By Kenneth P. Green
and Taylor Jackson
The Fraser Institute
Prime Minister Justin Trudeau’s approval last week of Kinder Morgan’s Trans Mountain pipeline to B.C.’s coast and Enbridge’s Line 3 replacement to the United States came as welcome news for Alberta’s oil patch.
The oil-and-gas industry has been reeling from job losses and depressed commodity prices. Should the pipelines eventually be constructed, they will help Canadians get closer to full value for their resources.
While the approval of two new pipelines is certainly a positive step, the approvals come at a time when potential oil and gas investors are finding much of Canada, and in particular Alberta, less attractive for investment.
How do we know this? Every year for almost a decade, the Fraser Institute’s Global Petroleum Survey has tapped the perceptions of investors and measured how various policies (royalties and taxes, duplicate regulations, infrastructure) might attract or deter investment in jurisdictions worldwide.
This year, Alberta, the heart and soul of oil-and-gas production in Canada, saw its global ranking in the survey deteriorate for the second straight year. In 2014, Alberta ranked as the 14th most attractive jurisdiction in the world for oil-and-gas investment. By 2015, Alberta dropped to 25th and this year ranks a lowly 43rd, putting it behind British Columbia for the first time.
Alberta’s decline in the eyes of investors shouldn’t be surprising. In the past year-and-a-half, the Alberta government has increased both corporate and personal income taxes, introduced a carbon tax, and will implement a cap on emissions from oil sands production.
The cap on emissions alone has the potential to result in lost production of more than $100 billion, as the cap would keep some oil in the ground. This begs the question: Why would investors put their money into Alberta, as opposed to somewhere else, if they possibly can’t produce all the oil the market is willing to bear?
Policy changes breed uncertainty. For example, in 2014, 38 percent of survey respondents for Alberta found that uncertainty surrounding environmental regulations was a deterrent to investment. In 2016, this number jumped to 72 percent.
Alberta also saw a higher percentage of respondents indicate that taxation and the uncertainty resulting from regulatory duplication and inconsistencies were deterrents to investment.
While Alberta becomes less attractive to investment, Saskatchewan shines. This year, Alberta’s neighbour to the east rose in the rankings to fourth most attractive jurisdiction in the world for investment, as oil-and-gas companies view the province as being much more stable and certain.
Alberta also faces stiff competition from U.S. jurisdictions, including Oklahoma, Texas and North Dakota, all of which ranked in the global top 10.
Alberta’s continuing decline in the eyes of investors should be cause for concern. Although the province has some of the world’s largest petroleum reserves, Alberta is now surrounded in every direction but north by states and provinces that, in the eyes of investors, are more attractive places to put their next dollar.
Kenneth P. Green and Taylor Jackson are the coauthors of the Fraser Institute’s annual Global Petroleum Survey.