CANADA ECONOMICS

NAFTA

Global Affairs Canada. January 28, 2018. Foreign Affairs Minister’s itinerary at NAFTA round six renegotiations

The Honourable Chrystia Freeland, Canada’s Minister of Foreign Affairs, will host bilateral and trilateral meetings on January 29, 2018, with Ambassador Robert Lighthizer, United States Trade Representative, and Ildefonso Guajardo, Mexico’s Secretary of Economy, in Montréal. Media availabilities will follow the meetings.

• Schedule of events for January 29, 2018: https://www.canada.ca/en/global-affairs/news/2018/01/foreign_affairs_ministersitineraryatnaftaroundsixrenegotiations.html

The Globe and Mail. 29 Jan 2018. Mood ‘hopeful’ as U.S. set to reply to Canada’s NAFTA proposals
ADRIAN MORROW, MONTREAL
LAURA STONE, OTTAWA

Ahead of the sit-down, officials expressed more optimism than they had in months.

NAFTA renegotiations have reached a critical juncture, with Canada set to learn Monday whether the United States is willing to consider Ottawa’s proposed compromises on three of the most serious sticking points in the talks.

And Prime Minister Justin Trudeau is insisting that – despite his willingness to work with President Donald Trump on the pact – he is fighting for “a better deal” in the negotiations.

Canadian negotiators spent all last week presenting new ideas, meant to satisfy the Trump administration’s protectionist demands, at the sixth round of negotiations in Montreal. Their American counterparts appeared interested in the proposals, discussing them at length and asking questions, said sources with knowledge of the confidential discussions.

“We’re moving in a slightly more positive direction. We’ll take that encouragement where we can,” Canada’s chief negotiator, Steve Verheul, told reporters as he walked between meetings at the Hotel Bonaventure.

But it will ultimately be up to U.S. Trade Representative Robert Lighthizer whether Washington will seriously negotiate over the proposals or reject them out of hand. It is the most crucial moment so far in the fivemonth-old talks – a test of whether the Trump administration is sincerely interested in cutting a deal or would rather shred the North American free-trade agreement.

Mr. Lighthizer will hunker down Monday in Montreal with Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo. Unlike in previous rounds, the three will not have dinner together the night before, one source said.

Ahead of the sit-down, officials expressed more optimism than they had in months.

“We said we would be constructive, creative, in solution mode. I think that’s what you’re seeing. The news [is] encouraging, people are considering our proposals,” Trade Minister François-Philippe Champagne said after a Parliament Hill caucus meeting Sunday.

Still, Mr. Champagne cautioned that the talks are “a very dynamic situation, which evolves hour by hour.”

Members of a key U.S. House subcommittee, who met with Mr. Lighthizer in Montreal for a briefing, said even the famously gruff American trade chief seemed to be pleased on the eve of his meeting with Ms. Freeland.

“He says he’s a curmudgeon, so when he shows optimism it may not be readily visible to the rest of us,” said Dave Reichert, chair of the Ways and Means trade subcommittee. “I think from trying to evaluate his words today, I would say that he recognizes there’s a great deal of work to be done, but he’s hopeful.”

In recent days, both Mr. Guajardo and U.S. Commerce Secretary Wilbur Ross have suggested the current end-of-March deadline for a deal, imposed last year by Mr. Lighthizer, could be lifted.

At the caucus meeting, Mr. Trudeau said his negotiators were standing up for “Canadian values” at the NAFTA table – and took the opportunity to bash the Conservatives.

“On NAFTA, we’re working hard to get a better deal for Canadians, a deal that helps more people and reflects our deeply held Canadian values. That’s something that the Conservatives didn’t understand,” he said to cheers and applause from his MPs. “If they had their way, we’d give into American demands on NAFTA.”

Mr. Trudeau appeared to be referencing a memo by former prime minister Stephen Harper last year to clients of his consulting firm. The note, obtained by The Canadian Press, argued that the Trudeau government should have been more willing to compromise on NAFTA in order to save the deal.

