The Gulf of Mexico oil spill could have some positive implications for Canadian industries, notably fisheries and the oil sands, says BMO Capital Markets.



In a special report on the oil rig explosion in the Gulf of Mexico that happened back on April 20, which it characterizes as the “largest environmental disaster in U.S. history”, BMO looks at possible impacts of the oil spill.

The oil industry, it suggests will face tighter restrictions and increased regulation that will reduce earnings. There is also a push to end to oil company tax breaks; royalty payments could rise; civil liability caps will likely be lifted from $75 million to as much as $10 billion; and insurance premiums for offshore oil drillers are set to soar, it says.

“The costs associated with greater regulation, higher taxes and higher insurance premiums could put upward pressure on oil prices,” it adds.

“Should the damage and political pressure escalate, the offshore oil industry could languish for years, similar to when the Three Mile Island core meltdown scare in 1979 virtually shut down development in the nuclear power industry. This would give a boost to the alternative energy industry,” it adds.

The fisheries in Louisiana, Mississippi and Alabama are all being affected by the spill, with the U.S. government declaring an emergency. “Although fishing continues in the other two-thirds of the Gulf that does not face contamination, demand for seafood could decline given the perceived risks of toxicity,” it notes, adding that the region provides 30% of U.S. shellfish.

The tourism industry is also being hit with hotel owners and restaurants along the Gulf Coast seeing cancellations and lost business.

“Although the environmental damage could be extensive, the impact of the reduction in activity in the Gulf Coast on U.S. GDP will likely be small, and activity associated with the cleanup will offset a portion of the negative impact,” BMO concludes. It adds that an escalation of the damage could impede exports and imports, although major shipping channels and ports in the Gulf Coast remain open.

For Canada, BMO says officials have no plans to halt activity at the only deepwater exploration well in North America currently being drilled, which is off the coast of Newfoundland, or at three other existing offshore production platforms, although the government does plan to step up regulatory oversight.

Additionally, it notes that Alberta’s oil sands come out looking “cleaner” in the wake of the Gulf oil spill. “This increases the chances that the Obama government will give the green-light to the proposed 2,000 mile underground Keystone Pipeline that would run from Alberta to Texas (a decision is due in the fall), a potential big win for Alberta.”

And, it adds that “Canadian fisheries could get a boost if consumers shy away from U.S. seafood.”

IE