous and non-indigenous, in the corporate fishery. More government oversight and scientific management of the fishery is required to conserve stock for “seven generations” and maintain the “sustainable fishery” brand for continued success in marketing the products of Nova Scotia seas. The stakeholders in the Nova Scotia fishery include the people in the small boats on the ocean at dawn. Government has the responsibility to regulate access to the resource so as to encourage these true entrepreneurs to continue to support their families and communities. Atlantic Canada is rich in hard working people in smaller communities who are the fabric of our culture. We all benefit when we sustain the life giving aspects of our environment. A fishery in cooperation with Mi'kmaw communities will also benefit from living with a commitment to harvesting resources in harmony with nature.

 

References

1	(n.d.). Clearwater sells lobster licenses to Membertou First Nation for .... Retrieved October 19, 2020, from https://www.seafoodsource.com/news/business-finance/clearwater-sells-lobster-licenses-to-membertou-first-nation-for-cad-25-million
2	(2018, March 29). A line in the ocean and Clearwater's monopoly over 720 .... Retrieved October 19, 2020, from https://www.cbc.ca/news/canada/nova-scotia/clearwater-seafood-offshore-lobster-monopoly-investigation-1.4596922

 

Professional analysis of Teck may deflate political football

Unfortunately the decision by the Teck organization to end the Frontier oil sands project could not fail to become a political football.

https://i.cbc.ca/1.5474405.1582579247!/fileImage/httpImage/image.jpg_gen/derivatives/original_1180/fort-hills-suncor.jpg

Perhaps we can benefit from analysis about the decision from professionals in investing, economics, climate science, and engineering. Kyle Bakx explains for CBC News what the unexpected Teck decision to pull the plug on Frontier oil sands project means for the federal government, investors, climate and Indigenous groups.

https://i.cbc.ca/1.4844680.1581444415!/fileImage/httpImage/image.jpg_gen/derivatives/original_1180/teck-frontier-infographic.jpg

The reasons for shelving Frontier are a mix of low investor interest and environmental concerns, Teck CEO Don Lindsay said. 

"Global capital markets are changing rapidly, and investors and customers are increasingly looking for jurisdictions to have a framework in place that reconciles resource development and climate change," Lindsay wrote. For environmental groups that want Canada's economy to transition away from fossil fuels, the shelving of the project was made all the more significant by the fact that the company's CEO cited the climate as one of the key reasons for the decision.The project was expected to produce about four million tonnes of greenhouse gas emissions per year over 40 years…The Liberals are on both the winning and losing sides of the Teck decision. In the loss column, another company has turfed a major project on their watch. The investment climate in Canada's energy sector was already bad; this won't help1.

Scott Gilmore writing in MacLeans comments that every major player and investor understands the days of oil are numbered. Politicians are the only ones too shameless to say it out loud. He notes the betrayal of lifer politicians who won’t tell them the truth.

 Most of my friends and family back home either work in the oil patch or have jobs and businesses that directly depend on its health. So, I am especially sympathetic to the pain, worry and anger as their economy continues to sputter.
Who I am not sympathetic towards are cynical politicians like Kenney who continue to lie to Albertans in order to intentionally exacerbate this pain, worry and anger.

Kenney, Scheer, Teck, every major energy company that is not already in the oil sands, Bay Street, Wall Street, and the banking and insurance industries, all know that the days of oil are all but over. But the politicians are the only ones too frightened or too shameless to say it out loud.
There is no doubt that a concern about Canada’s regulatory process was the straw that broke the Teck camel’s back. But, in order for that to be the metaphorical last straw, the camel has to be already straining under several bales of hay.
The three heaviest bales in that load are the facts that the global price of oil is well below the point that would make the Frontier mine profitable, no one anywhere is predicting those prices will increase, and investors are fleeing the oil industry because the emerging global consensus is that if we don’t address climate change now the very existence of the human race is at stake.
That is not a claim being made by Greta Thurnberg, or a wild-eyed Extinction Rebellion activist. That comes directly from the multinational investment bank JPMorgan. In an internal report on the threat climate change poses to their investments, which was leaked last week, the bank’s economists noted, “We cannot rule out catastrophic outcomes where human life as we know it is threatened.”
Investors are not just avoiding Alberta’s oil sands, they don’t want to put money into oil anywhere, period. Furthermore, these investors, and even Teck itself, all publicly acknowledge that a carbon tax is the most effective way to combat climate change. And Kenney know this. But he not only won’t tell Albertans this difficult truth, he will spend millions of their own tax dollars on disinformation efforts to try and convince them it’s all just a conspiracy against them, that reality itself is betraying Albertans.2

