Stable policy foundation to grow oil and natural gas industry

Tim McMillan
President and CEO
Canadian Association of Petroleum Producers
April 30, 2015

These are volatile times for the oil and natural gas industry. The impact on Albertans has been hard as thousands of jobs have been cut. Drilling and service rigs are idle. Tools are down in machine shops. More office spaces are empty. Restaurants are quieter. Economic activity across Alberta is slowing as uncertainty clouds the future.

Our industry works with all governments across Canada to develop oil and natural gas production responsibly. In the months ahead, we look forward to working with the next Alberta government to continue to grow the industry for the benefit of all Albertans.

We believe that future growth and our collective prosperity will depend on a foundation of sound and stable policy in four key areas: regulatory efficiency; fiscal and cost competitiveness; environmental sustainability and certainty; and enhanced market access.

But the outlook for the oil and natural gas industry in 2015 is stark. Industry revenues are forecast to decline by more than $50 billion this year alone. That is more than the value of all the revenues from Canada’s mining sector. Imagine that – all revenues from Canada’s mining sector wiped out in months. That is what is happening in the oil and gas sector.

Thousands of jobs have been lost in Alberta since the start of the year, with new layoffs every day across many sectors. Capital investment is already forecast to be down $23 billion in 2015, investments in exploration, production and environmental technologies that support jobs today and responsible growth tomorrow. That decline is more than the $19 billion in annual capital investment in Canada’s automotive industry. Imagine that – if Canada’s automotive industry did not invest a dime in sustaining or growth capital this year. That is what is happening in the oil and gas sector.

Despite today’s low oil prices, Canadian oil production is forecast to grow by about 150,000 barrels per day in 2015 and the by the same amount in 2016. This is based on projects already under development. But we need to attract and retain capital investment in the oil and gas industry if we are to grow production and keep Alberta working.

With the right policies and the right market conditions, oil production can grow over the coming decades from 3.6 million barrels per day today to more than six-million barrels per day by 2030. As we grow, more pipeline and rail capacity will be needed to move Alberta’s oil east, south and west to new markets.

We believe sound pipeline policy is needed over the coming decades to move Alberta’s oil to new markets through projects such as Keystone XL, TransMountain, Northern Gateway and Energy East. Expanding rail capacity is necessary, but so too is expanding pipeline capacity – in every direction. Without the building of this critical infrastructure, Canada will not develop the full economic potential of its resources and Albertans will feel the effects. 

Canada’s oil and gas industry competes for investment, labour, and capital in an increasingly globalized world. In an effort to maintain the economic competitiveness of Canada’s industry, we encourage governments across the country to take a balanced public policy approach to their fiscal policies.

With that in mind, now is not the time for a review of oil and natural gas royalties. Alberta concluded its last royalty review in March 2010. The review considered the role of Alberta’s fiscal regime, the regulatory framework, technology and innovation and the overall business climate. The last royalty review led to a shrinking of jobs and capital investment. Another royalty review now could destabilize jobs further at the very time when Alberta families depend on them most.

Canada has the energy the world needs. We have the world’s third-largest oil reserves and the fifth largest natural gas production. Our challenge is making it attractive to invest the billions needed to develop and deliver it responsibly so we can compete and find new customers in the global market.

Policies that make the regulatory system inefficient, that constrain our ability to move our resources to new markets, or that deter capital investment, will only add to the challenges facing Alberta. All Albertans will benefit from a stable policy foundation that supports investment and job growth in the oil and natural gas industry.

Tim McMillan is president and chief executive officer of the Canadian Association of Petroleum Producers.