Notes from the Bloomberg Canadian Economic Summit


May 14, 2014

Covering Canada: What Markets Need to Know

Bloomberg Journalists


  • There has been a record $32 billion of investment in the oil sands this past year.
  • Keystone is in a stalemate, and the oil sands product is finding its way out of Alberta, primarily by railroad, and there is still capacity available to move more.
    • The Prince Rupert line was an example used that currently only operates at 30-35% capacity.
    • The project most likely to be approved is the Energy East pipeline.
      • This pipeline would carry 1 million barrels a day, which is half of what Keystone would carry.
      • The proposed cost of the Northern Gateway pipeline would be $6.5 billion, but it would likely cost more.
      • Over the past 25 years, Canada has lost an estimated $650 billion of potential GDP due to lack of energy infrastructure and lower prices of oil achieved.
      • Energy and oil in general will be an important topic in the upcoming election. This area of greatest importance for the election will be Southwestern Ontario.
      • If Harper wins the upcoming election, he would be the first Prime Minister tow in 4 elections in a row. He will need a middling economy; not too strong, but not too week – he needs to sell guidance.


A Conversation with Kathleen Wynne

  • The upcoming provincial election is about whether you believe Ontario should take a balanced approach, which is what the Liberals propose, or a ‘cut first fix later’ approach, which is what Tim Hudak proposes.
  • Our corporate taxes are the lowest in North America, and Hudak wants to lower them by 30% and cut an additional 100,000 immediately.
    • He wants to do so in order to balance the budget one year earlier than that which is proposed by the Liberals.
    • The 100,000 lost jobs will come from important areas such as fire fighters, teachers, health and mental health care workers, as well as nuclear engineers.
    • Ontario has created 500,000 jobs since the bottom of the recession, and consumer and business confidence is on the rise; we do not need to cut 100,000 jobs immediately.
    • The Liberals propose putting in place the conditions for businesses to hire and come to Ontario, which they have done with Cisco and Opentext. We are not going to beat the world at low-cost manufacturing, so we must focus on training.
    • The current government is currently on track to eliminate the deficit by 2017-2018, at a sustainable pace.
    • Since changes to CPP have been shot down by Harper, the Liberal government plans on instituting an Ontario Pension Plan, which will be for those who do not currently have a pension plan and will be used to address the issue of under-saving in Canada.
      • This pension plan will not affect those individuals or businesses who currently have pension plans in place.
      • The Federal government has talked big game about developing the ‘Ring of Fire’, which has been referred to as ‘Ontario’s Oil Sands’, but they have not stepped up to help the development of infrastructure which is desperately needed in order to get this area operational.


The Market for Canadian Natural Resources


MD and Chief Energy Economist of ARC Financial


  • Regardless of whether or not Keystone is passed, the free market will find ways to get the oil out of the oil sands, and they have done so.
    • The Keystone delay has added significant importance to the role of rail and barge transportation of product in Canada.
    • Canadian oil production and export growth is at all-time highs. Canada has recently passed Saudi Arabia and Russia in terms of oil production.
    • The speakers believe that natural gas prices will move upwards with access increases; natural gas has greater scalability and is lower cost than oil.
    • The biggest hindrances to the Canadian energy sector are self-imposed – we need to learn how to compete through increases to technology, productivity and infrastructure.
    • Technological advances, reduced cost margins and a politically stable economic environment will be what drives international investment in Canada into the future.
      • Technological advances also have the benefit of reducing environmental risks, which are a concern with investing in Canada as of now.


A Conversation with Tom Mulcair

  • Mr. Mulcair is highly focused on the environment, and believes that our current government is not doing enough to cooperate with the rest of the world in this regard.
  • By 2020, there will be an estimated aggregate market of $3 trillion in green energy investment. Canada needs to act now in order to be a meaningful part of this development.
  • A cap and trade system is about the reduction of greenhouse gases, a carbon tax is simply about the tax. A cap and trade system is the only effective measure.
  • Germany was used as an example. When they abandoned nuclear energy, they moved to become a leader in green tech manufacturing and development. Norway is another great example of a country with ample natural resources, who also focuses on green technology development.
  • In its current state, Canada is too reliant on energy prices and the energy sector as a whole.
  • Mr. Mulcair approves of the Energy East pipeline, while not so much Keystone.
    • The Energy East pipeline provides better prices for producers, and will supply 40,000 jobs to Canadians that would have otherwise gone to the U.S.
    • Mulcair also likes the support that Energy East provides to Canada’s eastern refineries.
    • Canada needs to focus on developing clear and certain rules concerning foreign investment. Countries are still interested investing in Canada, but the ambiguity of the rules makes it difficult.





