Capital investment in Canada’s oil and gas industry lags U.S. pace

Fraser Institute report urges policy changes to encourage investment in Canadian projects

Capital investment in Canada’s upstream oil and gas industry, essentially, exploration and production, increased 15 per cent from 2016 to 2018 compared to 41 per cent in the U.S. over the same period, according to a report released on Tuesday by Canadian public policy think-tank the Fraser Institute.

Steven Globerman oon Capital investment
Steven Globerman

“Part of the explanation for the diverging fortunes is that in the U.S., they’re building pipelines, reducing and streamlining regulations, and reforming taxes to be more competitive while Canada is doing the opposite,” said Steven Globerman, senior fellow at the Fraser Institute and author of Investment in the Canadian and U.S. Oil and Gas Sectors: A Tale of Diverging Fortunes.

The report said the percentage of oil and gas capital investment in Canada as a share of total capital investment has plummeted from 28 per cent in 2014 to 13.9 per cent in 2018.

“Clearly, the U.S. has become much more attractive for energy investment and Americans are reaping the economic benefits,” added Globerman.

“Unless we see dramatic policy change in Ottawa and in key provinces, we can expect this shift in capital from Canada’s energy sector to the U.S. to continue.”

The report said the oil and gas industry is critically important to Canada’s economy as it accounts for almost eight per cent of Canada’s GDP, as well as for a significant share of the tax revenue collected by governments.

“The oil and gas sector is particularly important to the provincial economies of Alberta and Saskatchewan. It accounts for almost 30 per cent of Alberta’s GDP and slightly over 23 per cent of Saskatchewan’s GDP. As such, the economic health of the oil and gas sector is a direct contributor to employment and economic activity in Western Canada and an indirect contributor to the rest of the domestic economy through links to industries that supply inputs to the sector, as well as use the outputs of the sector,” said the report.

“The upstream segment of the oil and gas sector encompasses exploration and production of crude oil and natural gas. It is the single largest segment of the oil and gas sector, which also includes midstream gathering and pipeline facilities and downstream refineries. The oil sands account for almost two-thirds of Canada’s oil production. Since activity in the mid and downstream sectors will ultimately reflect the production of crude oil and natural gas in the upstream sector, the willingness of companies to explore for and produce oil and gas in Western Canada dictates the pace of economic activity throughout the industry’s total supply chain.”

– Mario Toneguzzi for Calgary’s Business

Capital investment

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