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The Honourable Joe Oliver, P.C., M.P
Minister of Natural Resources
The Canadian Association of Petroleum Producers:
December 10, 2012
It's a pleasure to be here and to thank the Canadian Association of Petroleum Producers for the opportunity to join you this morning.
I would also like to officially welcome the CAPP Investor Symposium to Toronto. This is the first time that the symposium has been held outside Alberta. But it’s fitting that it should be here, given the enormous impact the sector has on Ontario’s economy. I'd also like to offer a special welcome to our international visitors.
Today, my message to you is that Canada is open for business and our Government is committed to making this country the best country in the world in which to invest.
Let me start by saying that Canada's oil and gas industry offers outstanding opportunities that are recognized around the world. Last year, the oil and gas extraction industry invested close to $63 billion in Canada. It's expected that this number will be as big or even bigger this year, with more to come.
Investment in exploration continues to grow as well. In just the past 12 months, for example, Shell and BP have committed a total of some $2 billion to new deep-water exploration off Canada’s East Coast.
The growing international interest in our oil and gas is easy to explain: Canada has an abundance of the resources that the world will need in the decades to come. As Fatih Birol, Chief Economist for the International Energy Agency, said recently, an energy thirsty world will need “every drop” of growing production from Canada’s oil sands. And Canada offers one of the most attractive investment climates in the world.
IEA — Oil and Gas Demand
As the International Energy Agency has reminded us, oil and gas demand is rising. In its 2012 World Energy Outlook, the IEA projects that global energy demand will grow by more than a third by 2035. By that year, even under its most optimistic scenario for the development of alternatives, the IEA projects that fossil fuels — oil, gas and coal — will meet more than 60 percent of the global energy demand.
Just as significant is where that demand will come from. For example, by 2020, thanks to rising tight light oil production, the IEA projects that the United States will become the world's largest oil producer. In the meantime, more than 95 percent of the expected increase in energy demand will come from non-OECD countries, with China, India and the Middle East alone accounting for 60 percent of the increase.
Both the World Bank and the OECD project that continued rapid growth in emerging markets will give rise to an unprecedented expansion of the global middle class, more than doubling from fewer than 2 billion people in 2009 to some 5 billion by 2030.
A growing middle class will have a significant impact on energy consumption, from rapid urbanization to rising demand for personal vehicles. The IEA predicts that the number of passenger cars in use around the world will double by 2035, substantially increasing energy demand from a transportation sector that already accounts for more than half of global oil consumption.
The IEA report also underscores what I found during my travels over the past year. While the U.S. will become less reliant on imported oil and gas, most other energy importers will become even more dependent on outside sources.
In every country I visited — China, India, Japan, South Korea the Philippines and in Europe — energy security is a primary concern: where to find the energy needed to fuel economic growth and to meet the energy demands of an expanding middle class. South Korea, for example, is the tenth-largest energy consumer in the world and relies on imports for 97 percent of its energy supply. Japan imports nearly 90 percent of its energy.
Canada is well-positioned to take advantage of this dramatic shift in the global market for oil and gas.
First of all, there is no question Canada has the resources. In the context of investment, it's interesting to note that about 80 percent of the world’s oil reserves are controlled either by national governments or by state-owned oil companies. Only about 20 percent of global reserves are what might be called “free enterprise oil” — oil that is fully accessible to private development. About 60 percent of that 20 percent is in Canada's oil sands.
Investment Canada Decision
The oil sands represent a vital resource for Canada. Through free market investment, the oil sands are driving employment for 275,000 jobs across Canada, including approximately 20,000 here in Ontario.
We will see major oil sands expansion in the coming years: investment and growth that will employ hundreds of thousands of Canadians, foster innovation and generate billions of dollars of tax revenues for government.
We welcome foreign investment in the oil sands — in fact, a number of the large oil sands producers are owned by foreign companies. However, when we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments.
Last Friday, the Minister of Industry rendered decisions respecting two foreign investment proposals in the natural resources sector. It’s important that investors and Canadians understand how the Government will approach such decisions in the future.
