5 reasons why regulatory burden on Canada’s pipeline industry matters to Canadians

REGULATORY COMPETITIVENESS IN CANADA’S PIPELINE INDUSTRY

As Canada’s oil and natural gas industry struggles with transportation capacity and market access issues, Ernst & Young LLP (EY) Canada finds increased layers and complexity of regulations imposed at provincial and federal levels are having a negative effect on the competitiveness of our energy sector. The report confirms what many already expected… lack of pipeline capacity is hurting Canada’s economy.

In part two of this three-part blog series, we look at how the increases in complexity of pipeline regulations directly impact the competitiveness of Canada’s pipeline industry. If you haven’t already, read part 1 of the series, Regulatory competitiveness report highlights three conclusions with big implications for pipelines now.

 

Canada’s energy industry disadvantaged by regulatory complexity

 

Canada’s oil and natural gas products face huge discounts due in large part to limited pipeline access to new and existing markets. With the energy sector accounting for 11 per cent of Canada’s gross domestic product, the country needs a healthy and competitive pipeline industry to transport our oil and natural gas resources to markets safely and cost-effectively, so we can sell our energy products at a fair value.

“Regulation is needed for the pipeline industry to operate effectively and sustainably,” says Lance Mortlock, Strategy Partner and Canadian Oil and Gas Leader, Ernst & Young LLP (EY), who led the analysis for the report Regulatory Competitiveness in Canada’s Pipeline Industry. “However, there needs to be balance. Our analysis noted that lower regulatory certainty and predictability, as well as lack of clarity, with competing or overlapping regulations, are presenting some challenges.”

The competitiveness challenge is most evident through comparisons between the Canadian and American regulatory environments for new project proposals. Since 2016, there’s only been one major transmission pipeline application put forward in Canada, compared to 14 in the U.S.

“The changing regulatory landscape is motivating more Canadian energy companies to look south of the border for opportunity,” says Mortlock. “The U.S. continues to send the message that it’s open for business – and Canadian companies are responding with increased investment.”

 

What are the direct effects of increased regulatory complexity?

 

The EY report concludes increased regulatory complexities are decreasing Canada’s competitiveness globally. Managing an increasing number of new and overlapping regulations adds costs and time to projects, creating difficulties and in some cases making the project unviable. The report points to Energy East, Northern Gateway and the Trans Mountain Expansion Project to demonstrate the impact regulatory complexity can have on pipeline projects.

 

Five reasons why every Canadian is affected by lower regulatory competitiveness

 

  1. If we’re not viewed as an attractive and welcoming country for investors, they’ll move capital to projects in other countries that have more welcoming investment environments.
  2. Pipeline projects account for billions of dollars that could be injected into Canada’s economy.
  3. Investments in big projects, such as pipelines, bring jobs and opportunities – not just for those building the pipeline, but for communities collecting property taxes, steel workers crafting the pipes, and service providers in all types in communities where the pipelines run.
  4. Tax dollars from the construction and operation of pipelines help support schools, hospitals, roads and many of the services we value as Canadians.
  5. Once investment capital is chased away by regulatory burden, it will take a very long time for Canada to regain investor confidence.

 

In the final part of this blog series on regulatory competitiveness, we’ll examine CEPA’s response to the findings from the EY report.