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By Yogi Schulz
Prime Minister Carney wants Canada to become an energy superpower. It’s a worthy goal because Canada has rich, undeveloped energy resources. Many Canadians happily endorse his goal because it achieves these benefits:
- Economic growth and prosperity for Canadians.
- Reduce the adverse consequences of American tariffs.
- Additional tax revenue that reduces the mountain of Canadian public debt.
- Improved energy security and reduced cost for Canadians in Eastern Canada.
- Improved energy security for Canada’s international energy customers.
- Alternative energy supply options for NATO allies to replace Russian energy.
- Greenhouse gas (GHG) reductions that occur when Canadian high ESG energy replaces other energy sources.
However, Canada can achieve these benefits only by overcoming multiple regulatory impediments, including those described below.
Interprovincial trade barriers
Interprovincial trade barriers impose costs on all industries. Consumers, not companies, bear these costs. A Macdonald-Laurier Institute study estimated that eliminating interprovincial trade barriers could boost Canada’s economy by between 4.4 and 7.9 percent over the long term or between $110 and $200 billion per year. Examples of interprovincial trade barriers that affect the oil and gas industry include:
- Pools that cross provincial boundaries: Producers must build two higher-cost processing facilities, one on each side of the border.
- Gathering systems that cross provincial boundaries: Producers must obtain a federal pipeline permit, which requires a multi-year approval process, to build a pipeline that crosses a provincial border.
- Many minor technical differences: Provinces set their own rules, standards, and certifications for topics such as vehicle weight, length, and safety protocols. These differences increase producer operating costs.
- Professional licensing: Individuals, such as those in skilled trades, must undergo a lengthy, costly process to obtain a license to work in another province, even if they are already certified elsewhere.
- Administrative hurdles: Producers operating in multiple provinces face a complex web of permit, license, and reporting requirements that vary from one province to the next.
- Geographical barriers: The dimensional limitations of tunnels in the Rocky Mountains create a shipping barrier for producers, adding costs when importing large facility components.
For Canada to achieve energy superpower status, reducing interprovincial trade barriers will be necessary to enhance its competitiveness. The Canadian Free Trade Agreement (CFTA) and the Free Trade and Labour Mobility in Canada Act are encouraging federal initiatives to reduce interprovincial trade barriers. The outrageous Trump tariffs have also provided some provinces with a new incentive to lower or eliminate some of their barriers. However, the “mutual recognition” approach may be more symbolic than substantive.
Provincial regulatory incompatibilities
Oil and natural gas producers face slightly different regulations in every province and territory. These incompatibilities incur avoidable operational costs and erode Canada’s competitiveness in the global investment capital market.
Energy industry regulators operate in every province and territory where oil and natural gas are produced. These regulators have independently produced large volumes of regulations that are similar but far from identical. Most of these regulations are derived from those first written in Alberta and various US jurisdictions. Alberta created the first Canadian energy industry regulator because most of the resources are located within its borders.
So far, energy industry regulators have only harmonized the following:
- Canadian Standards Association (CSA) Z662 Oil and Gas Pipeline Systems. British Columbia, Alberta and Saskatchewan have adopted this standard.
- Directive 017 – Measurement Requirements for Oil and Gas Operations. Alberta and Saskatchewan have adopted this directive.
Unfortunately, only these two documents, among many dozens, have been harmonized. Parochial thinking appears to be a significant impediment to more harmonization. For example:
- Some Canadian regulators participate in the Western Regulators Forum (WRF). However, the WRF has yet to harmonize any regulations.
- Over two decades ago, the Alberta Department of Energy and Minerals sponsored the development of Petrinex with a vision of energy industry-government data management cooperation across multiple provinces. However, the vision has not been realized because the provinces built individual, incompatible systems to protect their turf.
“Producers write more government submissions than technical papers – ten times more. Submissions consume significant effort from technical professionals and include specific oil and gas technical information such as fracking schemes, SAGD operations or facility modifications,” says Granger Low, of Regaware Systems Ltd. “When producers can easily search previous submissions using the artificial intelligence of AppIntel AI, they take advantage of Alberta’s uniquely remarkable oil and gas technical advances, and avoid the delays related to over-regulation and resubmission.”
For Canada to achieve energy superpower status, harmonizing more provincial and territorial oil and natural gas industry regulations will be required to improve its competitiveness.
Provincial regulatory issues
Dealing with regulations is a cost that all oil and natural gas producers bear. Regulations are desirable and necessary to a point. Issues where the energy industry regulators could improve performance include:
- Reducing and simplifying the enormous number of directives. The issue is that the directives contain extensive related best practices that, while valuable, become indistinguishable from regulatory requirements.
- Reducing and simplifying the permit application processes for wells, facilities and pipelines. How the current complexity helps regulators fulfill their mandate is unclear.
- Simplifying reporting and compliance assessment would reduce administrative costs for both producers and regulators.
- Eliminating the APMC in Alberta would reduce producers’ administrative costs and increase Crown royalty revenue. This article describes the details: It’s Time to Retire the APMC – The APMC Mandate Has Expired, Its Cost is Now Avoidable.
- Failing to address data quality issues for wells, digital well logs, and cores undermines one of Alberta’s competitive advantages.
For Canada to achieve energy superpower status, reducing the cost of regulatory applications and compliance is a component of improving its competitiveness.
Taxation disparities
Oil and natural gas producers encounter taxation disparities across provinces. The following disparities affect geographic investment decisions:
- Crown Royalty and Freehold Production Tax calculations and related settlement processes vary considerably by province and type of production.
- Corporate income tax rates and reporting vary by province.
- The combined GST and PST/HST rate varies from 5% in Alberta to 15% in some other provinces.
- Oil and natural gas facility property tax rates and reporting vary by province.
Simplifying these taxation disparities would reduce administrative costs for both producers and the Crown. The combination of taxes and fees that producers pay in Canada is enough to cause some to invest in more profitable jurisdictions.
For Canada to achieve energy superpower status, reducing and harmonizing taxation disparities is a prerequisite to encourage more investment in production.
Additional costs that every producer accepts
Overcoming impediments is particularly important to Canadian competitiveness because the Canadian oil and gas industry incurs higher operating costs than the industry does in most other jurisdictions. The higher cost categories include:
- Wages and benefits.
- Health, safety and environmental standards.
- Abandonment standards.
- Disclosure of intellectual property in publicly-accessible permit application documents.
- Lower staff productivity and added heating costs due to lower winter temperatures.
No one is suggesting lowering these Canadian standards and expectations. However, the associated costs increase the urgency of reducing other regulatory impediments to maintain Canada’s competitiveness.
Conclusions
Canada has the resources to become an energy superpower and realize the immense economic, strategic, and environmental benefits that are available. Policymakers can contribute by harmonizing regulations and removing interprovincial trade barriers to ensure investment in Canadian energy is competitive on world financial markets.
Yogi Schulz has over 40 years of experience in information technology in various industries. He writes for Engineering.com, EnergyNow.ca, EnergyNow.com and other trade publications. Yogi works extensively in the petroleum industry to select and implement financial, production revenue accounting, land & contracts, and geotechnical systems. He manages projects that arise from changes in business requirements, the need to leverage technology opportunities, and mergers. His specialties include IT strategy, web strategy, and systems project management.
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