Investment is critical to our Government's focus on jobs and growth. And Canadians expect that we will approve foreign investments that are of net benefit to Canada. But not all investments are equal. In particular, controlled purchases of Canadian assets by foreign governments through state-owned enterprises are not the same as other transactions. Essentially, the broader objectives of state-owned enterprises may well transcend the commercial objectives of privately owned companies.
As the Prime Minister said on Friday, Canadians have not spent years reducing the ownership of sectors of our economy by our own governments only to see them bought and controlled by foreign governments instead.
In light of growing trends, the Government of Canada has determined that foreign state control of oil sands development has reached the point where further foreign state control would not be of net benefit to Canada. Going forward, the Minister of Industry will find the acquisition of control of a Canadian oil sands business by a foreign state-owned enterprise to be of net benefit only in an exceptional circumstance.
The Canadian oil sands are of global importance and immense value to the future economic prosperity of all Canadians. While the vast majority of global energy deposits are state-controlled, Canada's oil sands are primarily owned by innovative private sector businesses. If the oil sands continue to develop to the benefit of all Canadians, the role of private sector companies must be reinforced.
Outside the oil sands, our Government will strengthen scrutiny under the Investment Canada Act of state-owned enterprises and their ability to acquire Canadian businesses. In particular, the Minister of Industry will closely examine the degree of control or influence a state-owned enterprise would likely exert on the Canadian business that is being acquired; the degree of control or influence a state-owned enterprise would likely exert on the industry in which the Canadian business operates; and the extent to which a foreign state is likely to exercise control or influence over the state-owned enterprise acquiring the Canadian business.
Non-controlling minority interests in Canadian businesses proposed by foreign state-owned enterprises, including joint ventures, will continue to be welcome in the development of the oil sands and Canada's economy. Transactions will continue to be reviewed by the Minister on a case-by-case basis. Quite simply, we have to make sure that Canada’s best interests are protected. The Investment Canada Act will continue to make clear that the burden of proof is on investors to demonstrate that the proposed investment is likely to be of net benefit to Canada.
I want to make two additional points regarding foreign investment. First, the Canadian government strongly encourages capital investment in Canada, especially from the private sector. That’s why our Government has accepted the great majority of foreign investment proposals, and why we will continue to accept those that meet our tests. And that’s why we have not made any changes to the rules for foreign private sector investors. Secondly, we will at the same time advance trade and investment agreements to achieve reciprocal treatment abroad for Canadian investors.
Our objectives are to see production grow in the oil sands and other sectors of the economy, driven by domestic and foreign capital, and to ensure our resources reach foreign markets. Foreign investment will continue to support our overarching goal of fostering jobs, growth and long-term prosperity for Canada and all Canadians.
Resources Outside the Oil Sands
Indeed, Canada’s energy resource wealth and potential extend well beyond the oil sands and present a wide range of opportunities for investors. Exploration continues in different parts of the country, with offshore and shale oil activity expanding. This could add tens of billions more barrels to Canada's total reserves.
Major plays are underway in tight oil formations such as the Bakken and Lower Shaunavon basins in the province of Saskatchewan. New discoveries include the Duvernay formation in Alberta and the Canol Shale deposit in the Northwest Territories.
Canada is also a major force in natural gas production and distribution. We are, in fact, the world's third-largest producer of natural gas. Our recoverable resources are currently estimated at as much as 1,300 trillion cubic feet, a number that will grow significantly as offshore exploration continues and new shale deposits are discovered. The extensive Horn River and Montney shale gas fields in the province of British Columbia are already well-known. And new resources continue to be discovered, such as the recent Liard Basin discoveries in northeastern B.C.
In short, Canada has far more oil and natural gas than it can consume. We are already America's biggest single supplier.
We are eager to export oil and gas and, unlike the United States, we are moving quickly in that regard. In fact, our independent regulator has already approved long-term licences for the export of natural gas from our West Coast. As the IEA Energy Outlook confirms, U.S. demand for imported oil and natural gas is forecast to decline sharply in the years ahead. It is overwhelmingly clear that we must diversify our markets.
