The way forward for oil and gas
Canada’s oil and natural gas industry is at a critical juncture, and the actions taken over the next year will influence the success of the industry and the national economic benefits that flow from it.
The continued success of this industry, the single largest private investor in Canada, is determined by two main factors: improved market access for Canadian oil and natural gas and the ongoing importance of maintaining social licence by demonstrating resources are developed safely and responsibly.
As the oil and gas industry heads into 2014, it will be able to build on work accomplished this year.
Market access “As production increases, market access and diversification are critical to a positive outlook going forward,” says Dave Collyer, president of the Canadian Association of Petroleum Producers (CAPP). “Current domestic market growth is relatively modest. Access to additional markets must come from the displacement of imports in Eastern Canada and additional exports to the United States and Asia.”
This means the export of liquefied natural gas (LNG) to Asia from the West Coast, and the movement of Canadian crude oil to markets in Asia, Eastern Canada and the United States.
Improved market access for Canadian oil and natural gas will also benefit the country as a whole through economic growth and prosperity, job creation and government revenues. Notable steps toward improved market access in 2013 include:
A proposal to convert an existing natural gas pipeline to transport Western oil to refineries in Central Canada and eventually to New Brunswick;
A proposal to reverse the oil flow from west to east of the existing Line 9 (a ruling from the National Energy Board is expected soon); and,
An agreement between the provinces of Alberta and British Columbia related to heavy oil pipelines.
A decision on the Keystone XL oil pipeline between Alberta and the United States is expected from the U.S. government in 2014.
Negotiations between industry and the B.C. government to determine compensation for allowing heavy oil pipelines to cross the province, and the impacts this compensation will have on industry’s competitiveness, will continue in 2014.
Market access, the ability of industry to sell its products, is an important part of the overall competitiveness environment in which the oil and gas industry operates.
“Canada’s oil and natural gas sector, including the pipeline industry, contributes billions of dollars annually through taxes and royalties to support the quality of life Canadians enjoy,” says Brenda Kenny, president and CEO of the Canadian Energy Pipeline Association (CEPA). “To ensure these significant contributions continue, the industry must operate in a competitive fiscal and regulatory environment that allows industry to attract investment capital to grow.”
Positive actions in 2013 include the creation of the B.C. Ministry of Natural Gas Development, which recognizes the importance of natural gas development to the province and the urgency to establish a West Coast LNG industry in the face of growing global competition from countries such as the United States and Australia. In New Brunswick, the announcement of a royalty framework competitive with other natural-gas producing jurisdictions could help to establish a natural gas industry that can supply the Maritime province with the cleanest-burning hydrocarbon as offshore natural gas supplies decline.
Federally, actions to improve the regulatory review process for large energy projects will help to avoid regulatory overlap and to improve the timeliness of the decisionmaking process.
“In many respects we are fairly well-positioned in regard to competitiveness, especially given recent changes to the review process which have made it more efficient,” Collyer says. “However, governments at all levels need to be cautious when considering additional fiscal load for the industry.”
While the oil and natural gas sector employs thousands of Canadians from across the country, lack of skilled labour presents a challenge for the industry — one that is shared with other sectors, as a large part of the Canadian workforce is expected to retire over the next decade. Conversely, this high demand means secure, well-paying jobs for Canadians and opportunities for qualified immigrants. Industry will continue to work with educational institutions and other stakeholders, including aboriginal communities, to help ensure that educational programs match available jobs.
Social and environmental responsibility
Rising global energy demand and improved market access mean that activity in the oil and natural gas sector will increase as more wells are drilled and production grows. As a result, industry’s efforts to demonstrate that it operates safely and reliably will become increasingly important.
Improved performance and transparency is a key element of social licence. CAPP’s Responsible Canadian Energy report, published annually, contains comprehensive data and analysis of industry’s environmental performance in the areas of people, air, water and land. It highlights areas of achievements and areas where industry still needs to improve.
Kenny says she is also proud of the work being done by CEPA through its CEPA Integrity First program.
“CEPA Integrity First is an industry-wide initiative that will help improve pipeline safety and environmental and social performance,” Kenny says. “We have put years of work into this program, which highlights the importance of performance improvement through transparency, accountability and collaboration. As a result of this hard work, our member companies’ pipeline systems will be safer than they have ever been.”
Collyer agrees that industry must continuously improve its environmental performance, and tell the public about its performance, to help Canadians understand what is being done to protect the environment while also generating economic growth.
Another way of communicating is through meetings with mayors, councillors, chambers of commerce and the public. In 2013, industry held community meetings across British Columbia to listen to the concerns of residents and to share industry’s perspective, Collyer says, noting these initiatives will continue in the new year and beyond.
Social and environmental responsibility are equally important for pipelines and tie directly to market access, Kenny says.
“Market access occurs when a good project is well tested in the public arena,” she says. “It is our responsibility to seek stakeholder and community engagement as we go through the approval process. We have to make information accessible so individuals have the context they need when making decisions.”
CEPA introduced a number of new practices in 2013 that focus on environmental performance in facilities control, river crossings and migratory birds. Member companies signed a mutual emergency assistance agreement, which is the first of its kind in the pipeline industry. This agreement will help strengthen the way CEPA member companies respond to emergencies by providing a framework for sharing resources in the event of a major incident. Although, informally, CEPA member companies have always worked together during times of crisis, this agreement will formally remove the legal red-tape that can sometimes prevents member companies from fully utilizing each other’s resources.
In 2013, CEPA also launched its CEPA Foundation, which is an opportunity for suppliers and contractors to the pipeline industry to come together and help solve industry challenges from one end of the value chain to the other. Pipelines are not a corporate undertaking, notes Kenny; they are a fundamental part of the public interest.
“If you drive a car or enjoy a high-efficiency gas furnace in your home, it’s thanks to a pipeline. But we need to ensure the people we serve have confidence in what we deliver.”
While challenges exist for the oil and natural gas industry, “if we can gain market access commensurate with production growth, continue to be competitive and lead in environmental performance and engagement with the public, there is reason to be optimistic for the long term,” says Collyer.