But Mr. Trudeau’s words were at odds with the message from the current Conservative Leader. At a luncheon at the Woodrow Wilson Center in Washington two weeks ago, Andrew Scheer told a room full of government officials and business leaders that he stood shoulder to shoulder with Mr. Trudeau on NAFTA. “When it comes to our relationship with the United States, we speak with one voice,” he said.

For months, Canada had flatly rejected all of Mr. Trump’s protectionist NAFTA demands. The logjam led to tense moments, including a public fight between Mr. Lighthizer and Ms. Freeland after the fourth round of talks in Washington in October.

In a strategic shift, Ottawa decided this time to offer up compromises in a bid to parry American accusations of intransigence and get talks moving. The goal is to find things that Mr. Trump could plausibly claim as victories but without damaging the open market between the three countries.

As previously reported by The Globe and Mail, Canada this week threw down new ideas on autos, dispute settlement and a NAFTA amendment process.

Canada’s auto proposal would jack up the amount of North American content required in vehicles produced in the NAFTA zone and create incentives for auto makers to build new plants or upgrade existing ones. The aim is to get Washington to drop its demand that all cars and trucks made in Canada and Mexico contain at least 50 per cent U.S. content.

Canada’s proposed NAFTA review process would allow for the deal to be regularly modified with the agreement of all three countries, as an alternative to Washington’s demand for a “sunset clause” that would terminate the pact in five years unless the countries agreed to extend it.

And Ottawa’s pitch on Chapter 11, which allows corporations to sue governments in front of special tribunals, would allow the United States to opt out of the system – as Mr. Lighthizer has demanded – but would mean American corporations could no longer use the process to sue the other two governments.

REUTERS. JANUARY 28, 2018. U.S. lawmakers at NAFTA talks express optimism about modernizing trade pact
David Lawder, David Ljunggren

MONTREAL (Reuters) - U.S. lawmakers attending NAFTA talks in Montreal expressed optimism on Sunday that efforts to update the trade pact would avoid collapse and start gaining momentum and said they urged negotiators not to bind themselves to a specific deadline.

“There’s just an air of optimism,” said U.S. Representative Dave Reichert, a Republican who chairs the House Ways and Means trade subcommittee. He spoke to reporters after a briefing from U.S. Trade Representative Robert Lighthizer.

Reichert said Lighthizer was “hopeful” about the negotiations but also “recognizes that there’s a great deal of work to be done.”

Officials from the United States, Canada and Mexico will wrap up the sixth of seven planned rounds of talks on the North American Free Trade Agreement in Montreal on Monday, with little sign of agreement on the toughest U.S. proposals to overhaul the $1.2 trillion pact.

“You can point to the fact that they’re already talking about additional rounds, where not too long ago, we were wondering whether or not there would be continued negotiations,” Reichert said.

Reichert led a delegation of 10 other Ways and Means members to Montreal to meet with negotiators from all three countries and express support for modernizing the trade agreement.

Some trade-focused lawmakers have complained that USTR has not adequately informed them about U.S. proposals in the talks. Any deal for a NAFTA update will need Congress’ approval.

U.S. President Donald Trump, who blames the 1994 treaty for job losses and a big trade deficit with Mexico, has repeatedly threatened to withdraw unless major changes are made. Markets have been nervous about the potential economic turmoil.

With the slow progress so far, Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo will meet in Montreal on Monday to review what has been achieved.

They are expected to announce that the anti-corruption chapter has been largely completed, along with progress on some other less controversial areas.

But a deep gulf remains over U.S. demands to boost regional auto content requirements and require 50 percent U.S. content in North American-built vehicles. Other major sticking points are Washington’s demands that NAFTA largely eliminate trade and investment dispute-settlement systems and contain a “sunset” clause to force renegotiations every five years.

Democratic Representative Sander Levin told reporters he was certain the United States would not quit the NAFTA talks.

Republican Representatives Adrian Smith added: “I‘m encouraged that we’re seeing things progress. We still need to get it across the finish line.”

