Petronas case shows Canada is not open
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.