The list of challenges facing Canada's oil and gas sector just keeps growing.
Oil's latest price slump is bad news for energy companies around the world. But Canadian producers face a wider set of mounting obstacles – everything from carbon taxes and an oil sands emissions cap to endless opposition to pipeline developments, argues Ted Morton, a former Progressive Conservative Alberta cabinet minister, now a professor at the University of Calgary's School of Public Policy.
"One argument is that what is happening in Alberta isn't unique to Alberta or Canada. It's just that oil and gas are getting beaten up everywhere," Prof. Morton says. "I reject that. Some of the same companies that have sold their Western Canadian assets have gone and spent equally large sums of money in other jurisdictions."
In the past 2 1/2 years, investment in Canada's energy sector has plummeted, including the dollars coming from foreign sources. Toronto-Dominion Bank analyst Menno Hulshof wrote this month that foreign entities accounted for 72 per cent of Canadian asset and corporate acquisitions in the oil and gas industry between 2010-14. But since then, this number has fallen to an average of 8 per cent a year – including 2017 to date.
A vacuum of foreign investment is especially true in the oil sands, where global energy companies have sold off $30-billion of oil sands assets this year. Royal Dutch Shell PLC, for one, says it made its decision to seek "higher returns on capital, and prioritizing businesses where we have global scale and a competitive advantage." Some energy companies looking for North American investments have shifted dollars to tight oil in the Permian basin, or other U.S. plays, where costs are lower and where President Donald Trump is promising policies to transform the country into a powerful energy exporter.
Even Canadian companies are looking to the United States to make big investments, including midstream companies Enbridge Inc. and TransCanada Corp.
At the same time, the certainty of major projects being built, including the expansion of Kinder Morgan Inc.'s Trans Mountain pipeline, remains in doubt. And although there are plans for 20 projects, Canada has not yet built any liquefied natural gas (LNG) export facilities.
Much of the blame for the economic rout, job losses and slowdown in activity and investment falls on weak natural gas prices and the global oil price drop that began in 2014. The price signals for 2017 are ugly. Oil has tumbled 20 per cent this year and an especially tumultuous week ended Friday with West Texas intermediate oil at about $43 (U.S.) a barrel. Some analysts predict a continuing slide that could soon see crude sell for less than $40 a barrel. Those prices make it more difficult for higher-cost oil sands projects to compete for investment dollars.
But Prof. Morton argues more is at play in Canada, where the oil and gas industry faces a long list of limits most other energy-dependent jurisdictions don't. His roundup includes: a corporate tax hike in Alberta; a hard cap on the growth of greenhouse gas emissions from the oil sands; Alberta's implementation of a carbon tax this year, and a plan for a countrywide levy pegged to grow to $50 a tonne by 2022; a dearth of environmental rules and regulations in the United States under the Trump administration – giving U.S. oil producers a competitive edge; the federal push to halt long-time tax allowances for oil firms seeking to drill new wells; and a promise by the British Columbia NDP and Green Party – with a power-sharing agreement in place to form the next provincial government – to halt the Trans Mountain expansion. Alberta sees the pipeline project as key to opening global crude markets and reducing its near-total reliance on exporting to U.S. buyers.
"It's a big sign that says 'invest here at your own risk,'" he says.
Prof. Morton's spent his political career hell-bent on asserting his province's economic and political interests against federal intrusion. It's a mould which lends itself into the nascent discussion in some Alberta circles regarding interprovincial, retaliatory trade measures – should B.C. actually go ahead with blocking the Trans Mountain expansion. He says an "extreme" step would be the Alberta government buying a controlling share in the Trans Mountain pipeline – and the 300,000 barrels a day of capacity that exists right now – and cutting off gasoline and refined product supplies to B.C.
He notes in 1980, at the height of Alberta's dispute with Ottawa over the National Energy Program and resource control, then-premier of Alberta Peter Lougheed rattled Confederation with a plan to cut oil shipments to the rest of the country. However, it's unclear whether a strategy of cutting off supplies would work in a world awash with oil and a continent full of natural gas.
"Gone are the days when we thought we were running out of oil," says Kevin Birn, a director at IHS Energy in Calgary, speaking of the larger energy picture that has changed drastically in the past decade thanks to new technology for unconventional oil production. "We're in this age of abundance."
Liberal Prime Minister Justin Trudeau and Alberta NDP Premier Rachel Notley have formed a political alliance on the energy file, with the belief that a middle path – that includes new heavy oil pipelines alongside subsidized solar, wind, waste-to-energy projects – is the way forward. The strategy also relies on carbon taxes, tough new environmental regulations to improve Canada's greenhouse gas-intensive reputation and a bigger say for Indigenous communities in the development of massive new infrastructure projects.
There is a growing perception in downtown Calgary, however, that the industry is hamstrung. Canoe Financial LP's Rafi Tahmazian says most Canadians don't understand the vast amount of foreign capital required to operate the economy.
"We're so quagmired," Mr. Tahmazian says of the current state of energy development, giving the lack of LNG projects as an example. "No other country in the free world really deals with these issues like we do. So investors say, 'Don't bother.'"
He added that renewable energy might be the path forward, but it won't happen overnight. And there is little understanding of "the gap that we create by destroying one of the industries that run our economy without replacing it with something else."
Another take on Canada's investment climate is coming in the fall. Dominic Barton, the head of Ottawa's Advisory Council on Economic Growth, says his group is working on a report on encouraging more business capital investment and making sure Canadian regulations are strong but aren't so costly that they impede the money flow to the country.
Mr. Barton says sectors such as renewable energy technology and pipeline-building will be a part of the review, to see if there's "anything where it takes longer to be able to get something done, or makes it more uncertain, or more difficult for people to invest."