Oilpatch pleased for pipeline progress but concerns about investment climate persist

As Rachel Notley wrapped up her press conference on the Trans Mountain pipeline in Edmonton Tuesday morning, she high-fived legislative members who'd surrounded her at the podium.

For Alberta's premier, thiswas the chance to celebratean important political win even if more battles still lie ahead.

But down the road in Calgary, the white-collar capital of Alberta's oilpatch, the reaction to the federal government's $4.5-billion purchase of the Trans Mountain pipeline and its expansion project was decidedly more muted.

One former oilpatch executive called the deal "bittersweet," while other observers noted it does nothing to improve investor confidence in Canada and could even make things worse.

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Of course, there'srelief that thefuture of the Trans Mountain pipeline expansion, which last had an estimated cost of $7.4billion,looks much more certain than it did last month.

That's when Kinder Morgan, facing stiff opposition from protesters and the B.C. government, said it needed clarity on a path forward for the pipeline by May 31 or it would walk away from the project.

Though opposition still exists, the federal government's commitment to build the project was broadly interpreted as a significantboost in favour ofthe pipeline'sultimate future.

That's key for the Alberta government and the energy sector, whicharguethe project is necessary to get Canadian oil to more markets and ease the pipeline capacity crunch that's contributing to a discount on the price of homegrown crude.

"Trans Mountain is critical infrastructure needed to move Canadian energy to world markets,"TimMcMillan, CEO of the Canadian Association of Petroleum Producers (CAPP), told reporters Tuesday.

Ottawa's move was also viewed as important because so long as the pipelinegets built it underscoresthe federal government's power to see through projectsit deemsin the national interest.

Purchase a symptom of larger problems

But the fact Ottawahad to save the project at all is being viewed as a symptom of larger problems.

"It is a very ... bittersweet result," DennisMcConaghy, a former TransCanada executive, toldCBCRadio'sEdmonton AM.

"It does raise a lot of questions about how did we ever get ourselves, the country, into this situation where federal approvals aren't sufficient for private sector capital to want to take on the completion of the project."

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Chris Bloomer, head of the Canadian Energy Pipeline Association, voicedsimilar concerns.

"We do not believe that this outcome will instill investor confidence in Canada," he said.

Investor confidencehas become a particularly charged issue in the Alberta oilpatch, especially as the United States has enticed new investment by slashing taxes and regulation.

'Our investment climate ... is really bad now'

Martha Hall Findlay, president of the Canada West Foundation, a Calgary think-tank, was pointed in her criticism of boththe circumstances that led to Tuesday's decision and its implications for future investment, even though she too is pleased that the pipeline will be built.

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"If we thought our investment climate before this was bad and we did it's really bad now," Hall Findlay said.

"The message that this sends is 'We can't get anything built in this country but, don't worry, we'll buy it out.'"

Bigger issues surrounding investor uncertainty such as a changing regulatory systemhaven't been addressed by this decision, said Richard Masson, the former CEO ofthe Alberta Petroleum Marketing Commission andexecutive fellow of the University of Calgary's public policy school.

"The whole situation that we are in is partly why I think everybody's pretty muted," Massonsaid.

But he said the purchase of the existing Trans Mountain pipeline, which ships about 300,000 barrels of oil per day, represents a "very solid investment" for the government.

Kinder Morgan has already spent about $1.1 billion on the expansion project.

"That whole thing about whether it's a good price will depend on can we complete the other $6.5 billionof the expansion on time [and]on budget, in which case the whole $11 billion is probably good," Masson said.

Despite guarded reaction and even skepticism around the oilpatchTuesday, one expert who follows the country's energy sector described Ottawa's decision as "bold."

Federal government has 'doubled down'

"They've doubled down," said WarrenMabee, who follows Canada's oil and gas sectorasdirector ofthe Queen's Institute for Energy and Environmental Policy.

"They're trying to send a very strong message to investors, to industry, that Canada will move these types of projects forward."

Mabee will be watching to see how the investment community responds to the news in the coming weeks. He expects citizens concerned about the environment "who may see this as a real betrayal" to respond "strongly."

Indeed, Finance Minister Bill Morneauis sure to get lots of feedbackwhen he speaks to the Calgary Chamber of Commerce on Wednesday.

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