Lighthizer could not be reached after the lawmakers spoke with reporters, and a USTR spokeswoman declined comment.

DEADLINE CONCERNS

Officials said that if the three countries conclude that negotiations should continue, an additional round of talks would start in Mexico on Feb. 26.

The talks are scheduled to finish by the end of March to avoid clashing with Mexico’s presidential election in July. Mexican officials now suggest the deadline could be extended.

“We believe it’s more important to get a quality agreement than to tailor the negotiations to a strict time line,” said Reichert.

A senior source close to the talks told reporters late on Saturday that “the United States needs to show flexibility” when it comes to its major proposed reforms to NAFTA.

“Do we feel optimistic? I would say cautiously so,” added the source, who spoke on the condition of anonymity.

Earlier on Sunday, Democratic Representative Bill Pascrell said that he did not believe that Mexican negotiators were serious enough about addressing labor problems that have kept Mexican wages too low.

Additional reporting by Anthony Esposito in Montreal; Editing by Jeffrey Benkoe and Peter Cooney

REUTERS. JANUARY 27, 2018. Canada hopes NAFTA talks go on to next round; some progress made
David Ljunggren, Anthony Esposito

MONTREAL (Reuters) - Officials trying to hammer out differences over how to update the North American Free Trade Agreement have made some progress and hope politicians decide the talks should continue, Steve Verheul, Canada’s chief negotiator, told Reuters on Saturday.

The United States, Canada and Mexico are due to finish the sixth of seven planned rounds of NAFTA discussions on Monday, with several major issues far from being resolved.

U.S. President Donald Trump, who describes the $1.2 trillion pact as a disaster, has frequently threatened to walk away from it unless major changes are made.

U.S. Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo will hold a news conference later on Monday to announce the next steps.

Asked whether he thought the three ministers would decide there is enough momentum to continue with the next round, Verheul said: “Well, that’s our hope.”

Later in the day, he told reporters: “We’re moving in a slightly more positive direction. We’ll take that encouragement where we can.”

A Mexican official, who asked not to be named, said “we don’t foresee a negative reaction to the round, we believe the balance will be positive.”

Work is moving ahead on less-contentious parts of NAFTA, the Mexican official and a Canadian source close to the talks said on Saturday, and the three nations have closed a chapter on measures to fight corruption.

Canada and Mexico initially dismissed some of the main U.S. demands as unworkable but later made it clear they were ready to be more flexible.

During the sixth round, Canada raised what it called creative ways of meeting U.S. demands for higher North American content in autos, a sunset clause that would allow one party to quit the treaty after five years, and major changes to existing conflict resolution mechanisms.

“I think we have demonstrated we have engaged on most of the big issues,” Verheul said in his remarks to Reuters. “We’ve made progress on some of the smaller ones, so I think (it was) not a bad week.”

The Mexican official said that Canada’s proposals on rules of origin for autos, the sunset clause and conflict resolution mechanism were “positive, in as much as they are an attempt to move things forward.”

Speaking separately, a second Canadian government source said Ottawa was cautiously optimistic about the round, given that the U.S. side had not summarily rejected the proposals for compromise.

But the source, who requested anonymity because of the sensitivity of the situation, said much would depend on Lighthizer’s reaction on Monday.

Markets and industries are worried about the possible collapse of the $1.2 trillion pact.

“It’s unclear to us that anything that anyone does here will be enough ... which is concerning for agriculture,” said Brian Innes, president of the Canadian Agri-food Trade Alliance.

“Our position with all the political parties is that the negotiations must go on,” said Juan Pablo Castanon, president of the Consejo Coordinador Empresarial, the umbrella group representing Mexican private sector interests at the talks.

“We want free trade, but not at any cost,” he said.

The talks were initially scheduled to wrap up by the end of March to avoid clashing with Mexico’s presidential election in July. Guajardo told Reuters on Friday that the process could be extended if need be.

