by Andrew Brooks
Canada’s strength in natural resources is being matched by its winning hand in renewable energy
“Cautious optimism” is the watchword when it comes to Canada’s mining sector, according to a February 2017 press release from the Mining Association of Canada (MAC). The industry, says MAC, continues to be hampered by the recent elimination of federal mining tax incentives and major infrastructure deficits in northern Canada, as well as regulatory delays and uncertainty.
“Canada is not as attractive as it used to be for mineral investment, and competition for those dollars is growing globally,” states MAC president and CEO Pierre Gratton. “The time is now to put the right policy pieces in place to better compete for those investments and regain our leadership in mining.”
Nonetheless, Canada’s mining sector remains a mainstay of the economy. It employs 373,000 workers directly in mineral extraction, smelting, fabrication and manufacturing, and a further 190,000 indirectly. It’s the largest private sector employer of Aboriginal peoples in the country on a proportional basis, and that looks set to increase. And in 2015 mining accounted for $56 billion of Canada’s GDP, while minerals and metals accounted for 19 per cent of Canadian goods exports.
MAC identifies a number of causes for concern. Foreign direct investment in Canada’s mining sector dropped by more than 50 per cent year-over-year in 2015, far outstripping Canadian mining direct investment abroad, which fell only six per cent. MAC says the imbalance suggests investment in Canada is impacted by negative factors unique to this country, because global factors, such as commodity price declines, would tend to produce a uniform global fall in investment.
A reform of federal regulations in 2012 not only maintained a high degree of government oversight of mining projects, but may have increased it, MAC says. And the introduction of the Environmental Assessment Act that year led to a deterioration in coordination between federal and provincial governments and between federal departments and agencies.
Canada’s geographic challenges are familiar enough. The cost of project development in remote northern areas is more than two and a half times what it is in the south. MAC says it supports Ottawa’s new national infrastructure plan, which includes the creation of the Canada Infrastructure Bank (CIB). The CIB will be investing at least $35 billion in large infrastructure projects that contribute to economic growth.
There’s a human resources challenge too. Canadian mining will need 106,000 new workers over the next decade, while more than 51,000 workers will retire by 2025, taking with them decades of experience. One potential source of new blood could be the country’s Aboriginal population, which suffers high unemployment and also tends to be located close to resource developments.
But in spite of the warning signs, MAC is upbeat about the future. “The Canadian mining industry’s economic prospects are strong over the long term… The prevailing view is that the longer-term fundamentals are solid.” But MAC says government policies in a range of areas—environmental, Indigenous, transportation, tax and others—will ultimately determine whether the mining sector can take advantage of the opportunities “when the next upswing begins.”
The Oil Patch
People in the petroleum industry are probably tired by now of being asked about the slump in oil prices a couple of years ago and its lingering effects but, like mining, cautious optimism seems to be the byword.
“We’re seeing a bit more stability in the commodity price right now,” says Chelsie Klassen, media relations manager for the Canadian Association of Petroleum Producers (CAPP). “It’s hard to believe we’ve been in this for almost three years now, but over the past three years many of our producers have really done a reflection on their own business model.”
Part of this, Klassen says, is a focus on the “lower for longer” price model. Being able to sustainably maintain a lower-price business model means honing operational efficiency and competitiveness. When people think of competitiveness in the oil patch, they usually tend to think of the commodity price first and foremost. But the picture is more complicated.
“There are other things involved, like provincial and federal government policy and regulations,” Klassen says. “Ultimately, there are a few different regulations that don’t make the industry as competitive as it could be. Some of those include policies on methane emissions, carbon pricing, corporate tax increases, wetlands policy, well liability, caribou closure management… there’s a lot.”
CAPP’s most current employment data is from 2015, when the sector supported 151,000 jobs across the country. And they truly were nationally distributed, despite popular misconceptions about the sector.
“When you think about the areas that benefit the most from Canadian oil, you always think Alberta,” Klassen says. But employment is significant across the country. “Most people probably think Québec benefits the least from oil extraction, but in fact 17,000 jobs are generated in Québec to support oil sands alone. So it is significant right across the country.”
CAPP is also keeping its eye on the US. The Trump administration has made oil and gas a priority sector, and as it removes barriers to the sector’s domestic growth, the possibility increases that some capital will move south of the border.
“The US is our biggest customer, but they’re increasingly our biggest competitor as well,” Klassen says. “They’re alleviating different policies and regulations to make that industry more competitive. We’re starting to hear from our own members about the measures here in Canada that make us less competitive, but that capital movement to the US hasn’t happened quite yet.”
Industry standards and a certain level of regulatory oversight aren’t bad in and of themselves, Klassen says. In fact, high industry standards have helped to put Canada’s product in the forefront globally. When CAPP recently did global research with Ipsos, canvassing 32 countries for their opinion of Canadian energy, a clear pattern emerged: while most countries naturally put their own energy first, Canadian energy was consistently the second choice.
“A lot of that depended on the regulations and standards we have in place, and that’s a good thing,” Klassen says. “But it needs to be recognized that it can be streamlined to be a little bit more efficient.”
More efficiency also means more capacity. While pipelines have been getting headlines—good and bad—lately, Klassen says Canada’s pipeline infrastructure is currently at its limit and will need to be expanded. She cautions that pipeline capacity should be measured in amount of oil carried, not in linear pipeline distance.
“In Canada we’re currently producing between 3.9 million barrels to just over four million per day, which is right at our pipeline capacity. And we’re growing—we’re forecast to hit 5.1 million barrels per day in 2030. That’s quite a bit larger than what we’re dealing with today. Given that current pipeline capacity is 4 million barrels a day, having these pipeline projects in place is important.”
Renewable energy is making huge strides, but that doesn’t mean that demand for oil and gas is lagging. Klassen refers to an International Energy Agency Report that shows demand for oil and gas continuing to be strong.
“They predict that oil demand will grow 27 per cent and renewables will grow 16 per cent out to 2040,” Klassen says. “Renewables have made quite a movement in the past few years, but oil demand is still significantly higher, and it will stay that way for at least a couple of decades.” SMT