A new study says policies supporting expedited expansion will help local producers compete
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Canadian oil producers are seeing faint signs of a revival as crude prices creep up to more sustainable levels. But even then, they face significant challenges — not just from the market, or from carbon taxes, but also due to government regulations.
According to a new CD Howe Institute report on Canada’s energy sector — expected to be the first of an annual series — restrictions to export pipelines are the main government policy handicapping Western Canada’s conventional oil producers.
“Canadian energy producers are at a competitive disadvantage relative to producers in the United States,” said Benjamin Dachis, associate director of research for CD Howe Institute and author of the report. “Much attention has been paid to carbon taxes, but a lack of market access for oil and taxes on investment – not emissions prices – are the main policy-induced competitiveness problems for conventional energy producers in Western Canada.”
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According to the report, inadequate pipeline infrastructure causes an estimated $600,000 reduction in profitability for the average new Western Canadian oil well; that equates to a revenue reduction of around $5 per barrel, which reportedly renders some investments non-economical.
“Construction has yet to start, however, on any major pipeline expansion due to procedural hurdles,” the study said. “These hurdles are likely the largest competitiveness cost for Canadian oil producers relative to US producers.”
The Edmonton Journal reported that the Alberta carbon tax, set at $30 a tonne, won’t be imposed on conventional oil producers until 2023, and even then most of it will be given back to them as a rebate based on their output.
“There’s a really smart design to the carbon tax in Alberta, because it’s a two-part system,” Dachis told the Journal. “Companies with low emissions per barrel will be better off under this system.”
The CD Howe report excluded oil sands projects because they were too different to compare with conventional oil and gas wells. It determined that Alberta oil wells bear around $770,000 in total costs that stem from federal, provincial, and municipal policies — more than twice the policy costs imposed on US producers.
The federal government is expected to speak out on plans to overhaul its environmental and regulatory review process for major energy projects in a few days. Based on the report’s recommendations, loosening restrictions on pipelines would go a long way toward helping the country’s industry.
“If Canadian governments allowed pipelines to be built expeditiously, the competitiveness of western Canadian oil producers would be greatly improved,” Dachis said in the report.
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According to a new CD Howe Institute report on Canada’s energy sector — expected to be the first of an annual series — restrictions to export pipelines are the main government policy handicapping Western Canada’s conventional oil producers.
“Canadian energy producers are at a competitive disadvantage relative to producers in the United States,” said Benjamin Dachis, associate director of research for CD Howe Institute and author of the report. “Much attention has been paid to carbon taxes, but a lack of market access for oil and taxes on investment – not emissions prices – are the main policy-induced competitiveness problems for conventional energy producers in Western Canada.”
Celebrating our industry successes in the wealth management industry
According to the report, inadequate pipeline infrastructure causes an estimated $600,000 reduction in profitability for the average new Western Canadian oil well; that equates to a revenue reduction of around $5 per barrel, which reportedly renders some investments non-economical.
“Construction has yet to start, however, on any major pipeline expansion due to procedural hurdles,” the study said. “These hurdles are likely the largest competitiveness cost for Canadian oil producers relative to US producers.”
The Edmonton Journal reported that the Alberta carbon tax, set at $30 a tonne, won’t be imposed on conventional oil producers until 2023, and even then most of it will be given back to them as a rebate based on their output.
“There’s a really smart design to the carbon tax in Alberta, because it’s a two-part system,” Dachis told the Journal. “Companies with low emissions per barrel will be better off under this system.”
The CD Howe report excluded oil sands projects because they were too different to compare with conventional oil and gas wells. It determined that Alberta oil wells bear around $770,000 in total costs that stem from federal, provincial, and municipal policies — more than twice the policy costs imposed on US producers.
The federal government is expected to speak out on plans to overhaul its environmental and regulatory review process for major energy projects in a few days. Based on the report’s recommendations, loosening restrictions on pipelines would go a long way toward helping the country’s industry.
“If Canadian governments allowed pipelines to be built expeditiously, the competitiveness of western Canadian oil producers would be greatly improved,” Dachis said in the report.
Related stories:
Canada to fight fire with fire as producers explore shale
Why oil is heading for a multi-year bull market
