Trans Mountain controversy signals a bigger problem

Rising government costs, inefficient regulation and our inability to get major projects built are eroding investor confidence in Canada.

It’s no surprise that Kinder Morgan’s decision to suspend all non-essential activity and spending related to the Trans Mountain expansion (TMEP) dominated keynote speeches and networking sessions at the Scotiabank CAPP Energy Symposium in Toronto this week, where investors and Canada’s energy leaders gather to talk shop each year.

It was the opposite of the elephant in the room. Discussions hosted by Scotiabank and the Canadian Association of Petroleum Producers (CAPP) were pointed, passionate and verging on incredulous: many international attendees gobsmacked to see the same issues go unresolved in Canada year after year.  

After all, the pipeline has been in service for more than 60 years and its $7.4-billion expansion to the West Coast was already approved by Prime Minister Justin Trudeau.

And yet, we still can’t seem to get a pipeline built.

While TMEP is a critical piece of infrastructure central to our country’s prosperity, unity and security, its challenges are part of a wider problem facing the energy industry that we can no longer afford to ignore.

Rising government costs, inefficient regulations and our inability to get major projects built are eroding investor confidence in Canada’s oil and natural gas industry and Canadians are losing out as a result.

Since the economic downturn hit in 2014, Canada has struggled to maintain its position as a reliable place for investment in oil and natural gas development. Global capital is consistently directed to other countries with less stringent environmental and regulatory regimes. This is an affront to the values we all share in reducing our impacts to land, water and air.

While the United States remains Canada’s biggest customer it has also become our biggest competitor, exporting growing amounts of oil and natural gas to the same emerging markets we are seeking to supply.

CAPP estimates capital spending in Canada’s oil and natural gas industry was $43 billion last year – a 47 per cent drop compared to $81 billion in 2014. Yet spending in the U.S. rose 38 per cent last year to $120 billion.

Investors are not leaving the oil and natural gas sector. Investors are leaving Canada.

Industry leaders and experts in the sector, including within government, are witnessing the real-time outflow of capital spending to other regions and sounding the same alarm.

Late last year, a report released by the federal Advisory Council on Economic Growth identified oil and natural gas as an industry with “high potential” in need of a predictable, efficient and consistent regulatory environment to encourage investment.

Yet, with the regulatory overhaul proposed in Bill C-69, the Impact Assessment Act, now making its way through Parliament, industry faces the antithesis of that recommendation – a bill so laden with red tape it leaves the market with even less confidence to invest in Canada.

In a poll of 60 of Canada’s largest companies, 30 per cent said investment in Canada was worse than other jurisdictions where they had investments. Several said the investment climate had deteriorated the past five years.

Things aren’t getting any better. CAPP’s latest forecasts found capital spending will continue to decline another five per cent this year from 2017. 

A slight rise in drilling activity this year reflects an urgency to capitalize on stronger commodity prices after four tough years, but is offset by a drop in future spending commitments.

Capital investment generates activity, which in turn spurs job and economic growth, and boosts productivity.  Investment in the oil and gas sector benefits all Canadians.

While Kinder Morgan’s decision to halt spending on TMEP dominates headlines and political commentary, the challenges we face getting a pipeline built are greater than any one project. 

Among the Organization for Economic Cooperation and Development (OECD) nations, Canada ranks 34 out of 35 in terms of the time required to obtain a permit for a new general construction project – 168 days longer than the U.S.

Business investment is a measure of the overall health of an economy. Obstacles to growth, such as lack of market access and competitiveness, additional regulatory burdens and inequitable Canadian tax policies, need to be addressed if Canada is to become the world’s energy supplier of choice.  

Canada has worked hard to create an energy industry with the highest environmental standards in the world. It’s now time to reap the benefits of that diligence. We have the energy the world needs.

This commentary was also published on on April 11, 2018.