Oil Sands and Solving the Pipeline Puzzle

Russ Girling, President and CEO of TransCanada


  • Moving crude by rail is unsafe and causes more emissions; pipelines are the safest way to move the product.
  • The current application process for Keystone has surpassed 2000 days, where a usual length process is 400-500 days.
  • TransCanada hopes to have some clarity as to who has authority to make decisions in Nebraska by the end of the year, but there is no clear direction on timing.
  • TransCanada and the Federal Government of Canada can consider a NAFTA challenge, but it is not their primary focus.
  • The key focus on TransCanada is providing education and understanding to those who are directly affected by the proposed route of Keystone. Additionally, they are working hard to directly understand and hear the concerns of those directly affected.
  • The primary opponents to Keystone are not those who are directly affected by the pipeline, rather those who wish to simply keep oil in the ground.
  • Keystone has become an example and a symbol, and this is why it has taken so long.
  • TransCanada has $60 billion of operating infrastructure, with $40 billion of prospective projects. Keystone is only $5 billion of those prospective projects. The success of the company does not hinge solely on this project.
  • Whether Keystone is approved or not will not dictate the energy market, the price of oil and energy will continue to drive the market. As long as prices are high and justify it, the oil will get out of Canada.
  • North America consumes 17-18 million barrels of oil a day, half of which is imported.
    • This point was used to dispel a myth that most of the oil from Keystone would be simply exported to China.
    • The cost to import from places such as Saudi Arabia would not make up for the profit of exporting this oil to China.
    • Eastern Canada’s refineries are focused on light oil, which primarily originates from Saudi Arabia. They would need to upgrade these facilities in order to be able to refine Canadian heavy crude.
      • This was an example of why Keystone is still needed, even if Energy East is built.
      • Most polls indicate that 62-65% of Americans support Keystone, and the majority of the House seems to support it as well.
      • TransCanada will need two good summers to complete the pipeline, so the initial deadline of 2016 would be optimistic, even if it were to start development this summer. 2017 would be more likely.


The Outlook for Liquefied Natural Gas

David Collyer, President of Canadian Association of Petroleum Producers

Jeff Lyons, Director of Operations, Financial Advisory at Deloitte

Greg Kist, President of Pacific Northwest


  • LNG is natural gas that has been chilled to liquid form for ease of transport and storage, and is a new export business in Canada.
  • The United States’ imports of gas from pipelines has fallen 22% from 2008. This is a large reason why Canada has such a large excess supply of LNG, and why we need legitimate avenues and customers to export it to.
    • Canada has an estimated 150 years of total supply.
    • The Koreans believe that the U.S. is a more competitive natural gas exporter, and that the Gulf Coast pipeline is less arduous than Canadian pipelines.
    • Buyers want to buy the actual product rather than contracts; by holding ownership over the physical commodity, they effectively hedge themselves of commodity price risk.
    • Qatar is currently the world’s largest exporter of LNG.
    • There are currently 17 LNG projects under review in Canada; we need to get at least one or two of these projects done in order to instill confidence in the international market that we can complete these projects in an efficient and productive manner.
      • Canada is a great prospect for a LNG partnership, but we are not the only option. We must move quickly.
      • The issues in Canada are centered around policy and are primarily located in B.C. Clarity surrounding the LNG tax and potential effects that it would have on all players in the value chain need to be answered with certainty.
      • Comparisons drawn between the LNG market for B.C. to the Oil Sands for Alberta are still nascent due to the relatively few projects that are being developed. In order to develop this industry, Canada needs foreign investment, and obtaining this investment starts with execution and clarity.
      • Foreign capital is concerned about wage inflation, execution, and the potential impact of environmental and First Nation’s issues.
        • The biggest concern to First Nations are any potential effects on the fishing habitat.


