Liberal Party to form minority government.

Patrick O'Rourke, CFA 403-539-8615

On October 21, Canadians went to the polls after a 40 day election campaign to elect the next Canadian Government with Justin Trudeau’s Liberal Party winning a minority government (157 seats won; 170 needed for a majority). The Conservative Party will again form the official opposition after winning 121 seats and the popular vote. Overall, Canadian energy equity markets seemed to breathe a slight sigh of relief relative to the worst case scenario (weak Liberal minority), and the TSX Capped Energy Index rose 0.4% for the day following the results and the CAD/USD FX rate was unchanged.

Liberal Party to Form (Strong) Minority Government
Tight polls in the days leading up to the election led to energy investor concerns over the possibility of a minority Liberal win resulting in the formation of a formal coalition government with either the left leaning NDP or Green Party. However, the relatively large number of seats won by the Liberal party results in a strong minority government, which should abate any talks of a coalition government being formed, and we now expect the Liberal Party to manage parliament on an issues-to-issue basis as the Conservative party did from 2006 to 2011. With public filings showing the NDP exiting 2018 with a net debt of ~$4.5 million, we expect the NDP will be in no rush to challenge the Liberals and push for another costly election campaign, meaning that the minority parliament likely has more durability than the 1.7 year historical average minority parliament in Canada. This should provide some near term policy stability for investors, and also force the Liberal Party back towards more centrist policy (relative to its more progressive recent leanings) to allow it to find common ground with the Conservatives on some issues.

Liberals Appear to Support TMX Pipeline Expansion, but Further Energy Specific Policy Discussion Likely Limited in the Near Term
Recently elected Liberal MP and outspoken environmentalist, Steven Guilbeault, had previously been on record stating that Bill C-69 would make it unlikely for any new pipelines to be built. Guilbeault has since changed his tone and noted on national television on election night that the TMX is a settled issue and prior Liberal Finance Minister, Bill Morneau, also went to work to quell any fears over the TMX following the election, stating that “We will move forward on this project because we know it is the right thing to do.” NDP leader Jagmeet Singh had previously stated that he was “…very much opposed to this (TMX) project.” Singh’s list of six conditions for supporting a minority government does not directly mention the pipeline, with only one condition (reducing emissions) having possible read-throughs to the pipeline, and math would suggest the Liberals do not require NDP support to proceed (which has already surpassed its legislative hurdles). We expect further energy policy discussion to be limited in the near term as the parties decipher their legislative priorities and strategies.

Election Outcome Highlights Alberta’s Democratic Deficit and the Challenging Path to Pro Energy Development Government
The Conservative Party actually won the popular vote (34.4% versus 33.1% for the Liberals), but managed 36 less seats than the Liberals. In our view, this highlights two key near term challenges facing a pro energy development government. First, the relatively inefficient regional distribution of prodevelopment voters, but perhaps more importantly, the current democratic deficit suffered by Albertans who possess the lowest per capita seat representation.