The 2019 federal budget tabled Tuesday by the Justin Trudeau-led Liberal Party offered few nuggets for Canada’s struggling oil and gas sector other than acknowledgement that times have been tough in the oilpatch.
In fact, there was little mention of support measures for the oil and gas industry or for improving Canada’s competitiveness on the global stage.
“The budget has not addressed the systemic issues facing industry, nor did it offer any solutions to [the] growing competitiveness gap. In fact, it seems like it removed the oil and natural gas industry from its narrative altogether,” said Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers.
“The government must take into account the impact declining oil and natural gas investment has on the overall economy. Investment has dropped in half since 2014 and continues to decline.”
According to CAPP, Canada has lost billions of dollars in capital investment and wage growth as a result of a “growing competitiveness gap” facing the oil and natural gas industry.
The industry association said that as global energy demand continues to grow, countries other than Canada are addressing market needs while our oil and natural gas remains stranded. Market access constraints are preventing Canada from getting its natural resources to new markets, and the sector continues to lose investment.
“CAPP has worked earnestly with the federal government on many of the issues affecting our sector such as Bill C-69. We have identified the challenges and outlined comprehensive recommendations for consideration. We are still waiting on action,” McMillan said.
“The Canadian economy is under stress and we still have not seen action on some of the key issues the government needs to address like a lack of competitiveness on global scale. The tough times facing the oil and natural gas industry continue to drag down the entire Canadian economy. We have to address the competitiveness gap for Canada to move forward.”
While offering little in the way of aid to the oil and gas industry, the Liberal government did, however, discuss the current plight facing Canadian producers.
Budget 2019 noted that Canadian energy producers “face additional volatility” in Canadian oil prices, reflecting ongoing production growth amid constrained transportation capacity.
“Since 2017, the growing supply of crude oil from Western Canada has exceeded available export pipeline infrastructure and the region’s refining capacity,” the budget said.
“As a result, record levels of crude oil have been transported by rail, increasing average transportation costs and putting increased pressure on the rail network running out of the region.”
Despite “government and industry efforts” to increase capacity, it has not kept pace with supply growth, exerting downward pressure on crude oil benchmarks priced in Western Canada in 2018. This situation was exacerbated in the fall, when temporary refinery shutdowns in the U.S. Midwest disrupted the largest market for crude oil from Western Canada and sent several Canadian crude oil benchmarks to historically low levels.
“Recently, Canadian benchmark prices have improved substantially after the refineries in the U.S. Midwest resumed normal operations and the Alberta government’s December announcement that it would begin to temporarily curtail oil production at the start of 2019,” the Liberals say in Budget 2019.
“However, Canadian crude oil prices are expected to remain vulnerable to disruptions on a pressured export transportation network and to adverse supply or demand developments. This situation is expected to persist until one or more new major pipelines come onstream.”
Support for oil and gas innovation
In a section of Budget 2019 called Supporting innovation in the oil and gas sector through collaboration, the government said it is “committed to helping bring together Canada’s research expertise with businesses that are seeking to seize growth opportunities and address challenges through the development, demonstration and adoption of innovative technologies and processes.”
Budget 2018 identified the Strategic Innovation Fund as a flagship “platform” within the government’s business innovation toolkit, and announced that the program’s role in advancing research and development through collaboration between academia, not-for-profits and the private sector would be expanded.
“With respect to the people in Alberta going through what are some very big challenges, we’ve made some very important investments. We put $100 million into a Clean Resource Innovation Network in the oil and gas sector so that that sector can find ways to improve their ability to deliver clean resources for our country. We know that’s critically important,” federal Finance Minister Bill Morneau said at a press conference prior to the budget reading.
The Clean Resource Innovation Network is a consortium made up of companies of all sizes, innovators, not-for-profits, and academic institutions, the Liberal Party said.
“These organizations are working together to accelerate the development and adoption of innovative technologies and processes that seek to lower the oil and gas industry’s environmental impacts, such as by reducing water and land use, applying new technologies to land and wellsite remediation and reducing greenhouse gas emissions.”
Budget 2019 proposes to provide a further $100 million over four years, starting in 2019/2020, to the Strategic Innovation Fund, leveraging private sector co-investments, in order to support the activities of the Clean Resource Innovation Network.
“By developing ground-breaking clean tech and emission-lowering solutions through collaboration, the Network will support economic growth, will create good, well-paying jobs, and will lead to cleaner energy production from source to end use.”
Trans Mountain consultation
As a potential source of revenue, business development opportunities, and good, well-paying jobs for community members, Budget 2019 said major natural resource projects such as pipelines can offer “significant benefits” to Indigenous communities.
“Indigenous people are more likely to work in the natural resources sector than non-Indigenous persons. This can be a significant benefit as the natural resources sector’s average hourly wage is over $38, which is significantly higher than the national average of $27,” the government said.
Budget 2019 proposes to provide $12.8 million in 2019/2020 to Natural Resources Canada to maintain its capacity to conduct meaningful consultations with Indigenous communities on major energy projects and to support Indigenous economic participation in the natural resource sectors.
“The Trans Mountain expansion project is an example of how the government is consulting meaningfully with First Nations and Métis communities. Government officials, and representatives of Trans Mountain Corporation, have met with nearly all of the potentially impacted Indigenous communities along the route, and have heard important issues,” Budget 2019 stated.
“Indigenous people are telling the government that they want to protect sensitive sites, improve emergency response and safety capacity in their communities, protect the iconic southern resident killer whales and their habitat, mitigate the cumulative impacts of development on land and water, and ensure their communities have the opportunity to benefit economically from the project.”
Budget 2019 noted the government has provided federal consultation teams with a strong mandate to accommodate these concerns.
“The government will make a decision on the project once it is satisfied that the Crown has adequately fulfilled its duty to consult.”