Investors souring on Nova Scotia’s oil and gas sector
Over the past 20 years, the oil and gas sector has produced significant benefits for the Nova Scotia economy. Unfortunately, a number of factors have led to a downturn in this sector in recent years. As the province charts its economic recovery from the pandemic and subsequent recession, it should look closely at the reasons why oil and gas investment has fled the province.
When many Canadians think of oil and gas-producing provinces, they think first of Alberta and Saskatchewan, then perhaps Newfoundland and Labrador. However, the oil and gas extraction sector has played a significant role in Nova Scotia’s economy since the turn of the century, generating nearly $2 billion in provincial revenue from petroleum royalties (not to mention direct expenditure, jobs and other economic benefits).
Again, unfortunately this economic activity has been in decline in recent years. Provincial resource revenues peaked in 2009 (the height of the Sable Gas project) and have declined in most years since. In fact, 2020 will mark the first year in at least 25 years where the province derives no revenue from petroleum royalties.
A recent study by the Fraser Institute may shed light on the reasons why this much-needed economic activity has dwindled. According to this year’s Canada-US Energy Sector Competitiveness Survey, which surveys oil and gas senior executives on investment attractiveness, Nova Scotia ranked 17th out of 21 energy-producing provinces and U.S. states (all top-ranking jurisdictions are in the United States led by Oklahoma, Kansas and Texas).
In the eyes of investors, Nova Scotia ranks particularly poorly in environmental regulations, labour regulations and “protected areas” when compared to other energy-producing jurisdictions. Specifically, 72 per cent of respondents for Nova Scotia indicated that uncertainty about the environmental regulatory process deters investment in the province. On this measure, Nova Scotia is the third-worst-performing jurisdiction after Colorado and British Columbia. Additionally, half of respondents identified labour regulations as a deterrent for oil and gas investment in the province.
Further, taxation and fiscal terms are another area of concern, with 43 per cent of investors reporting a negative view of the Nova Scotia in this area.
While Nova Scotia ranks poorly overall, investor uncertainty, in particular with environmental regulations, remains a key concern in all Canadian provinces. Although this shouldn’t be surprising in light of recent policy developments at the federal level. The Trudeau government enacted Bill C-69, which overhauled the federal review process for major energy projects by establishing a new agency for reviewing new projects with additional review requirements. The legislation added new and subjective criteria including the “social impact” of energy investment and its “gender implications” to the regulatory process, which has created massive uncertainty about how—and if—new infrastructure projects will get approved.
For his part, outgoing premier Stephen McNeil said that “Nova Scotians deserve to maximize the value of resources off their coast” while pushing back on burdensome federal regulations and calls to halt exploration. Despite this approach, interest in offshore projects has dwindled in recent years, due in part to the burdensome regulatory environment.
As Nova Scotia works toward an economic recovery from the COVID downturn, jobs and economic activity will be crucial. The province’s offshore and onshore potential in the oil and gas sector is significant and has played a major part in the economy in the recent past. Working to improve the province’s standing in the eyes of oil and gas investors, especially on the taxation and regulatory fronts, should be a key priority for policymakers looking to help kickstart a robust economic recovery.