Outlook for Unconventional Energy, Clean Technology and Renewables

Jacob Irving, President of Canadian Hydropower Association

Velma McColl, Principal at Earnscliffe Strategy Group

Rupert Mere, Research Analyst for Clean Tech at National Bank


  • Canada is the 3rd largest producer of Hydro Power in the world and number five in installed wind power.
  • The market in Canada is still in its early stages of technology and policy development.
  • 1-2% of total Canadian energy is sourced from renewable sources
  • Hydro power currently provides 60% of the electricity in Canada, and has the potential to double.
    • We are a net exporter of Hydro power to the North Eastern U.S.
    • Canada has more than 700 Clean Tech companies, and most investments in these companies are obtained from pension funds. The higher risk projects are funded by venture capital and private equity.
      • The issue for these small companies using venture capital is the high cost of capital.
      • Pension funds are typical investors since ‘patient capital’ is needed. For example, hydro dams can take 8-14 years from construction to completion.


Staying on Top: From Elite Athletes to C-Suite Executives

Dr. Kimberley Amirault-Ryan


  • There are three things that elite athletes and managers do:
    • Set limitless goals based on tomorrow
    • Have strong planning ability
    • Stay on Track
    • The principal idea of goal setting and continuous learning is that of ‘Kaizen’, a term used in martial arts. When you achieve your black belt, you are a ‘Kaizen’, or ‘a beginner’. Continuous learning and improvement is a vital part of success.
    • The 6 P’s: Perfect Planning Prevents Piss Poor Performance
    • The 5 R’s: Release Relax Rewind Regroup Refocus.
    • Bad culture makes great people average.


The Outlook for Canadian Manufacturing

Jerry Dias, National President, Unifor

Hon. Gary Goodyear, Minister of State, Government of Canada

Don Walker, CEO of Magna International


  • In the past 10 years, there have been approximately 600,000 jobs lost in Canada in the manufacturing sector.
  • The stronger CAD had a large impact through 2008-2009. And the Federal Government’s focus has been on Energy rather than Manufacturing.
  • The manufacturing output component of GDP is down for many developed nations, as international free trade has caused many countries to invest heavily in becoming strong exporters in the sector.
  • Increased automation of manufacturing has increased North America’s competitiveness to China and allowed some manufacturing plants to be brought back to North America.
    • The lower the level of gross impact from direct labour, the more competitive we can be with low-wage countries.
    • The Manufacturing industry needs Federal help and focus in order to thrive.
    • Government subsidies should only be given if they can be justifiably paid back by creating a certain number of jobs. If the math doesn’t make sense or cannot be done, then the subsidy should not be given.
    • The OECD believes that the CAD should trade at a level of 80-85 cents relative to the USD, and in many ways, our economy is built around that.





The Outlook for Canada’s Tech Industry

Mark Barrenechea, President and CEO of OpenText Corp.

Vern Brownell, CEO of D-Wave

Michael Roach, President and CEO of CGI Group


  • 90% of OpenText’s business revenues come from outside of Canada, and they have ~$3 billion of capital to put to work over the next 3-5 years.
  • CGI’s industry continues to consolidate, and they expect that there will only by 5-7 players left in the near future. They intend on being one of them.
    • 45,000 of 68,000 CGI employees own stock; they are all invested in the growth of the business.
    • CGI’s investment of Logica has been extremely successful for them, and they did this transaction at an opportune time, during the crisis. If they were to attempt the acquisition today, it would likely cost them significantly more.
      • The company’s return on this investment has been ~133%.
      • CGI was able to achieve $375 million in annual savings from merging the two companies.
      • CGI noted that they have not seen a single impact from the Obamacare incident on their current customer base; nobody has cancelled their contract with the company, not even the health care customers.
      • D-Wave is a company that uses quantum mechanics to do computations directly.
        • This technology is used to address problems that scale badly with traditional computing technology.
        • Their CEO believes they are at a stage similar to when Bill Gates converted computing power and made it applicable and useable by consumers.
        • The company has developed the first commercial quantum computer, which takes up about a room of space.
        • Although D-Wave lacks scale to provide their service to numerous companies, they focus on a low amount of high-quality clients. Their clients include Lockheed Martin, Google and NASA. Jeff Bezos is also an investor in D-Wave.
        • The main commercial application of this technology is to sort through massive amounts of data. This technology is perfectly designed to quickly and efficiently undergo Monte Carlo Simulation.
        • Continued development of the software is underway, and they have plans to implement more downstream-friendly software through cloud computing.


