Why Canada’s Economic Fate is in BC’s Hands9 min read


We’ve long written about the importance of operating in a politically friendly jurisdiction. On the topic of natural resource development, from the mining or oil and gas sectors, nothing is more important. If a regime implements a windfall tax, production dreams can die. An example could be seen with Kinross Gold after the Ecuador government refused to compromise over a 70% windfall tax pertaining to Fruta del Norte. Kinross walked away from the project, selling it to the Lundin family for US$240 million in 2014; the sale came after paying US$1.2-billion for the asset in 2008.

 

While political uncertainty is always a risk factor when investing abroad, it has recently moved closer to home…

 

B.C. holds pipeline cards
Given its proximity to Asia, B.C. is somewhat of a kingmaker for natural resource exports

Following a historic election, British Columbia, Canada’s Pacific coast province, has taken a step to the left – potentially a leap. Although never as pro natural resources development as its neighbouring province Alberta, B.C. finds itself somewhat divided and at an economic crossroad.

For starters, the election was so close it needed a recount. After two weeks, the recount confirmed Christy Clark’s Liberals (centrist party who has been in power for roughly sixteen years) were one riding short of a majority with 43 seats. The NDP (socialistic) is two behind with 41. And the Green Party, an environment above all else policy party, took a record three ridings. Therefore, the leader of the Greens, Andrew Weaver, climate scientist turned politician, holds the balance of power. And he chose to back the less natural resource development-friendly NDP.

For the first time in 65 years, B.C. is left with a minority government. What happens next in the province is critical for natural resource investors and all Canadians…

Two natural resource projects the newly teamed up duo (B.C. NDP and Greens) have spoken out against are: Kinder Morgan’s Trans Mountain oil pipeline expansion and Petronas’ proposed $27 billion LNG export project.

We broke down the global LNG market in Canada’s Devastating Financial Defeat on May 21st. Canada has completely lost the race to export LNG and will not surface as a player in this market for many, many years. If the NDP and Greens gain control, we could be looking at decades…

Clark Has a Plan to Save the B.C. Liberals and Perhaps Western Canada

 

As the leader of the NDP and Green Party shake hands, smiling for the cameras, something else may be afoot. Clark is not ready to back down… not even close. She is leading a political dynasty in B.C. that has been in power for nearly two decades.

Green Party Leader Andrew Weaver, left, and NDP Leader John Horgan, right – image source: CBC

 

As investors and many businesses worry about the change in economic policy the NDP and Greens will certainly make if given the reins, few are talking about Christy Clark. Clark has been calm and collected in the face of the power-sharing agreement announced Tuesday.

Refusing to resign as B.C. premier (she did win a majority in 2013 after all), Clark opted for a showdown on the floor of the legislature later this month. What is her motive?

Clark made the following statement, in front of reporters at her office in downtown Vancouver recently:

 

“If there is going to be a transfer of power in this province, and it certainly seems like there will be, it shouldn’t be done behind closed doors. It should happen in the public…it should happen in the people’s house with 87 members elected by British Columbians to our legislature making that decision”

 

We believe Clark has one thing on her mind: win the confidence of the legislature. For that to happen, she will need all 43 Liberal ridings to stand with her and just one NDP to cross the aisle (this has happened throughout Canadian history, both provincially and federally). If Clark can persuade an NDP MLA to cross the floor (and you better believe the Liberals are targeting very specific individuals) she will have saved her party and legacy

Andrew Heard, a political science professor at Simon Fraser University, stated,

“I have not once come across anyone who has said that an incumbent premier has a duty to stay on and meet the house when they have lost a majority. It is just patent nonsense, and misleading nonsense at that.”

 

He added that, Clark, “should step aside with grace and respect for the democratic process.”

 

Why do the majority of politicians become politicians?

Influence and power. And, the last time we checked, Clark still had the power. She is going to call a legislative assembly in the next few weeks and possibly wrest control from Horgan and Weaver.

We believe the Nelson-Creston riding or the Kootenay West riding could flip. Perhaps even the Maple Ridge – Mission riding. One of these MLAs with the NDP is ripe to crack. They will be a forgotten in the NDP/Green accord, but a hero if they save the Liberals. The Nelson-Creston and Kootenay West ridings are surrounded by a sea of Liberal red. While the Maple Ridge – Mission riding turns red in parts north, east and south. Notice the coast is solidly NDP.