Andres Manuel Lopez Obrador, the leftist front-runner in the presidential race, said on Friday that the renegotiation should wait until after the election so that the next government, which he aims to lead, would get a say in the treaty’s future.

Reporting by David Ljunggren, David Lawder and Anthony Esposito; Editing by Lisa Von Ahn and Susan Thomas

REUTERS. JANUARY 26, 2018. At NAFTA talks, Canada hails jet case as victory for free trade
David Ljunggren, Anthony Esposito

MONTREAL (Reuters) - Canadian plane maker Bombardier Inc won a major U.S. case on Friday, which government officials said showed the importance of free trade at a time when talks to modernize the NAFTA pact are moving slowly.

A U.S. tribunal unexpectedly dismissed a complaint by Boeing Co against alleged dumping by Bombardier in the case of 75 jets it sold to Delta. The ruling allows the Canadian firm to pursue other orders in the lucrative U.S. market.

“Canada-United States trade is important to the prosperity of both our countries. This decision will support well-paying middle-class jobs on both sides of the border,” Canadian Foreign Minister Chrystia Freeland said in a statement.

The United States, which has taken a more isolationist stance under President Donald Trump, wants big changes to the trilateral North American Free Trade Agreement.

Jerry Dias, the head of a union which represents some Bombardier workers, told reporters the ruling represented “a slap across the face of the Trump administration” because it showed that taking protectionist stances at a time when the two nations’ economies are so tightly linked was “foolish.”

He spoke in Montreal, where teams from the United States, Canada and Mexico have gathered for the sixth of seven planned rounds on how to revamp the 1994 pact.

Progress is slow, prompting Mexico to suggest the talks could be extended to give officials more time to address disagreements threatening to undermine the $1.2 trillion treaty.

Dias, who speaks regularly to chief Canadian negotiator Steve Verheul, said the talks were going nowhere, thanks to a series of contentious U.S. proposals.

As the negotiations grind on, officials are looking at an extra round in Mexico at the end of February, according to sources close to the process.

Although the process was initially scheduled to finish by the end of March to avoid clashing with Mexican presidential elections in July, Economy Minister Ildefonso Guajardo said the timeline could be extended.

“This negotiation has a window of opportunity to reach a deal between February and the end of July,” he told Reuters.

Canada, which this week presented a series of suggestions on how to unfreeze the talks, quickly welcomed the idea.

A Mexican source briefed on the talks said once the election campaign has started, negotiators could still continue their work but without holding formal rounds.

Mexican deputy economy minister Juan Carlos Baker hit back at the idea that progress was slow.

“I would dispute the notion that talks are not moving forward, or have not progressed, or are in any way, shape or form swamped,” said Baker, adding that he was “optimistic” that the results from the round would please ministers from the three nations when they meet on Monday to review the week’s work.

The three nations are now looking at an extra week of talks in Mexico, possibly starting Feb. 26, ahead of the last round in Washington at the end of March, said the sources.

Whether more talks can help forge an agreement is unclear, given the gulf between the United States and its two partners.

The Trump administration, which blames NAFTA for hurting U.S. manufacturing, wants the North American content of autos to be raised.

Canada responded by suggesting that content would be higher if the value of software and other high-tech materials made by the three nations were taken into account.

An auto industry source said U.S. and Mexican negotiators found the idea interesting but gave no details. Canadian chief negotiator Steve Verheul said on Thursday “there is a lot more thinking” to do about the idea.

Additional reporting by Anthony Esposito in Montreal and Dave Graham in Mexico City; Editing by Jeffrey Benkoe and Alistair Bell

BLOOMBERG. 29 January 2018. All Eyes on U.S. After Week of Cautious Optimism in Nafta Talks
By Josh Wingrove, Andrew Mayeda and Eric Martin

• All eyes will be on Robert Lighthizer after productive round
• At least one new Nafta chapter closed, talks continue on autos

All eyes are on the U.S. as the latest round of Nafta talks wrap up amid promising signs of flexibility among the trading partners on the thorniest issues.

