Petronas case shows Canada is not open

National Post (National Edition) - - EDITORIALS -

It should not come as any real sur­prise that sunny ways are a poor sub­sti­tute for solid eco­nomic pol­icy. This week’s de­ci­sion by Malaysian en­ergy gi­ant Petronas to aban­don its plans to de­velop a liq­ue­fied nat­u­ral gas (LNG) ex­port fa­cil­ity on B.C.’s Pa­cific Coast is a dev­as­tat­ing blow to the lo­cal and Cana­dian economies. Bri­tish Columbia sits atop tremen­dous re­serves of nat­u­ral gas, which is a rel­a­tively low-car­bon al­ter­na­tive to heav­ier fu­els that are in use across Asia. De­mand for LNG is high across the Pa­cific re­gion, and yet Canada has not been able to com­plete a sin­gle LNG ex­port project.

Petronas and B.C.’s new NDP-Green govern­ment have both jus­ti­fied the can­cel­la­tion by point­ing to global mar­ket con­di­tions: the price of LNG has dropped as other projects have come on­line, mainly in the United States and Aus­tralia. That’s hardly the whole story. Petronas still owns bil­lions in nat­u­ral gas re­serves it pur­chased in B.C., so it’s not likely to need­lessly pro­voke the govern­ment there by crit­i­ciz­ing it. But those Amer­i­can and Aus­tralian projects are mov­ing for­ward or al­ready on­line and mak­ing money, and ex­pan­sion of their ex­ports is likely. If they can com­pete — even in the cur­rent price slump — why can’t Canada? Has Petronas given up on the price of LNG ever bounc­ing back?

Of course not. Canada’s reg­u­la­tory and po­lit­i­cal en­vi­ron­ment de­serves a big part of the blame. Petronas was ready to build years ago. Canada couldn’t get its act to­gether. The Amer­i­cans and Aus­tralians could.

Un­for­tu­nately, the Petronas de­ba­cle is not an iso­lated event either. It’s em­blem­atic of a broader, na­tion­wide prob­lem. Our gov­ern­ments have badly dam­aged the ap­peal of Canada’s in­vest­ment cli­mate. Com­pa­nies face dif­fer­ent reg­u­la­tory re­quire­ments in each prov­ince and there are reg­u­la­tions at pro­vin­cial and fed­eral lev­els that end up du­pli­cat­ing each other, adding noth­ing but red tape. En­vi­ron­men­tal as­sess­ments drag on nearly in­def­i­nitely. Govern­ment’s con­sul­ta­tion obli­ga­tions with First Na­tions are of­ten un­cer­tain, cre­at­ing risks of lit­i­ga­tion and de­lay. And, of course, var­i­ous lev­els of govern­ment bicker in­ces­santly about ex­actly how much up­side, and how lit­tle down­side, their par­tic­u­lar ju­ris­dic­tion wants out of the deal, with B.C. in par­tic­u­lar de­mand­ing ever-larger cash bribes from project pro­po­nents, hav­ing for­got­ten en­tirely that in­vest­ment, jobs and eco­nomic growth are ev­ery­thing that a govern­ment could and should wish for.

Mak­ing mat­ters worse, pro­vin­cial and mu­nic­i­pal gov­ern­ments openly threaten to op­pose in­fra­struc­ture projects, even when it’s not within their ju­ris­dic­tion to ap­prove them. One can sift through reams of forms in trip­li­cate and miles of red tape, and lis­ten to lo­cal politi­cians talk about “en­vi­ron­men­tal buy in” and “fair shares” and “so­cial li­cence” but never once come upon a sin­gle in­di­ca­tion of any sense of ur­gency. In­vest­ment cap­i­tal is ex­cep­tion­ally mo­bile. Canada’s en­ergy re­serves are plen­ti­ful but, in an era where frack­ing has un­locked fos­sil fuel re­serves in vir­tu­ally ev­ery cor­ner of the globe, they are any­thing but unique. Com­pa­nies like Petronas, or oil com­pa­nies con­sid­er­ing in­vest­ment in Al­berta’s oil sands, are not ob­li­gated to in­vest in Canada. They have other op­tions. Yet our lead­ers too of­ten wave away the hard eco­nomic re­al­i­ties of lim­ited cap­i­tal and more com­pet­i­tive ju­ris­dic­tions else­where.

These prob­lems are long­stand­ing and not, to put it mildly, eas­ily ad­dressed. The for­mer Con­ser­va­tive govern­ment of Stephen Harper strug­gled with these chal­lenges and was not able to en­sure as many en­ergy projects were com­pleted as it would have liked, even as they were crit­i­cized by their po­lit­i­cal op­po­nents for sound­ing overly gung-ho. Now, in­stead of treat­ing this as the ur­gent na­tional is­sue that it is, the Justin Trudeau Lib­er­als seem set on mak­ing the prob­lem worse. Not only have the ex­ist­ing prob­lems not been ad­dressed, the Lib­er­als seem in­tent on com­pound­ing the ac­cu­mu­lated dis­ad­van­tages that serve to make Canada less com­pet­i­tive.

As noted re­cently by the Na­tional Post’s John Ivi­son, Ot­tawa is push­ing ahead with a se­ries of steps that can only serve to spook would-be en­ergy in­vestors.

Changes to the al­ready tor­tu­ous en­vi­ron­men­tal as­sess­ment process seem aimed more at earn­ing the ever-elu­sive “so­cial li­cence” and pla­cat­ing Indige­nous con­cerns, rather than stream­lin­ing the process into some­thing ro­bust but also timely. En­ergy in­vestors must now con­tend with in­com­ing car­bon taxes, in­creased fed­eral fees, un­cer­tainty over reg­u­la­tory re­quire­ments and high Cana­dian elec­tric­ity costs.

On top of that, the govern­ment has made Canada even less at­trac­tive to highly skilled work­ers and en­trepreneurs by ratch­et­ing up the tax bur­den on larger in­comes.

Petronas is not the only com­pany de­cid­ing against putting more money into this in­creas­ingly hos­tile in­vest­ment en­vi­ron­ment. A 2015 re­port by the Cana­dian As­so­ci­a­tion of Petroleum Pro­duc­ers notes that in­vest­ment in our en­ergy sec­tor is down by $29 bil­lion, or 40 per cent, from 2014. Some of that was cer­tainly due to re­duced oil prices, but a 2017 CAPP re­port also high­lights the grim fact that there are now “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.” When these bil­lions are in­vested else­where, they are lost to our work­ers, our econ­omy and our tax base for­ever.

Canada is blessed with an abun­dance of nat­u­ral re­sources and a highly skilled work­force. We will not profit from these ad­van­tages, though, if in­vestors are not con­fi­dent that the up­sides of in­vest­ing here will ex­ceed the risks. Govern­ment has a key role to play in en­sur­ing Canada is a place that at­tracts cap­i­tal and jobs. This re­quires it to ex­er­cise lead­er­ship in sell­ing the pub­lic on the im­por­tance of in­vest­ment, and hav­ing the sense to know when to get out of the way.

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