By Bruce Lantz
With the future almost certain to be an expensive one for the oil and gas sector, industry leaders in Canada are hoping more attention will be given to providing incentives to help them get the work done.
With rising fuel prices and inflation hitting modern-day highs, the world is keeping a wary eye on the oil and gas industry. And doubt remains as to whether or not the industry can meet the demands upon it from nations around the world, especially those negatively affected by sanctions imposed on Russia following that nations invasion of Ukraine.
“There is an urgent need to supply more responsible, secure and affordable energy to the world, and this demand will continue for years to come. We believe that supply should come from Canada,” Elisabeth Besson, spokesperson for the Canadian Association of Petroleum Producers (CAPP), told Resource World Magazine. She said the energy sector is involved with “ongoing discussions” with governments on how to best increase Canada’s lower-emission natural gas and oil supply around the world in the short, medium and long terms.
At this point, though, Canada lags behind other nations in the trend toward phasing out fossil fuel subsidies, although Ottawa first announced that commitment in 2009. For example, U.S. President Joe Biden has made eliminating fossil fuel subsidies and public finance a priority, and both the International Energy Agency and the United Nations have urged countries to remove such subsidies.
The first step, though, is unlocking Canada’s energy so the nation can provide the world with “environmentally-safe, reliable and responsibly-sourced” energy, Gurpreet Lail, PSAC President and CEO, has told Resource World. Canada’s federal government dedicated $18 billion in 2020 to assist the nation’s oil and gas sector — $3.28 billion in direct spending and $13.6 billion in public financing for oil and gas companies. That lines up against combined revenues to governments across Canada that were expected to reach $18 billion in 2021, up from $9 billion in both 2018 and 2020. The federal government announced in March 2021, however, that it would transfer more than $18 billion from the fossil fuels industry to clean energy by the end of this year.
In Canada, individual provinces have ownership over their natural resources and have instituted royalty systems to ensure citizens receive fair value for their resources. This differs from many other oil and gas-producing jurisdictions where resource rights are often held by individual landowners or the central government. Provinces have royalty systems in place that are price sensitive so that when oil and gas prices rise, so do the associated royalty payments. In addition, governments across the country benefit from increased industry activity through auctioning of mineral rights, income taxes, municipal taxes and higher corporate tax remittances.
“To global markets, our advantage comes not only from our vast reserves but also from the way we produce them,” said Besson. “Game-changing technologies and investments, including carbon capture utilization and storage, solvent processes, waste heat recovery and electrification, will enable Canada’s oil and natural gas producers to continue reducing emissions even as they provide more energy the world needs.
“CAPP will continue to encourage efforts to strengthen global energy security, sustainability to provide additional long-term ESG (environmental social governance)-leading supply to meet global energy needs, and continental strategies with the U.S. that support infrastructure development while leveraging our world-class technological and innovation capacity to drive down GHGs (greenhouse gas emissions).”
Industry is certainly doing its part.
“With global demand for energy at pre-pandemic levels and growing, the world needs more of all forms of energy, particularly as Western nations look to replace energy provided by less secure regimes with supply from safe and trusted producers such as Canada,” CAPP spokesman Jay Averill told Resource World. With that in mind, and after a decade of depressed commodity prices, Canadian producers have begun increasing their investments, which are expected to grow by at least $6 billion this year and reach record high oil production and record high export levels, he said.
At the same time, the federal government is developing incentives for climate initiatives, including a promise of $15 billion over a 10-year period to help Canada reach the commitment made under the Paris Agreement to reduce greenhouse gas emissions 30% below 2005 levels by 2030 and to hit net zero emissions by 2050. In the works is an investment tax credit for carbon capture, utilization and storage (CCUS), developed with input from the public, provinces and stakeholders. While it has not been finalized yet, the refundable tax credit is expected to cost $2.6 billion over five years starting in 2022-23, with an annual cost of about $1.5 billion in 2026-27 and annually until 2030. If the current proposal is approved the rates would be set at 60% for carbon capture in direct air capture projects; 50% for investment in equipment for carbon capture in all other projects; and, 37.5% for investment in equipment for transportation, storage and use. To encourage industry to move quickly, the rates will be reduced by 50% for the period from 2031 through 2040.
The federal government has hinted that they will engage with relevant provinces in the expectation that they will further strengthen financial incentives to accelerate the adoption of CCUS technologies by industry. Additionally, Ottawa has promised a review of investment tax credit rates before 2030 to ensure that the proposed reduction in the level of tax support from 2031-2040 aligns with the government’s environmental objectives.
Also, the federal government has pledged $275 million in support for LNG Canada, while British Columbia has offered a provincial sales tax exemption and removal of the income for LNG projects, along with a general industrial electricity rate from BC Hydro.
“What we are seeing in the market today is a measured approach to investment and growth as producers are looking to maintain cost discipline and match growing production with transportation capacity,” said Averill. “The world will continue to need responsibly produced oil and natural gas for years to come. And we believe that supply should come from Canada.”