The sixth round of negotiations ends Monday after a week marked by cautious optimism, with negotiators concluding their first chapter since October and broad discussion about the biggest sticking points. President Donald Trump himself has toned down his rhetoric over the North American Free Trade Agreement, and he isn’t expected to use his State of the Union speech on Tuesday to give a notice of withdrawal as some had privately feared.

Now it’s up to Robert Lighthizer, the president’s trade chief, to signal whether the U.S. truly likes what it has seen, as Trump’s threats to kill the pact continue to loom large. With risks of an immediate collapse appearing to have diminished, the next round of talks is scheduled for February in Mexico City.

Lighthizer “recognizes there’s a great deal of work to be done, but he’s hopeful,” Dave Reichert, the Republican chairman of the House Subcommittee on Trade, told reporters on Sunday. “There’s just an air of optimism. They’re already talking about additional rounds.”

Raymond Bachand, the lead negotiator for the Canadian province of Quebec, said he expects a U.S. round in about April and another in Canada in May. Trump once wanted a deal done by December before talks were stretched through March, and they now look to run possibly into 2019.

Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo are set to meet privately Monday in Montreal before giving a join trilateral statement, their first since October when they traded barbs. What Lighthizer says is the test. The U.S. lead negotiator, John Melle, has refrained this week from commenting on the talks, making it difficult to discern the U.S. view.

“I’m more optimistic than I was six months ago,” said Bill Pascrell, a Democratic member of the House Ways and Means Committee and one of about 10 lawmakers who flew to Montreal for meetings on the sidelines of negotiations. The talk of tearing Nafta down has changed, he said. “Let’s make this marriage work.”

At this round, negotiators agreed to conclude their third of roughly 30 chapters, one on anti-corruption. Officials have said talks are progressing. Some of the hallmarks of this round included Canada introducing “ideas” -- officials refused to call them formal counter-proposals -- and discussions around three controversial U.S. proposals.

’Set the Tone’

On autos, the Canadians have suggested rewriting how the value of a car is calculated to demonstrate a higher share of local content. The U.S. has called for increasing the regional content in autos and adding a U.S.-specific one.

The U.S. has also proposed a sunset clause that would cancel Nafta after five years unless the parties agree to extend the deal, while the Canadians and Mexicans have suggested a periodic review, without termination, instead. Finally, Canada prodded the U.S. on investor dispute panels contained in Nafta’s Chapter 11, which the U.S. wants to opt out of, and suggested Canada and Mexico would have their own system without the U.S.

“With every passing round of the negotiations, more and more of the contentious issues are closer to being solved,” Andrew Leslie, a Canadian lawmaker who serves as an envoy for Canada-U.S. relations, said during negotiations.

Premature Conclusion

Heading into talks, there was fear of a stalemate. Despite positive signs emerging, officials downplayed expectations for other chapters to be concluded, and talks on the most divisive issues remain largely theoretical. “I think it would be premature to say anybody is buying into anything at this point,” said Perrin Beatty, head of the Canadian Chamber of Commerce. Lighthizer and his counterparts “really set the tone and they convey a sense as to whether or not the chemistry is good, and whether or not there are good prospects for reaching an agreement.”

The ministers’ meeting on Monday “is fundamental,” said Francisco de Rosenzweig, a lawyer at White & Case who previously served as Mexico’s top international trade negotiator and is part of the private-sector delegation in Montreal. “That meeting is where we’re going to have a better idea about the way forward in this process of renegotiation, if it’s going to be able to deliver in the coming months or if it’s going to be kicked until the end of the year at least.”

CETA

Global Affairs Canada. January 28, 2018. Minister Champagne to visit Germany to promote Canada-EU trade and job creation

Ottawa, Ontario - Trade and investment are first and foremost about people, and the Government of Canada is committed to pursuing trade that benefits everyone, that puts people first, and that reflects Canadian values.

Canada’s diversity is a source of economic strength. The Government of Canada believes that diversity, openness and empowerment lead to more people being engaged in trade and more jobs created at home. Partners such as Germany offer tremendous potential for investment, and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) paves the way for Canadians to compete and win in this key European market.

