A lot of work to be done by Alberta government to regain its competitive edge, according to CAPP report
If Alberta wants to once again be a leader as a global energy supplier, it must do what it takes to close the competitiveness gap and that includes streamlining its cumbersome regulatory approval process, implementing climate policies that are effective, efficient, and encourage innovation.
That is according to Canadian Association of Petroleum Producers (CAPP) in its Update: A Competitive Policy and Regulatory Framework for Alberta's Upstream Oil and Natural Gas Industry, a report that was released on Sept. 26.
In 2017, CAPP presented the initial report that identified challenges facing the upstream natural gas and oil industry and proposed solutions on working with the Alberta government in improving the investment climate which has deteriorated in recent years. The updated report includes the current status of that investment climate, in the industry and its competitiveness. The report includes areas needing improvement and opportunities for prioritization.
"Market access is a key factor driving industry competitiveness, but it is only one part of the equation. We need government to address the policy and regulatory challenges that make Alberta less competitive compared to other jurisdictions," said Tim McMillan, president and CEO of CAPP. "In order to improve competitiveness we need to streamline the regulatory process by reducing timelines, modernizing our current regulations and improving efficiency."
While the Alberta Energy Regulator (AER) is working with industry on shortening the length of the approval process, the report indicates that CAPP would like to see all ministries of government take an active role in working with industry on the process.
Currently, according to the report, the proportion of well and facility applications which are non-routine due to participant engagement have doubled since 2014. This non-routine participant involvement well licenses can take 10 times as long as routine well license applications. As well, facility license applications that are non-routine can take as long as 130 days to approve.
This slow pace has contributed to the erosion of investor confidence in the oil and natural gas industry in the province. The report states that more efficient, predictable regulatory processes that maintain environmental and regulatory outcomes, are what is needed.
"The current regulatory environment has contributed to the erosion of investor confidence in the oil and natural gas industry. Alberta's regulatory framework is challenged by process inefficiencies, lengthy approval timelines, and escalating regulatory costs that, combined, increase costs and generate investor uncertainty in Alberta's regulatory system."
CAPP says in a press release that at a time when energy demand and capital spending are increasing globally, total investment in Canada's oil and natural gas sector is expected to fall to $42 billion in 2018 down from $81 billion four years ago. Total annual spending in the oil sands has dropped for the fourth consecutive year.
Federal Bill C-69 and Bill C-48 are expected to have far-reaching negative ramifications on the industry and CAPP encourages the Alberta government to support the industry "in its call for the pause and review of federal Bills C-69 (Canadian Environmental Assessment Agency and National Energy Board review) and the elimination of C-48 (West Coast Tanker Moratorium) in light of the Federal Court of Appeals decision on TMEP. There is an opportunity for the Alberta government and industry to send a strong and firm message to the Government of Canada and stand up for Alberta."
Tom Whalen, president and CEO of Petroleum Services Association of Canada, a non-partisan organization that provides a voice for its members said both Bills are huge concerns.
"The big thing on the horizon right now are Bill C-69 and C-48. Those two are a huge concern and Bill C-69 will impact more than one industry. Short of telling them to scrap it, I will say they need to re-write the whole thing," said Whalen.
Bill C-69 would replace the National Energy Board with the Canadian Energy Regulator and develop a new Impact Assessment Agency. Opponents to the Bill are concerned it would make the Canadian petroleum industry even less competitive than it is now, create more uncertainty which would lead to less investment, and that it gives too much decision-making power to one person, the federal environment minister, rather than to an independent body.
Bill C-48, the Oil Tanker Moratorium Act, restricts some oil tanker movement on the west coast. The ban would include tankers carrying more than 12,500 metric tonnes everything from diluted bitumen to gas condensates, but tankers carrying liquid natural gas from the LNG plant at Kitimat will be exempt.
As well as pushing the federal government on these Bills, CAPP also says Alberta's high corporate tax rate is scaring away investors.
"The U.S. is making tax reforms while the combined federal and provincial corporate taxes in Alberta have increased to 27 percent, putting us at a significant disadvantage to our competitors and spurring foreign investment," said McMillan.
In summary, the report recommends the following actions:
-Articulate a vision for future development, complete with specific goals and performance metrics such as investment, production, and project approval-related targets;
-Require all ministries working with the oil and natural gas sector adopt a mandate to improve competitiveness as a key consideration in their decisionmaking processes;
-The Alberta Energy Regulator (AER) continues to work with industry to substantially streamline the regulatory approval process;
-Effectively implement climate policies with protection mechanisms for energyintensive, trade-exposed (EITE) sectors, and re-invest any carbon-related revenue to EITE industries through recycling and innovation funding; and
-Strengthen its support for liquefied natural gas (LNG) development on Canada's west coast, with the same level of commitment on its efforts on the Trans Mountain Expansion project (TMEP).
"Canada is a global leader with a system of strong environmental standards and regulations. We have a high-quality product and should be the supplier of choice to meet increasing future energy demand," said McMillan. Supporting information:
-As global energy demand increases by 2040, oil and natural gas will be the largest sources of energy with demand accounting for 27 percent and natural gas accounting for 25 percent by 2040.
-Capital investment is forecast at $42 billion in 2018, down from $81 billion in 2014. This is indicative on decreased confidence from investors in Canada's oil and gas industry and the Canadian government in their ability to get projects completed.
Currently, the oil and gas industry contributes:
-$109 billion in direct GDP in 2017 (6.25 percent of Canada's total);
-$12 billion in average annual revenue to governments between 2014 and 2016;
-533,000 direct and indirect jobs in 2017 (includes the range of 200,000 in the service sector).
CAPP represents small and large companies that explore for, develop, and produce natural gas and oil throughout Canada. CAPP's member companies produce about 80 percent of Canada's natural gas and oil. Associate members provide a wide range of services that support the upstream oil and natural gas industry. Together, CAPP's members and associate members are an important part of a national industry with revenues from oil and natural gas production of about $110 billion a year. CAPP's mission, on behalf of the Canadian upstream oil and natural gas industry, is to advocate for and enable economic competitiveness and safe, environmentally and socially responsible performance.