Commentary: Canada’s rise as an energy superpower

Canada is rapidly becoming recognized as one of the world’s energy superpowers. Canada is the leading foreign supplier of oil to the U.S. — delivering nearly twice as much each year as Saudi Arabia — and is the origin of 90% of U.S. natural gas imports. Oilsands production is at an all-time high and production from new sources of tight oil continues to increase exponentially.

The prominent role that Canada plays on the world energy stage can be credited, at least in part, to the regulatory process that has evolved in Canada, which provides a relatively streamlined and predictable process for project approval, allowing for a high degree of flexibility and responsiveness to market forces.

Unlike the U.S. and Western Europe, large-scale Canadian energy development and transportation projects move ahead expeditiously while addressing environmental, First Nations and community stakeholder concerns in a meaningful way through robust consultation processes.

And if recent amendments to the environmental review process are passed, Canada’s oil and gas industry is expected to become even more robust as the approval process becomes increasingly efficient.

By way of example, part three of the proposed Bill C-38 was introduced on April 26, 2012, to refine the environmental assessment process with wide-ranging implications for Canada’s resource and transportation sector. This follows from the federal government’s responsible resource development strategy announced on April 17, 2012, which is expected to alter the review process for federal environmental assessments.

For natural resource industries, the proposed changes are largely positive, and are expected to lessen elements of uncertainty remaining within the federal environmental assessment process.

Recent decisions of Canada’s National Energy Board (NEB) help demonstrate how an efficient regulatory process expands and diversifies Canada’s strength as an energy powerhouse. The NEB has granted a 20- year licence to KM LNG Operating General Partnership — owned 40% by Apache Canada, 30% by EOG Resources Canada and 30% by Encana — to export liquefied natural gas (LNG) from Canada to offshore markets.

A second such licence was granted to BC LNG Export Co-operative, which is owned by Houston-based LNG Partners.

These decisions reflect the NEB’s acknowledgement that the wealth of Canada’s natural gas resources and proximity to Asian markets, coupled with a sound regulatory environment, make Canada a natural and desired energy provider for Pacific Rim LNG purchasers.

Although the KM LNG and BC LNG projects await final investment approvals and may hinge on further international jointventure participation, they are both examples of the movement towards increased regulatory efficiency and an indicator of the way Canada manages growth.

Although Canadian oil and gas export markets are limited to the U.S., the LNG regulatory approvals will likely play a role in diversifying Canadian markets and create a demand-side balance to the low-price environment for North American natural gas.

Improvements to the energy development approval process and the federal and provincial governments’ nimble regulation of the extractive industries in Canada are born, in many respects, out of necessity.

In Alberta there are an estimated 3.7 million barrels per day of in-situ oilsand projects under regulatory review or announced, and 700,000 barrels per day of mining projects spread over hundreds of separate approval applications.

The planned development is staggering without even considering the related pipeline and transportation infrastructure needed to deliver the production to market.

The Keystone XL pipeline and Northern Gateway oilsands pipeline projects illustrate how the Canadian process can be distinguished as facilitative. The Canadian process for approving Northern Gateway for transporting oilsands product to Canada’s West Coast, while seemingly overinclusive in the scope and extent of its stakeholder consultation, is at least relatively predictable and free of the political interference associated with the Obama administration’s involvement in Keystone XL, a not-dissimilar pipeline project proposed to ship oilsands product to the southern U.S.

While the regulatory process streamlines approval processes by removing inconsistencies and duplication, Canada’s rise as an energy superpower has not come at the cost of ignoring groups opposed to development.

Stringent environmental guidelines and robust aboriginal consultation obligations govern the process to ensure responsible development.

Non-compliance with environmental statutes can result in harsh penalties, including fines in the millions of dollars and imprisonment.

Failure to consult and accommodate First Nations, or as is increasingly the case, offer project participation to impacted peoples, can lead to project delays or in some cases, decades-long litigation.

To capitalize on Canada’s tremendous potential it is important for the energy industry to keep informed and ensure it remains compliant with regulations. Oil and gas companies in Canada will need to monitor pending changes to the regulatory review process and carefully consider how their business operations respond to changes.

As a result of the evolving regulatory environment, Canada is expected to become further recognized internationally as an energy superpower that is able to ensure reliable, sustainable and responsible energy production.

— Based in Calgary, William M. Laurin is counsel to Lawson Lundell LLP. He has recognized expertise in tight oil, coal-bed methane, oilsands and enhanced oil recovery. He also has extensive experience in regulatory compliance matters throughout Canada. Please visit www.lawsonlundell.com for more information.