On January 29 and 30, 2018, the Honourable François-Philippe Champagne, Minister of International Trade, will travel to Munich, Germany, to meet with representatives of German companies and with senior political interlocutors to promote CETA and to encourage job creation through foreign direct investment (FDI).

While in Munich, Minister Champagne will deliver keynote remarks at the 33rd annual Atlantik-Brücke (“Atlantic bridge”) German-Canadian Conference. He will also have the opportunity to engage with members of the Business Council of Canada at the council’s annual meeting in Munich, underscoring the value of the German-Canadian economic relationship and demonstrating Canada’s commitment to Germany as a key European partner.

Quote

“Canada and Germany are like-minded partners, playing leadership roles and working closely together to promote common values and create economic opportunities that translate into good middle-class jobs.”

- François-Philippe Champagne, Minister of International Trade

Quick facts

• Canada and Germany enjoy a diverse relationship that encompasses trade, investment, and science and technology.
• Germany is the ninth-largest foreign investor in Canada; its stock of FDI in Canada totalled $15.6 billion at the end of 2016.
• The Canadian Trade Commissioner Service (TCS) network in Germany is among the TCS’s most successful, globally, in terms of attracting FDI to Canada.
• Canada’s merchandise export interests in Germany, which benefit from enhanced market access opportunities under CETA, include aerospace, advanced manufacturing, automotive, clean and energy technology, technology partnerships, life sciences and information and communications technologies.

Canada-European Union Comprehensive Economic and Trade Agreement: http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/index.aspx?lang=eng
Business Council of Canada: http://thebusinesscouncil.ca/

BOMBARDIER

The Globe and Mail. 29 Jan 2018. The rail division is one of three finalists for a South African rail expansion. Division one of three finalists to supply coaches similar to those it built for previous Gautrain contract
GEOFFREY YORK, JOHANNESBURG

Despite controversy over a success fee that it paid for an earlier South African contract, Bombardier Inc. is in a strong position to win more business from the same rail project, a senior South African official says.

Bombardier’s rail division is one of three finalists in the bidding to supply 48 coaches for the highspeed Gautrain rail link between Johannesburg and Pretoria. The contract would be worth an estimated $285-million (U.S.).

The Montreal-based manufacturer is “at an advantage” for the contract because it built the existing 96 coaches for the Gautrain, and the new coaches would be a similar design, according to Jack van der Merwe, chief executive officer of the Gautrain Management Agency.

And in the longer term, Bombardier is expected to be among the front-runners for a much bigger contract to supply as many as 350 coaches for a proposed expansion of the Gautrain, which would add 150 kilometres to the existing 80-kilometre rail network.

Bombardier’s tactics for winning the original Gautrain contract have sparked media headlines and an official investigation. Bombardier paid for the services of a Tunisian middleman, Youssef Zarrouk, who helped a Bombardier-led consortium win the Gautrain contract in 2005. The contract eventually generated about $2-billion for the company.

In an interview with The Globe and Mail published last month, Mr. Zarrouk said he received a success fee of $3.5-million from Bombardier for his work on the Gautrain contract, in which he collaborated with a South African lobbyist and businessman who has close connections to the ruling party, the African National Congress.

A Bombardier spokesman told The Globe that it hired Mr. Zarrouk as a “sales representative” on the Gautrain project. He said the payment was within the norms of the industry.

An official South African investigative agency, the Public Protector, opened an investigation into the Gautrain contract in 2015. But the case has been delayed by budget shortages and a backlog of other alleged corruption cases.

Despite the controversy, Mr. van der Merwe has said that he accepts Bombardier’s explanation for the payment to the middleman.

For the latest contract, his agency expects to choose one of the three finalists as its preferred bidder by February or March, and will then begin negotiating the final details, he told The Globe in an interview.

In addition to Bombardier, the other finalists are consortiums led by the Chinese rail manufacturer CRRC and the French multinational Alstom. The Gautrain management agency has told the bidders that 65 per cent of their train components must be from local suppliers.