The North American natural gas market has already been revolutionized by the shale gas phenomenon in the U.S. and Canada. Rising U.S. production has had a significant impact on Canadian exports and put serious downward pressure on prices. Natural gas is trading for around $3.50 in North America, while liquefied natural gas is trading at four to five times that price in Asia, presenting an enormous arbitrage opportunity.
Because much of our resource wealth is currently landlocked in North America, we face a similar situation with oil prices. Crude prices in North America are currently about $25 a barrel below the world price and about $20 lower than that for Canadian heavy crude. That’s why our government has said that it’s in Canada’s national interest to construct pipelines to our ports. It's been estimated that this price discount is costing us $50 million every single day — we're talking about $15 to 20 billion dollars every year.
It's easy to understand why our Government is highly motivated to diversify Canada's markets for oil and gas, and why we’re making a significant effort to attract and welcome the market-driven investment we need to support development of both our resources and the infrastructure we need to move those resources.
Again, we are seeing a lot of interest in developing energy-related infrastructure.
There are two proposals for new or expanded pipelines to deliver oil sands crude to ports on our West Coast. With the U.S. election completed, we remain hopeful that the Keystone XL pipeline will be approved, adding much-needed capacity to carry Canadian oil to the U.S. Gulf Coast.
There is also growing interest in moving oil from west to east in Canada. Enbridge has already applied for approval to reverse its Line 9 pipeline to bring western oil to eastern refineries. TransCanada has recently indicated that it is both technically and economically feasible to convert part of its natural gas mainline to carry oil. That could mean as much as 1 million barrels a day going into eastern Canada.
We're also seeing more and more crude oil moving by rail. Canadian National is one of the biggest railways in North America. It has been reported that as recently as two years ago, it did not move any crude oil. This year, Canadian National expects to carry close to 30,000 carloads of crude oil. Similarly, Canadian Pacific shipped about 500 carloads of crude oil from North Dakota in 2009 and expects to move about 70,000 carloads across its system next year.
With proposals for pipelines from west, south and east and with more oil moving by rail, we would have the potential to support growth in crude oil production.
The same is true for natural gas. On the West Coast, the first of a number of proposed liquefied natural gas projects could be in operation as early as 2014, and that's just the beginning. Based on potential and proposed projects, Canada could be exporting the equivalent of 66 million tonnes of liquefied natural gas per year from the West Coast, much of it before the decade is out.
Japan, South Korea and China have all expressed huge interest in liquefied natural gas from Canada’s West Coast and are active participants in developing liquefied natural gas infrastructure. India has expressed an interest in liquefied natural gas exports from Atlantic Canada, which is closer to the west coast of India than any other place in North America. Faraday Energy is proposing a $5-billion liquefied natural gas terminal in Nova Scotia that would export Canadian and U.S. natural gas to India as well as to markets in Europe.
Our goal is to make Canada the platform for North American liquefied natural gas exports.
Pipelines, oil sands development, shale gas, deepwater and Far North exploration, LNG terminals — these are megaprojects. If they are to come to fruition; if Canada's oil and gas resources are to fulfil their promise to Canadians and to the world, Canada must continue to attract the investment that makes these projects possible.
Our Government is committed to making Canada the most attractive destination for investment in the world. We have lowered taxes, paid down debt and reduced red tape, and we continue to promote free trade around the world.
And, importantly for the people in this room, we have streamlined project reviews and reduced the regulatory burden for major resource projects. And we have set legally binding timelines on the government for review.
A great deal of Canada's resilience during the recession and our relatively strong performance since then can be attributed to our Government's conservative approach to fiscal management. This approach and the solid economic performance that has accompanied it have not gone unnoticed. Both the OECD and the International Monetary Fund have picked Canada to be among the leaders in economic growth in the industrialized world over the next two years. Forbes Magazine has named Canada the best country in the world in which to do business.
The Canadian oil and gas sector is a significant part of Canada's economy. As a government, we are committed to ensuring these resources are developed responsibly and to the maximum benefit of Canadians. We must broaden our market reach to match our resource potential.
This is a strategic priority for our Government. And it is why — as strong as Canada's resource advantage is today — we continue to explore ways to ensure that Canada remains a destination of choice for resource investors around the world.
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