It’s horse trading time for Clark… Huge corporations with billions at stake in this election can’t afford a Liberal loss.

Christy Clark will flip one riding
Potential ridings that could flip for Christy Clark’s Liberals                             image source: News 1130

 

Resource Development in BC…

 

The B.C. election is not just about a pipeline. If Clark fails to take the house, other natural resource projects will likely be sidelined, delayed or scrapped altogether. Walking down the street in Vancouver you can feel the tension. Mining CEOs with key assets in B.C. are shaking in their boots. Disappointment has a way of transforming into fear; and, few metrics drive fear as much as uncertainty. When it comes to the Trans Mountain pipeline, however, we are certain it will go through as planned…

The NDP and Green Party have voiced their opposition to Kinder Morgan’s federally approved $7.4 billion Trans Mountain pipeline expansion project. The pipeline runs from Edmonton to the B.C. coast in Burnaby. Both parties received thousands of votes based on their opposition to the project. Protests of the project have been relentless in some areas of B.C.

Thankfully for the rest of Canada, large export pipelines fall under federal jurisdiction. Therefore, from a legal standpoint, B.C. has little say. Not only has Kinder Morgan received federal government approval, but an environmental certificate from the province of British Columbia.

According to an article from CBC,

 

“The courts have made it clear that projects like the Trans Mountain Expansion are federal jurisdiction. The municipality of Burnaby tried to obstruct some of Kinder Morgan’s testing in 2015 and lost the legal challenge.”

 

Burnaby and the First Nations community will not go down without a fight. Rallies such as the one featured below have drawn comparisons between the Vancouver protesters and those in Standing Rock, North Dakota.

 

The U.S. provides an example of how quickly policy can change pipeline outcomes. President Trump’s executive order on the Dakota Access pipeline reversed a decision by the Obama administration. Furthermore, Trump called on the Army to expedite the approval process for the section where protestors had set up camps – precisely where the pipeline had not yet been completed.

Today oil is flowing through the entire Dakota Access pipeline.

 

image source: NPR

 

The rallies at Standing Rock and throughout British Columbia’s Lower Mainland both involve water security, pipelines and indigenous peoples; however, we saw a few too many disillusioned hipsters and pot smokers in the Vancouver rally to take them seriously…

Egged on by local political activists, we expect many arrests as the project begins construction in September. Confirmed by Ian Anderson, president of Kinder Morgan Canada on May 31st, construction will begin in September…

The Burnaby Mayor went on the record at a large protest rally, saying,

“I’ll be standing in front of the bulldozers. And I want to know, how many of you will be standing there with me.”

 

CBC reported that Fenner Stewart, an energy law expert at the University of Calgary, stated,

“The real question I would say, isn’t whether or not the federal government has a legal capacity to push this decision forward.”
“It’s whether or not the federal government is willing to spend the political capital and social capital to do so.”

 

Canadian Prime Minister Justin Trudeau was quick to reaffirm support for the pipeline, making a statement from Rome,

“The decision we took on the Trans Mountain pipeline, was based on facts and evidence. On what is in the best interest of Canadians and indeed, all of Canada. Regardless of a change in government in British Columbia or anywhere, the facts and evidence do not change.”

 

Click to watch Prime Minister Trudeau talk about his support for Kinder Morgan’s pipeline

 

Kinder Morgan Canada IPO’d this past Tuesday and came under immediate selling pressure. The IPO was underwritten and co-led by TD Securities and RBC Capital Markets, with a total of $1.75 billion raised. The Trans Mountain pipeline is the company’s flagship project. After a rocky start that saw its shares hit $15.75, they are on the mend. Kinder Morgan Canada closed up 1.77% Friday to $16.72.

Christy Clark has said she will recall the legislature before the end of June. Don’t write off the current ruling Premier – she appears to have a plan in play. A provincial political dynasty such as the B.C. Liberals, which is backed by major corporate funders, and heavily relied upon for economic growth in Canada, doesn’t quietly fade away. If replaced, however, investors from all over the world will be taking a “wait and see” approach to natural resource development and investment in Western Canada; and, not unlike Alberta when it ushered in a hard-left provincial government in 2015, capital investment will flee Canada’s once fastest growing province of British Columbia.

All the best with your investments,

 

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