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Paul Gagnon introduced Mr. Gary Leach, the current President of The Explorers and Producers Association of Canada (EPAC). Mr. Leach will be retiring from his position at EPAC on November 12, and will be replaced by Mr. Tristan Goodman. EPAC represents 1500 companies engaged in oil and gas production in Western Canada. Its members operate approximately 65,000 oil and gas wells that produce 1.5 million BOE per day, which account for 20 per cent of Canada's oil and gas production. EPAC's activities include advocating for smart policy and regulations, communicating with governments and media, and educating Canadians about the importance of the oil and gas industry to our national economy. Mr. Leach began his comments by noting that the highly respected BP World Energy Outlook for 2018 shows that the contributions of oil and gas to the world's energy mix still dwarf those of renewables, nuclear generation and hydro combined. Furthermore, the Paris-based International Energy Agency (IEA) continues to forecast increased demand for oil and gas until at least the middle of the century. While the outlook for both commodities is positive, the oil sector is seen to be in a better position than is the natural gas sector. However, this will soon change as LNG Canada announced a positive final investment decision for the $40 billion export facility at Kitimat. The smaller Woodfibre terminal in Squamish, British Columbia and the Goldboro, Nova Scotia LNG terminal are moving ahead. Beyond these three projects, private investment in Canada's oil and gas industry is lagging other jurisdictions owing to uncertainties in regulatory processes and taxation regimes. Many of the larger oil and gas companies are deploying their resources in share buyback programs, and are increasing dividends to their shareholders. While the Canadian oil and gas industry has been stagnant, conditions in the U.S. are much more favourable to investment. The Trump administration has delivered corporate income tax rate reductions, updated capital cost deduction rules, eased regulatory burdens, and not implemented federal carbon taxes. As a result of this, U.S. production has increased to 27 million BOE per day, while Canada's has increased much more slowly, to approximately 7.5 million BOE per day. Despite these production increases, U.S. greenhouse gas emissions have decreased by 11.5 per cent from 2005 levels, owing primarily to the replacement of coal-fired electricity generation plants with those that burn natural gas. These advances have led to a dramatic decrease in the U.S. reliance on oil from the Middle East. During the Obama administration, the U.S. shifted from becoming a net oil importer to a competitive oil exporter. U.S. natural gas exports are also taking off. While Canada has managed to develop one large and two small LNG projects, the U.S. has sanctioned five LNG export megaprojects. However, there is still room for a Canadian LNG export industry, as the growth in international demand is expected to be robust, especially in China and India. Despite this, it is oil that is Canada's leading export, and given strong international competition, oil remains the more strategic of Canada's energy exports. It is for this reason that Canada's oils export bottleneck is so significant. Ten years of legal confusion over indigenous rights has taken its toll on Canadian competitiveness, and environmental activists now have unprecedented influence over the current federal government. The results of these two factors have been widely felt. The Northern Gateway Pipeline project was blocked by the Federal Court of Appeal, with the federal government declining to advocate for it. The Energy East project proposal was withdrawn by the proponent after the federal government announced that the project review process would include consideration of the cumulative climate effects of all downstream users of the products carried by the pipeline. Tankers carrying selected products, chiefly those produced by the Alberta segment of the Canadian oil and gas industry, have been banned from British Columbia's north coast. The project to expand the Trans Mountain Pipeline has been nationalized, and political opinions surrounding the project are now highly polarized. Additionally, the federal government has now assigned itself the dominant role in determining which projects can and cannot proceed. In addition to the emissions targets agreed to under the Paris climate accord, the federal government has several additional tools that it can use to direct the development of Canada's oil and gas sector. These include federally mandated carbon taxes, clean fuel standards, a new methane emission standard, and the Species at Risk Act. The federal government has delegitimized, and is now dismantling the National Energy Board (NEB), and is developing a new environmental assessment process, and a new Canadian Energy Regulator, for major energy projects. As a result of these conditions, regulatory certainty for major projects no longer exists in Canada. International investors have taken notice, and foreign investment capital is fleeing Canada. To make matters worse, domestic capital is leaving the country as well. This is a truly unfortunate state of affairs as the oil and gas industry is the primary driver of Canadian prosperity, and oil and gas employment is ten times more productive than other economic sectors. Following a lively question and answer sector, Ken Moraes thanked the speaker on behalf of the club. As a result of the strong interest in this topic by club members, the EPAC 2018 State of the Industry PowerPoint slide deck can be downloaded from the club website. The Rotary Club of Calgary Downtown extends our best wishes to Mr. Gary Leach in his future endeavours. |
