New federal government must ease burden on Canada’s energy sector
Two weeks after the federal election, it’s easy to understand why many Albertans and Saskatchewanians, especially those in (or affected by) the energy sector, are frustrated.
More than 100,000 workers have been laid off (including recent layoffs at Husky) and expectations for recovery are weak with new pipelines miles away—literally. Consequently, energy producers can’t deliver their product to market. Oil and gas investment is moving south of the border; just this week, exploration company Encana announced plans to leave Calgary for the United States where federal reforms have made the energy industry more attractive. Between 2016 and 2018, the U.S. enjoyed a more than two-and-a-half times increase in investment in upstream oil and gas (essentially, exploration and production) compared to Canada.
Moreover, a recent Bank of Canada survey of business leaders found that the outlook in energy-producing regions remains grim, and that regional differences across the country are more pronounced. Specifically, while survey respondents in Central Canada and British Columbia reported robust plans to expand their workforces, there were limited plans to hire in energy-producing regions. When asked about plans to invest in the next 12 months, respondents reported healthy investment intentions—outside the Prairies. While many businesses in the Prairies reported that regulation and uncertainty are stifling investment plans.
This all adds up to a serious problem for Western Canada and the entire country.
Unfortunately, this widespread negative sentiment in energy-producing regions is not surprising in light of recent developments. Bill C-69, which overhauled Canada’s federal environmental review process, will make the approval process for major energy projects even more subjective and uncertain. The bill, passed into law earlier this year, raises serious questions about whether future pipeline projects will ever be built due to increased costs and uncertainty. Similarly, Bill C-48, which bans large oil tankers off B.C.’s northern coast, represents another barrier to exporting Canadian oil to Asian markets where oil commands a higher price.
And of course, our energy sector continues to suffer from insufficient pipeline capacity as new pipeline projects have been cancelled or delayed (see Trans Mountain). This lack of pipeline capacity has severely hampered the ability of oil producers to reach customers beyond North America and has greatly reduced the price Canadian producers receive for their products. The pipeline pinch reached a crisis point last November when Canadian heavy crude (WCS) traded at only about 30 per cent of U.S. crude (WTI). According to a recent study, insufficient pipeline capacity cost Canada’s energy sector $20.6 billion—or one per cent of the Canada’s economy—in foregone revenues in 2018 alone.
The problems facing Canada’s energy sector are real and unlikely to be resolved any time soon, despite some glimmers of hope at the provincial level (such as the Alberta government’s corporate tax reduction). To help turn things around, the Trudeau government must enact major policy changes and ease the regulatory burden on Canada’s energy sector, and ensure the Trans Mountain pipeline expansion gets built.