U.S. invites new oil and gas investment while Canada lags behind
Last week, America’s oil and gas sector received good news on the investment front. Pembina Pipeline Corp’s CEO Mick Dilger said that the next “game-changing” project could be in the United States, not Canada.
He’s referring to the revival of the US$10 billion Jordan Cove Energy Project, a liquefied natural gas (LNG) export terminal that will transport Western Canadian gas to Asia. Since Canadian pipeline and LNG projects are tied up in regulatory and political limbo, it’s not surprising to see investment dollars moving south of the border to take advantage of the favourable business environment.
The US$10 billion influx of investment in the U.S. comes at a time when LNG companies are pulling the plug on Canadian projects. For example, Petronas cancelled its $36 billion Pacific NorthWest LNG project in 2017, citing an “extremely challenging environment.” The company spent $400 million on provincial and federal regulatory processes before making its decision to cancel the B.C.-based project. While Canada experiences project cancellations, our American neighbours are seeing LNG terminals come on-line, with the ancillary benefits of jobs and government revenue.
The U.S. advantage over Canada was also reflected in the Fraser Institute’s latest Global Petroleum Survey, which allows investors to evaluate policies that govern the oil and gas industry (royalties and taxes, duplicative regulations, etc.) and make jurisdictions attractive—or unattractive—to investment.
In this year’s survey, six of the world’s top 10 jurisdictions are in the U.S., compared to only two in Canada (Newfoundland and Saskatchewan). As a result, the US$10 million spending influx by Pembina in the U.S. isn’t surprising given the 2017 survey results, where many U.S. states (Texas, Oklahoma, North Dakota) rank well ahead of Alberta (33rd) and British Columbia (76th). In fact, B.C. is the worst performer among all Canadian provinces and most U.S. states.
The reality is that policies matter, and investment dollars flow to jurisdictions that encourage investment. The Trump administration has significantly improved the business environment in the U.S. by cutting taxes and regulations. Meanwhile, Canadian governments are moving in the opposite direction by imposing harsher regulations, increasing carbon taxes, and changing regulatory requirements for major projects.
Even the recent reforms to modernize the regulatory and environmental reviews of energy projects are expected to add more complexity to the system. For example, the new regulatory changes will widen the scope of reviews to include “gender-based analysis.”
This raises a key question for Canadian policymakers to consider: Why would investors put their money into Canada as opposed to U.S. states if governments in Ottawa, Alberta and B.C. increase taxes and regulations?
Unfortunately, Canada’s loss seems to be America’s gain, and our governments are turning a blind eye to capital crossing the border. Clearly, policymakers should adopt clear and competitive policies to attract and retain oil and gas investment.