Shale gas policies must be competitive3/13/2013
The release of new rules governing the oil and natural gas industry in New Brunswick is a step in the right direction.
It is an important step toward the clarity industry requires to decide whether or not to invest in New Brunswick’s emerging natural gas industry for the long-term and, particularly, whether the province’s regulatory framework is competitive with other jurisdictions.
A commercially viable natural gas industry can potentially be established in New Brunswick. A successful and environmentally responsible natural gas industry would benefit the province in many ways, including economic growth and job creation, a more diversified economy and a secure supply of the cleanest-burning hydrocarbon available.
For that to happen, the province must be competitive so that companies are able to attract the investment capital necessary to establish and grow a commercially viable business. Two key determinants of competitiveness for the natural gas industry are the regulatory framework and the fiscal (royalty) regime.
The rules for oil and natural gas development the government released in February will govern the industry in New Brunswick over the next few years. They indicate the potential direction of a comprehensive regulatory framework, but they do not yet provide the stability and predictability found in the existing regulatory frameworks in Alberta and British Columbia.
Industry, in all jurisdictions, encourages regulatory frameworks that are based on sound science, eliminate duplication and overlap, are predictable and stable and ensure efficient and timely decision making. The regulatory framework must also consistently deliver responsible environmental outcomes. These considerations avoid placing undue costs on development and help to attract investment capital. Experience consistently demonstrates that investors avoid jurisdictions with costly, unnecessary and uncertain regulations.
In some respects, the New Brunswick rules are more onerous than the established regulatory regimes of Alberta and British Columbia.
These existing regulatory requirements, combined with industry best practices, have led to an exemplary safety record: more than 175,000 wells have been hydraulically fractured in both provinces without an incident of harm to drinking water, according to regulators in both provinces.
As it refines its regulatory framework for natural gas, we encourage the New Brunswick government to consider the operating practices for hydraulic fracturing released by the Canadian Association of Petroleum Producers in January 2012. These practices outline industry’s approach to water management and actions we are taking to protect water resources. For example, the practices support disclosure of fracturing fluid additives and the development of fracturing fluid additives with the least environmental risks. Disclosure via a publicly accessible online registry, called fracfocus.ca, is already mandatory in British Columbia and Alberta.
Another key part of realizing the natural gas opportunity in New Brunswick is establishing a royalty regime, which we understand the government is currently in the process of finalizing. The royalty regime should recognize the volatility of the natural gas market, the technical challenges and costs inherent in the development of the resource and the reality that the natural gas industry in New Brunswick is still in its early stages. An effective, balanced royalty regime must provide a reasonable return to the owners of the resource: the people of New Brunswick. It must also allow companies to earn a reasonable, risk-based return for their investors.
Investment capital is mobile and flows to industries and jurisdictions where it can expect to earn a competitive return.
Alberta’s experience is instructive on natural gas resources, competitiveness and the mobility of investment capital. When Alberta raised royalty rates in 2009, investment capital left the province to the benefit of other jurisdictions because industry no longer considered Alberta a competitive and stable province in which to invest. Simply put, paying higher royalties under very competitive market conditions presented a problem to natural producers and to their investors. Following a difficult period for the industry and the province, the Alberta government re-adjusted its royalty regime in 2010 and investment started to flow back into the province.
Natural gas producers strongly support New Brunswick’s efforts to ensure a competitive, stable and predictable regulatory and fiscal environment for responsible natural gas development in the province. We have been constructive participants in the government process thus far, and we will continue to provide our input on the conditions necessary to enable responsible natural gas development.
The bottom line is that competitiveness attracts investment that creates jobs and economic opportunity for the benefit of the people of New Brunswick.
This is an opportunity for New Brunswick that should not be missed.
Dave Collyer is the president of the Canadian Association of Petroleum Producers.