“Bombardier are at an advantage,” Mr. van der Merwe said. “But they’re not the only bidder, and the only way they can get it is if they sharpen their pencils. The more serious the money constraints are, the more we’re going to look at the value.”

The contract, which would increase Gautrain’s rolling stock by 50 per cent, is considered necessary because of congestion on the lines. Eight years after its opening, Gautrain attracts about 64,000 passengers every weekday. At rush hour, the trains are so crowded that Mr. van der Merwe himself is sometimes unable to board. “They throw me off my own train, because it’s chock-ablock,” he said.

“At the peak times, we’re running every train that we have. We are being constrained by the amount of rolling stock. In retrospect, we should have purchased more cars, and that’s why we’re now rushing to do it.”

Within the next decade, Mr. van der Merwe is aiming to launch an ambitious expansion of the Gautrain, adding 19 stations and 150 kilometres of track. It would serve, for the first time, the sprawling townships of Soweto and Mamelodi, as well as other fast-growing districts.

It could be difficult to persuade South Africa’s cash-strapped government to finance the expansion. The management agency is arguing that the project will be necessary to serve the fast-growing population of Gauteng province, the country’s industrial heartland. It forecasts that this population will make about 24 million passenger trips daily on all forms of transport between homes and workplaces or schools by 2037.

Critics have complained that the Gautrain is primarily a service for affluent passengers and requires a regular subsidy from the government. By some calculations, the government subsidy is up to $5 a passenger.

Its defenders say it has encouraged motorists to give up their cars and switch to rail, while stimulating economic development in many regions of Johannesburg and Pretoria.

For many residents in the largely black township of Soweto, the Gautrain expansion could save 86 minutes on a typical commute to the Sandton business district, Mr. van der Merwe said.

ENERGY

REUTERS. JANUARY 29, 2018. Why Canada is the next frontier for shale oil
Nia Williams

CALGARY, Alberta (Reuters) - The revolution in U.S. shale oil has battered Canada’s energy industry in recent years, ending two decades of rapid expansion and job creation in the nation’s vast oil sands.

Now Canada is looking to its own shale fields to repair the economic damage.

Canadian producers and global oil majors are increasingly exploring the Duvernay and Montney formations, which they say could rival the most prolific U.S. shale fields.

Canada is the first country outside the United States to see large-scale development of shale resources, which already account for 8 percent of total Canadian oil output. China, Russia and Argentina also have ample shale reserves but have yet to overcome the obstacles to full commercial development.

Canada, by contrast, offers many of the same advantages that allowed oil firms to launch the shale revolution in the United States: numerous private energy firms with appetite for risk; deep capital markets; infrastructure to transport oil; low population in regions that contain shale reserves; and plentiful water to pump into shale wells.

Together, the Duvernay and Montney formations in Canada hold marketable resources estimated at 500 trillion cubic feet of natural gas, 20 billion barrels of natural gas liquids and 4.5 billion barrels of oil, according to the National Energy Board, a Canadian regulator.

“The Montney is thought to have about half the recoverable resources of the whole oil sands region, so it’s formidable,” Marty Proctor, chief executive of Calgary-based Seven Generations Energy, told Reuters in an interview.

Canada’s shale output stands at about 335,000 bpd, according to energy consultants Wood Mackenzie, which forecasts output should grow to 420,000 bpd in a decade. The pace of output growth could quicken and the estimated size of the resources could rise as activity picks up and knowledge of the fields improves, according to the Canadian Association of Petroleum Producers.

Seven Generations and Encana Corp, also based in Calgary, are among leading producers developing the two regions. Global majors including Royal Dutch Shell and ConocoPhillips - who pulled back from the oil sands last year - are also developing Canadian shale assets.

Chevron Corp announced its first ever Canadian shale development in the Duvernay in November. Spokesman Leif Sollid called it one of the most promising shale opportunities in North America. ConocoPhillips sees potential for the Montney to deliver significant production and cash flow to the company, executive vice president of production drilling and projects Al Hirshberg said in November.


