Progress Energy Deal Falls Flat

Ottawa surprised everybody when it turned down the Malaysian takeover of Canadian gas company Progress Energy. But the denial of a deal that was to be a linchpin of B.C.’s energy industry may have just been a move in a larger chess game. The $5.9-billion deal was expected to spearhead a B.C. economic strategy that’s based on extracting oceans of natural gas from northern fields, liquefying it and shipping it to Asia.

By Tony Wanless / October 25, 2012

The $5.9-billion deal was expected to spearhead a B.C. economic strategy that’s based on extracting oceans of natural gas from northern fields, liquefying it and shipping it to Asia.

Of course B.C. wasn’t alone in its consternation. Investors, and the entire B.C. and Alberta energy sectors, were also stunned by the 11th hour-decision that reversed the conventional thinking. It appeared to completely turn around the Harper government’s national energy policy to develop Canada’s economy by tapping energy sources and selling them to Asia.

Many people see this as a ploy to soothe nationalists and therefore pave the way for the much larger Nexen Energy deal. State-owned Chinese company CNOOC is bidding to buy Nexen for $15.1 billion. It’s no secret that the Harper government sees the deal as a gateway to continuing and massive energy sales to China.

But maybe there’s another issue at play here, one that’s much more tied to B.C. concerns. I’m talking, of course, of the Northern Gateway pipeline.

It’s no secret that the pipeline, another key to the government strategy, is in danger and is all but dead. The NDP, which is expected to form the next government, hates it. Even the current BC Liberal government is opposed to the pipeline plan as it now stands. It’s a dead pipeline walking.

This can’t please the federal government at all: it desperately wants the pipeline in place so it can execute its national energy strategy, which (shock, surprise) closely parallels the Alberta oil and gas industry’s strategy.

All the arguing over the Progress and Nexen deals is about whether they are “net benefit” to Canada. The protectionists say they aren’t; the free traders say they are.

So maybe this first Progress deal is a bit of softening up for the Nexen deal. By turning it down now – with the proviso that it will be reviewed again in a month – the federal government can say it is protecting Canada’s interests. Then in a month, it can say that it has reviewed it again with more information at hand, and it’s now okay.

This sets the scene for similar action with Nexen.

Cynical and manipulative? Of course. But we are dealing with politicians, here. They aren’t exactly famous for their trusting manner when they want public opinion to agree with their plans. So this Progress deal could be two moves ahead on the chess board.