Spending drop linked to U.S.
OIL AND GAS SPENDING SUFFERING FROM COMPETITIVENESS GAP
Canada’s competitive disadvantage with the United States is being reflected in lower spending plans by oil and gas producers, and Tuesday’s budget does nothing to change that trend, oilpatch observers say.
In a report released Wednesday, Statistics Canada said capital spending to extract oil and gas will fall for a fourth straight year in Canada in 2018.
Spending is expected to be about $33.2 billion, down 12 per cent from 2017, with the biggest declines in the oilsands sector where spending will fall by a fifth to $10.2 billion, the federal agency said, citing a survey of investment intentions.
It said the largest spending decline is anticipated in Alberta, down 12 per cent to $22.5 billion, but spending will also fall off in Newfoundland and Labrador, by 31 per cent to $1.7 billion; in British Columbia, by 8.7 per cent to $4.6 billion; and in Saskatchewan, by just under one per cent to $3.9 billion.
The numbers are falling because big projects are wrapping up and not being replaced, a trend that also points to Canada’s failing competitiveness with the United States, said CIBC chief economist Avery Shenfeld in an interview.
“The bigger picture is some Canadian companies are looking south of the border,” he said. “They’re seeing the bottlenecks in the ability to get product to the market, the lighter regulatory environment in the U.S. and the disadvantage in spreads between U.S. and Canadian oil benchmarks — all are reasons to devote capital elsewhere.”
In Tuesday’s federal budget, the government said more analysis was necessary before considering tax cuts to match the U.S., which announced in December it would drop its federal corporate tax rate to 21 per cent from 35 per cent.
“The finance minister says he wants to see evidence that Canada is losing its share of the corporate investment dollar to the U.S. and, if these numbers pan out, that could be part of the evidence that Ottawa needs to think about a response,” said Shenfeld.