Aaron Wherry, of CBC News, who has covered Parliament Hill since 2007 and has written for Maclean's, the National Post and the Globe and Mail and author of Promise & Peril, a book about Justin Trudeau's years in power writes that on its own merits, Teck Frontier probably didn't deserve to be framed as a litmus test of anything. On one hand, its economic viability was in serious doubt; on the other, its emissions weren't necessarily going to be decisive in Canada's pursuit of its international climate targets. But its loudest proponents and opponents framed it as a referendum on the future of either the oil sector or the climate.

https://i.cbc.ca/1.5445341.1582655444!/fileImage/httpImage/image.jpg_gen/derivatives/16x9_780/teck-protest-in-calgary-extinction-rebellion-and-canada-action.jpg

 Essentially, he has tried to argue for doing three things simultaneously: advancing reconciliation, buttressing the short-term situation and medium-term future of the Prairie-based oil and gas sector, and reducing Canada's emissions for the long-term.
That balancing act is very vulnerable to attack. For one thing, those goals will sometimes come into direct conflict — through Indigenous communities objecting to a pipeline, environmentalists condemning development of the oilsands or Alberta politicians condemning new environmental regulations.
On any issue, the loudest voices are the ones least likely to ever be satisfied. And Trudeau can be accused of not moving fast enough or far enough in any one direction.3

Moving on this too slowly

Clifford Krauss reports in The New York Times that a major effort to expand development of Canada’s oil sands has collapsed shortly before a deadline for government approval, undone by investor concerns over oil’s future and the political fault lines between economic and environmental priorities.

Oil price and supply

 Kevin Birn, a vice president and oil-sands expert at the consultancy IHS Markit, estimated that for a project like Frontier to break even, the price of West Texas intermediate oil, the North American benchmark, would need to average $65 a barrel over a decade or more of operations. That is roughly $15 above the current price, and other analysts put the break-even figure at $80 to $85.
But until Sunday night, despite a regulatory review that cost it hundreds of millions of dollars, Teck Resources refused to give up. The company argued that its project, at a cost of 20.6 billion Canadian dollars ($15.5 billion), would create 7,000 construction and 2,500 operational jobs and eventually generate more than 70 billion Canadian dollars in local and national government revenue. Andrew Leach, a professor of energy economics at the University of Alberta, said some might read the project’s demise as a fatal blow to oil-sands development, but he interpreted Teck Resources’ decision as a pragmatic one.
“Teck was clear that it does not want a situation where one project has to answer for all of Canada’s climate policies and climate commitments,” he said. Moreover, he added, “global investors are not prepared to help a company the size of Teck to build a multibillion-dollar project. The global market was not prepared to be part of the political football.”
No new oil-sands mine has opened since 2018, but more than a dozen proposals are awaiting regulatory approval or investment decisions. Mr. Leach said some of those were economically and environmentally more viable than the Frontier project.
But resistance to new pipelines and high production costs have steadily reduced investments in oil-sands fields. There has been an exodus of international oil companies, including ConocoPhillips, Royal Dutch Shell and Equinor of Norway.
At the same time, there are questions about the market outlook. While world demand is roughly 100 million barrels a day, a figure that increases by 1 percent every year, the International Energy Agency projects that growth will begin to slow considerably in 2025. The agency says demand could fall to 67 million barrels a day in 2040, especially if governments increase regulation and electric cars become commonplace.
Reduced demand would focus production on places where it is cheapest, like Saudi Arabia.4

The professional analysis of this decision gives thinking people on all sides of these issues the opportunity to see some changes that may come to provide some more certainty for investment, indigenous reconciliation in the area of land use rights, government support for jobs more aligned with Canada’s international commitments to net zero emissions, and redefinition of market capitalism

Repairing capitalism for all stakeholders

to include all stakeholders, investors, employees, and communities in their corporate responsibilities.

References

1	(2020, February 25). Winners and losers from Teck's decision to pull the plug on .... Retrieved February 25, 2020, from https://www.cbc.ca/news/business/teck-frontier-trudeau-1.5473866
2	(2020, February 24). The real betrayal of Albertans? Lifer politicians who won't tell .... Retrieved February 25, 2020, from https://www.macleans.ca/opinion/the-real-betrayal-of-albertans-lifer-politicians-who-wont-tell-them-the-truth/
3	(2020, February 25). How Teck Frontier became a symbol of the future Canada .... Retrieved February 25, 2020, from https://www.cbc.ca/news/politics/teck-frontier-mine-climate-pipeline-carbon-tax-1.5471315
4	(2020, February 24). Canada Oil-Sands Plan Collapses Over Politics and Economics. Retrieved February 25, 2020, from https://www.nytimes.com/2020/02/24/business/energy-environment/frontier-oil-sands-canada.html