The federal government plans to spend up to $280,000 for a new study on Canada’s competitiveness in the oil and gas industry as investment lags and the United States offers new incentives for companies to move south.
An advance contract award notice, prepared by Natural Resources Canada and made public on Wednesday morning, puts the call out for an outside supplier to do the work, with international consulting firm Wood Mackenzie identified as the preferred candidate.
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The document uses unusually stark language to describe the current state of affairs in the Canadian energy sector, noting that investment in our oil and gas industry fell by over 50 per cent between 2014 and 2016.
“While investment has recovered from the low point, it is not expected to reach previous levels anytime soon,” the document notes.
A loss of new investment opportunities to the United States is of particular concern, it adds. Tax reforms and a loosening of regulatory frameworks by U.S. President Donald Trump‘s administration could prompt more and more companies to head south.
America has the additional advantage of being able to offer “short-cycle” projects with faster payouts (shale gas exploration, for example) as opposed to large-scale projects in the oil sands that take years to plan and build, the documents state.
“This trend may also partly reflect an increase in the cost of doing business in Canada, which may drive investment elsewhere if these costs increase beyond a certain tipping point.”
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The Liberal government, in an ongoing effort to position Canada as a global leader on climate change, has made it clear that it wants to see the Canadian oil and gas industry pivoting toward more innovative technologies that would reduce its environmental footprint.
Legislation now making its way through Parliament is also expected to result in a complete overhaul of how future energy projects are assessed and approved in Canada.
Minister aware of challenges
A spokesperson for the office of Natural Resources Minister Jim Carr said Wednesday that the minister is “aware of the short-term challenges facing the industry,” and recognizes that the natural resource sector – including oil and gas – remains a major contributor to the economy.
Ottawa is working with the provinces and territories “to better understand the challenges that the sector is facing as market conditions change,” added Alexandre Deslongchamps, and in the interim, has approved a number of major energy projects.
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Asked specifically about the government-commissioned study, Deslongchamps said it will “build on commitments made with provincial partners at the Energy and Mines Ministers Conference in August 2017 … to ensure we seize opportunities for economic growth and emission reductions.”
But according to Conservative natural resources critic Shannon Stubbs, the study may actually just be “a very costly exercise to appear to be doing something.” In other words, a stalling tactic.
Stubbs said the government can learn everything it needs to know by listening to oil and gas developers and workers, who have been flagging the sector’s competitiveness issues for over two years. She said policy changes and legislative decisions made by the Liberals, in addition to the drop in the price of oil, are behind the sector-wide slump in investment.
“On one hand, I’m glad to see that this seems to be finally creeping up onto the radar of the federal government, but on the other hand I would suggest they don’t need to undertake a $300,000 study to address and assess this urgent issue.”
Specifically, the study will assess Canada’s “current upstream oil and gas attractiveness,” look into the effects of regulations and policies both at home and abroad, and come up with some case studies to show how those regulations and policies might affect new investment over the medium and long term.
The results are expected to be presented to federal, provincial and territorial ministers responsible for energy and mining portfolios at the next Energy and Mines Minister’s Conference, which is likely to take place this summer. The final report must be delivered no later than June 30.