(Reuters) - Analysts questioned the fate of the long-delayed Trans Mountain pipeline expansion on Tuesday after Canadian Prime Minister Justin Trudeau retained power but failed to win a majority, forcing him to seek the support of left-leaning parties opposed to new oil pipelines.
Trudeau’s Liberals will most likely need the support of the New Democratic Party and possibly the Green Party to enact key legislation - both of which are firmly opposed to the expansion of the pipeline, which will triple the flow of oil sands crude to the British Columbia coast.
The Trans Mountain pipeline was bought by the Trudeau government last year for C$4.5 billion ($3.4 billion), but its expansion has run into legal battles, even as construction started last month.
Energy brokerage Tudor, Pickering, Holt & Co analysts said that if Canada’s Federal Court of Appeal decides there was insufficient consultation with indigenous groups on the expansion and the project goes back to the cabinet for approval, it could become a hot-button issue as the Liberals seek support from the other-left leaning parties.
Canada’s Federal Court of Appeal had in September agreed to hear challenges by six indigenous groups of the Canadian government’s approval for an expansion of the Trans Mountain oil pipeline.
“Even though the Liberal government remains fully committed to TMX, there will be a degree of angst in the oil patch that the project could be used as a bargaining chip in future negotiations with another party,” TD Bank Senior Economist Brian DePratto said.
RBC analysts echoed those concerns, but added that they expect the government to move ahead with the expansion. It also added that it did not expect TC Energy Corp's TRP.TO proposed Keystone XL oil pipeline to be affected by the election results.
Ryan Bushell, portfolio manager at Newhaven Asset Management Inc, said he does not think the new government will have to make huge concessions like shutting down the expansion as it was a relatively strong minority government.
“I don’t think it’s any worse. The threats are still there and they remain there. Those threats existed before and kind of the same a day later.”
The S&P TSX Canadian energy sector .SPTTEN was up 1.28% after falling as much as 0.8% in early trading.
The oil industry’s top lobbying group has blamed Trudeau’s policies for throttling investment in the sector, and some global energy companies have shed assets in the oil sands region of Alberta, the country’s main oil-producing province.
One winner, on the other hand, could be renewable power ventures that are likely to be supported by a continuation of policies including the phase-out of coal generation and an escalating carbon tax.
Reporting by Arathy S Nair, Shradha Singh and Tanvi Mehta in Bengaluru; Editing by Patrick Graham, Sherry Jacob-Phillips and Saumyadeb Chakrabarty
Our Standards: The Thomson Reuters Trust Principles.