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Canada tackles training First chance to Canadians, foreign workers cut; C$28B in O&G revenues possible Gary Park For Petroleum News
Canada’s Finance Minister Jim Flaherty is giving priority to training thousands of workers to meet the government’s forecast of C$650 billion in natural resource spending over the next decade and reversing the precipitous decline in oil and gas revenues.
In releasing its 2013-14 budget, the government quietly hammered home the point that if Canada is to achieve its goal of returning to surplus budgets in 2015-16 it is gambling on a rebound in commodity prices and a strong Canadian presence in oil and LNG export markets.
The first step announced by Flaherty is a new jobs training program for Canadians and an associated cutback in the number of temporary foreign workers who have filled jobs over recent years, including a role in the rapid expansion of the Alberta oil sands.
The budget said the new rules are one part of a larger plan to drive down unemployment by connecting job seekers with companies that need workers.
“Canada continues to experience major labor and skills shortages in many regions and Canadians who are seeking jobs should always be first in line for these opportunities,” the government said.
Tightening rules The budget said Ottawa will now tighten up its rules to make companies hire Canadians rather than relying on low-paid foreign workers year after year.
Employers will now be required to advertise jobs longer and in more places within Canada before they can resort to the international labor pool.
Flaherty said the government will encourage skills training by allowing individuals to apply for a C$15,000 training grant, divided equally among the Canadian government, provincial governments and employers.
He said that for the first time employers, not governments, will control the skills-training choices.
A budget background document mirrored the underlying reasons that have prompted the efforts to overhaul the workforce and the urgent need to compete more vigorously in the global arena.
Counting on price recovery The government left no doubt it is counting on a recovery in oil and natural gas prices to boost its annual revenues.
The document noted that commodity prices have climbed by about 4 percent since last fall, with global oil prices gaining ground, although natural gas remains “very low relative to historical averages, reflecting significant increases in U.S. supplies of shale gas.”
It laments that Canada “has not reaped the full benefits” of global oil price surges, mainly because of the “wider gap between prices received by Canadian crude oil exporters and global benchmarks,” largely reflecting Canada’s dependence on the U.S.
As a result of surging Bakken production, limited pipeline capacity in the U.S. and unplanned maintenance of U.S. refineries, the overall prices received by Canadian producers is 6.5 percent lower than last fall, whereas the price of West Texas Intermediate crude has risen 5.4 percent.
The bottom line is that low prices for Canadian crude over the past two years “have had significant consequences for the Canadian economy.”
Had Canada’s export prices kept pace with import prices over the period the value of Canadian exports would have been C$8.4 billion higher, or 1.5 percent.
Pipeline expansions The document said pipelines under way or expected from Canada to the U.S. Gulf Coast could boost Canadian prices by 12 percent, boost export returns by C$8 billion assuming no change in production from 2012 levels and also assuming WTI and Brent prices could converge to an average US$100 per barrel.
The natural gas market outlook “is potentially even more significant” as sharp increases in U.S. shale-sourced output combined with limited LNG export capacity have pushed North American prices far below those prevailing in Europe.
“If Canadian natural gas exporters received even half (the European price) this would represent an increase of about C$20 billion annually in exports, based on 2012 export volumes,” the document said.
Combined, these forecasts would yield more than C$4 billion more in federal tax revenues and increase the annual Gross Domestic Product to C$28 billion.
Limits to government spending On the flip side, the government has indicated there are limits to how far it will go in opening its wallet.
Flaherty’s budget gave a thumbs down to British Columbia’s request for a tax break on capital investment in LNG projects.
However, British Columbia Finance Minister Mike de Jong, who met with Flaherty the day after the budget was released, said Canada faces an urgent need to develop infrastructure to secure export opportunities for LNG and other petroleum products in Asia and South Asia.
“If we’re smart as a country we’ll promote and develop policies (to advance LNG exports),” he said.
British Columbia wants LNG plants to be treated the same as manufacturing facilities, which the province estimated could have saved the LNG sector up to C$2 billion in taxes, but Flaherty’s department ruled that LNG plants are involved in transportation and are not manufacturers.
James Moore, British Columbia’s senior member of the federal cabinet, said his government “thinks the LNG sector will do incredibly well in British Columbia. A tax break would be great, but frankly it’s not something we can afford right now.”
The Canadian Association of Petroleum Producers estimated the change would have allowed the LNG industry to write off 90 percent of its investments against taxes in seven years, rather than the current 27 years, and noted that the U.S. and Australia already provide such relief.
CAPP disappointed CAPP President David Collyer said he was disappointed given estimates that development of British Columbia’s natural gas industry could directly employ 40,000 people by 2035, up from the current 12,000.
But he said for British Columbia to compete on the global stage it must be “highly competitive by ensuring the regulatory framework, policies, taxes, royalties and skilled labor are in place to attract investment dollars.”
Collyer said the natural gas sector has invested C$27 billion in the province since 2009 to acquire exploration rights and start drilling to establish the resources needed to underpin an LNG industry.
However, he said none of the expected jobs, contracts and government revenues — including a forecast C$150 billion in taxes over 25 years — is assured unless Canada’s gas sector can “compete fairly with other investment opportunities in Canada and with other countries seeking to supply natural gas to growing energy markets in Japan, China and South Korea.”
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