Taking the Pulse on Consumer Sentiment

Nik Nanos, Chairman of Nanos Research Corp.


  • The Bloomberg Nanos Index, which tracks consumer sentiment, is a 4-week rolling average of data compiled through random telephone surveys. The index is highly correlated to retail sales data, as well as share-price growth in the TSX.
  • Statement of relative personal finances and job security were relatively stable through-out the 2008 financial crisis, although expectations declined dramatically. This shows the dichotomy between perception and reality for consumers.
  • The primary driver of consumer confidence is the perception of real estate.
    • Currently, 42% of Canadians think Real Estate prices in their neighbourhood will go up. The historical average is 36%.



Follow the Money: Who’s buying and Selling North American Energy

Michael Freeborn, MD CIBC

Tom Greenberg, MD Credit Suisse

Frank Turner, Partner at Osler


  • The most popular areas for energy and resources right now are the Eagleford, the Montney, the Bakken, the Permian and the Duverney.
  • There was a drop off in M&A activity in the space in 2013, which has been attributed to the Investment in Canada Act, the lack of infrastructure, and economic fundamentals in general.
  • The bottom line that came out of the presentation is that the success or probability and attractiveness of investments in the sector depend on the individual company and asset. There are many attractive assets in Canada, but also many that are not so.
  • The speakers expect to see more M&A and IPO activity in the second half of the year.
  • Energy companies in Western Canada also have additional access to money through asset sales, private placements and private equity.
    • We are seeing private equity companies exiting a lot of their investments, but they are also making more to replace these.



The Outlook for Real Estate in Canada

Barry Fenton, Lanterra Developments

Simon Mass, The Rosseau Group

Jared Menkes, Menkes Development

Hunter Milborne, Milborne Real Estate


  • The condo business in Toronto is here to stay, as the city has built great infrastructure to support expansion and has a number of driving factors supporting the condo market.
  • In the last 5-6 years, these developers have seen an increased interest in pre-construction units.
  • The foreign investors of old are more invested in large returns, buying up 8-10 units and flipping them for massive profits. Those investments aren’t as prevalent any more, but they are seeing an increase in buyers investing in 1 or maybe 2 units pre-construction.
  • The greenbelt and places to grow act have intensified the investment in areas where infrastructure already exists.
  • If you can hold on to an asset and endure possible 10-20% corrections, then real estate is a good asset to hold, as it will go up or revert over time.
  • Toronto is in a transition period of rural to urban living. In most other major metropolitan cities in the world, it isn’t seen as uncommon as it is here to raise a family in a condo.
  • Land purchases and construction costs are not falling, which they would be if people thought that the market was about to turnover.
  • The limited amount of subway infrastructure makes it tough to find economically priced land for developers.
  • Certain developers believe that the government has taken the wrong focus with some of their plans. Reduced lending from banks will constrain the smaller developers and reduce supply of units, which will in term actually end up driving up prices.
  • The city of Toronto has doubled and tripled development charges, which have been largely passed on to customers.
  • These developers believe that the market has built-in the possibility of an increase of 1-2% in interest rates.
  • Students and temporary workers add a ‘shadow immigration’ portion that is under-reported in immigration figures. These amount to 65-75,000 people a year moving to Toronto for extended periods of time.
  • Over the next five years, as development area near transit infrastructure becomes less available, rents are likely to rise.
    • Current rents are $3 – $3.5 per square foot, and it wouldn’t be unlikely that it will head towards $4-$4.5 per square foot.
    • A slow and steady market increase in sales is expected, with an average of 15-20,000 sales per year.