Steel pipe to be used in the oil pipeline construction of the Canadian government’s Trans Mountain Expansion Project lies at a stockpile site in Kamloops, British Columbia, Canada. File photo.
Policy matters — and that fact is reflected in the 2020 Capital Investment Forecast from the Canadian Association of Petroleum Producers (CAPP). The 2020 forecast expects a $2-billion increase in capital spending in Canada’s upstream oil and natural gas sector compared to last year.
Total capital investment this year is forecast at $37 billion, up from an estimated $35 billion in 2019, for an overall increase of six per cent.
This is big news for the oil and natural gas sector, which has experienced significant challenges and a dramatic decline in investment over the last half decade. Back in 2014, capital investment in Canada’s upstream industry reached $81 billion.
An inventory of what’s driving the positive investment forecast reveals key policies in producing provinces have helped to create a more competitive economic environment. A competitive platform attracts optimism and, in turn, attracts business, investment and creates jobs.
For example, the additional $2 billion in capital spending expected in 2020 creates or sustains about 11,800 direct and indirect jobs across Canada.
Nearly 70 per cent of those jobs (about 8,100) will be in Alberta, with the remainder across the rest of the country where Canadians make their living in the oil and natural gas industry.
Tax reform has played a key role in Alberta’s ability to attract long-term focused investment. In 2019, the Government of Alberta introduced the job creation tax cut. As of Jan. 1, 2020, Alberta’s corporate tax rate dropped to 10 per cent, as part of a plan to reduce the corporate income tax from 12 per cent in 2019 down to eight per cent in 2022.
The province also enabled producers to ship more crude by rail under curtailment and allowed new conventional oil drilling without the restriction on production. Again, a move to open the door to positive investment, new drilling, and job creation.
Notably, Saskatchewan recently released its Vision 2030 goal to increase oil production by 25 per cent to 600,000 barrels per day. The province continues to improve its efficient and effective regulatory environment. Capital investment in that province is expected to increase 10 per cent in 2020, going up to $4.4 billion from about $4 billion in 2019.
Investment in British Columbia is also expected to go up this year, to $3.6 billion from about $3.4 billion last year. That province is on the cusp of a global opportunity to provide liquefied natural gas for growing demand around the world.
For that to happen, pipelines are essential to move Canadian oil and natural gas within Canada and for export, and there is cautious optimism that capacity is in fact on the horizon.
Part of the optimism is due to the federal government’s continued commitment to the Trans Mountain expansion project, and its affirmation that this project is in the best interest of Canadians. In addition, the Federal Court of Appeal very recently cleared the way for the Trans Mountain expansion project to proceed. Enbridge’s Line 3 is scheduled to come on stream in late 2020, and pre-construction activities are ongoing for Keystone XL. The ability to get pipeline projects built is essential.
Canada’s oil and natural gas sector contributes to the economy in more ways than people may realize. The oil and natural gas industry accounts for 44 per cent of environmental protection spending, according to data from Statistics Canada; $3.7 billion in 2016. In addition, in the three years from 2016 to 2018, the industry contributed an average of $8 billion annually to government revenues through royalties and tax payments across the country.
The forecast $2-billion increase in investment is just a glimmer of the potential of Canada’s oil and natural gas industry. With record global demand for oil and natural gas, there is opportunity to significantly increase investment in Canada’s energy sector. Global energy demand is growing and Canada should be the supplier of choice.
Tim McMillan is president and CEO of the Canadian Association of Petroleum Producers.
