A modest recovery is underway in North American oil and gas markets, but regulatory burden that is increasing and uncertain is harming the ability of Canada's producers to attract investment, says the Canadian Association of Petroleum Producers (CAPP).
CAPP is calling for a “focused and determined” joint effort between industry and both the federal and provincial governments to create policy and regulations that are “the most efficient among comparable jurisdictions” by way of a proposed body it calls the Sustainable Prosperity Steering Committee.
The key comparable jurisdiction is the United States, CAPP says, where higher commodity pricing is resulting in oil and gas investment returning at double the speed it is in Canada.
“Capital investment in the global energy market is expected to slightly increase in 2017, following consecutive reductions in 2015 and 2016. This is a welcome recovery, and the U.S. market, in particular, is expected to perform quite well,” CAPP said in a new report released on Wednesday.
U.S. upstream capital expenditures are forecast to increase by 38 per cent to $120 billion in 2017, according to a projection by the Oil and Gas Journal, while investment in Alberta’s conventional sector is expected to increase by about 20 percent, to $12 billion this year from $10 billion in 2016.
“While investment contractions on both sides of the border were equally sharp (a 37 per cent contraction in 2015 in both Alberta and the U.S., and a 41 and 40 per cent contraction in 2016 in Alberta and the U.S., respectively), the recovery in the U.S. is projected at a rate that is nearly twice as fast as Alberta’s,” CAPP said.
The oilsands industry has been hit even harder—between 2014 to 2017, capital investment declined by $19 billion or 55 percent. CAPP notes that many oilsands companies have moved capital allocation from Alberta to comparable opportunities in the US.
“There are between 40 and 50 different policy and regulatory initiatives currently underway by provincial and federal governments in Canada that have the potential to adversely impact the industry. Some of these challenges are new, while others have existed for some time, and they are occurring at a time when the U.S. is streamlining and reducing the cost of regulations,” CAPP said, adding its concerns relate to regulations regarding methane emissions, carbon pricing, municipal and corporate tax increases, wetland policy, well liability and closure, and caribou management, among others.
“The costs associated with government policy and regulatory elements could be as high as $5.2 billion annually in the near term. Furthermore, these annual incremental cost increases are expected to rise by 2023 once the Alberta carbon tax is implemented on natural gas produced and consumed on site by conventional oil and natural gas producers.”
The industry lobby group estimates that improved competitiveness could result in the recovery of approximately 180,000 bbls/d of oilsands production.
“It would take approximately three years of construction to bring this production on line, but there are benefits to the government and Albertans even before production occurs. Most importantly, on average, the capital expenditures associated with this incremental production would create more than 16,400 jobs,” CAPP said.
While competitiveness is critical, CAPP said “it cannot be done at all costs.”
“Alberta is a leader in responsible resource development, and we need to maintain this status to continue to earn the trust and support of Canadians.”
CAPP’s Sustainable Prosperity Steering Committee solution envisions a joint body comprised of senior representatives from industry and the province – notably the Premier’s Office, the ministries of Energy, Economic Development and Trade, and Environment and Parks and the Alberta Energy Regulator.
“The intent of the committee would be to provide government and industry oversight to steward reform initiatives and drive performance on key files, with a view to minimizing cumulative costs on industry while still achieving government outcomes,” CAPP said.
“This approach would also rely on political engagement with the federal government to ensure streamlined policy and address uncertainty caused by federal initiatives that directly impact the competitive position of Alberta, such as the potential changes to the National Energy Board and the Canadian Environmental Assessment Agency.”
For the approach to be effective, CAPP is recommending a staged process with clear timelines and deliverables.
“The committee would focus on ensuring currently active policy and regulatory changes are proceeding with a view to protecting and enhancing the investment climate,” CAPP said.
“The first 90 days could be used to assess the overall policy and regulatory framework to identify opportunities for regulatory enhancement and protecting investment. Specific reform initiatives could be worked through over the course of one year, 25 with a view to achieving regulatory efficiencies, eliminating duplication and creating a framework for achieving shared sustainable prosperity in Alberta.”