Shell will invest more money this year in the Duvernay than any other shale field except the Permian Basin in West Texas, the most productive U.S. shale play, spokesman Cameron Yost said.

“We may learn something in the Permian that becomes applicable in the Montney, and vice versa,” Yost said.

The oil sands boom dates back two decades, when improved technology, rising crude prices and fears of global oil shortages sparked a rush to develop the world’s third-largest reserves. But in the last five years, much of that investment has migrated south as U.S. shale firms pioneered new drilling techniques and flooded global oil markets with cheaper-to-produce crude.

The oil sands currently account for two-thirds of Canada’s 4.2 million barrels per day of crude. They will continue to contribute heavily to Canada’s energy output because oil sands projects, once built, produce for decades.

But the era of oil sands mega-projects will likely end with Suncor Energy’s 190,000 barrel-per-day Fort Hills mining project, which started producing this month.

Canadian energy officials are now counting on shale, also known as “tight” oil, to lure new investment.

“Increasingly we are going to see light tight oil and liquids-rich natural gas forming a key part of Alberta’s energy future,” said Margaret McCuaig-Boyd, energy minister for the province where the oil sands and much of the nation’s shale reserves are located.

A FUTURE IN FRACKING

Oil sands development drove Alberta’s economic growth at a rate of 5.5 percent annually between 2010 and 2014, about twice the national rate. But the oil price crash in 2014 sent the region into a recession and has since prompted producers to scrap at least $32 billion in planned projects.

Oil sands capital spending fell for a third straight year in 2017 while other oil and gas investment rose 40 percent from 2016 to about C$31 billion, according to the Canadian Association of Petroleum Producers. Spending outside the oil sands is expected to grow again this year to C$33 billion, nearly three times the amount predicted for oil sands investment.

(For a graphic detailing capital spending in Canada's oil sector, see: tmsnrt.rs/2BnxD5x)

Hydraulic fracturing of shale oil and gas can yield quicker returns on smaller investments than extracting tar-like bitumen from the oil sands. Shale production is also less carbon-intensive, addressing a major concern among international investors reluctant to finance what environmental groups deride as the “tar sands”.

“The last decade has been dominated by conversations about the oil sands, and people have maybe missed the opportunities” in shale fields, Encana Chief Executive Doug Suttles told a conference in British Columbia in November. “All these things have a much lower carbon footprint than the average barrel refined today.”

‘ABSOLUTELY HUGE’ POTENTIAL

The Duvernay in central Alberta is a shale play, while the Montney, straddling northern Alberta and British Columbia, is technically a formation of siltstone, a more porous rock. Drilling and extraction techniques are the same, however, and many in the industry use the term shale for both.

Drillers face challenges in both fields because of their distance from key markets, but the high potential of their reserves is unquestioned.

The Duvernay is comparable to the Eagle Ford shale field in South Texas. The Montney is unique, with its enormous gas resources and extremely thick rock formation containing several different levels at which oil and gas can be drilled, said Mike Johnson, technical leader of hydrocarbon resources for the National Energy Board.

Weak prices in an oversupplied natural gas market have hampered development, along with added costs of shipping from the far-flung fields and limited capacity on pipelines. That makes it harder to compete with producers in shale gas plays such as the Marcellus in the northeastern United States.

Meanwhile, proposed Canadian liquefied natural gas export terminals on the west coast, which were expected to provide a huge source of demand, have been canceled or stalled due to weak prices.

Such obstacles, however, have not stopped producers from staking claims in the region. Last year, Alberta oil and gas land sale prices reached levels not seen since 2014 because of a rush to buy land in the Duvernay East Shale Basin.

“The potential is absolutely huge,” said Mark Salkeld, president of the Petroleum Services Association of Canada. “The only thing holding us back is access to market and the cost.”

Additional reporting by Ernest Scheyder in Houston; Editing by Simon Webb and Brian Thevenot

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LGCJ.: