Fraser Institute Reducing Barriers
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Home / Business News / 2010 / September 2010 / September 27, 2010
The Fraser Institute: Reducing Barriers to Crude Oil Investment Will Foster Job Creation and Energy Security for United States, Canada, and Mexico
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The Fraser Institute: Reducing Barriers to Crude Oil Investment Will Foster Job Creation and Energy Security for United States, Canada, and Mexico

A hodgepodge of misguided government policies, costly and time-consuming regulatory processes, and environmental restrictions have resulted in multiple barriers to investment in North American crude oil production and transportation, concludes a ne


CALGARY, ALBERTA -- (Marketwire) -- 09/27/10 -- A hodgepodge of misguided government policies, costly and time-consuming regulatory processes, and environmental restrictions have resulted in multiple barriers to investment in North American crude oil production and transportation, concludes a new study released today by the Fraser Institute, Canada's leading public policy think-tank.

The study, Towards North American Energy Security: Removing Barriers to Oil Industry Development, recommends nine policy changes that would reduce barriers to investment in the crude oil sector, and ultimately lead to additional job creation and reduced reliance on foreign oil imports for the United States, Canada, and Mexico.

"Crude oil is an important element of North America's energy mix and will not be supplanted by other energy forms in the foreseeable future," said Gerry Angevine, Fraser Institute senior economist in the Global Resource Centre and author of the report.

"Although Canada has more than 81 percent of the continent's proven oil reserves and is the major single-country supplier of oil to the United States, the U.S. still relies heavily on oil imports from OPEC countries, leaving it vulnerable to supply disruptions."

The report suggests that decision makers in the U.S., Canada, and Mexico must work together to reduce barriers to investment in North American crude oil production and transportation facilities. It points out that these obstacles are making it difficult for the sector to compete for investment with other industries and with oil industry opportunities overseas. It makes nine policy recommendations to better facilitate investment in North America's resource base:



-- Ensure that oil production royalties are competitive with other
provinces, states, and countries.
-- Reflect in royalty regimes the higher cost of producing oil from
deepwater offshore and non-conventional sources. Governments must be
aware of the cost differences between conventional onshore oil
production on the one hand, and production in the outer continental
shelf and from non-conventional sources of supply (such as bitumen from
oil sands and oil from kerogen contained in oil shale) on the other. In
light of the substantial cost differences for exploration and production
development, including in some cases the cost of essential research,
policy makers need either to move to a flat tax methodology or, as a
minimum, reduce royalties to reflect market realities.
-- Remove uncertainty surrounding oil sands environmental policy.
Implementation of new environmental regulations that affect oil sands
bitumen production and upgrading should be expedited in order to remove
the cloud of uncertainty that has been hanging over the industry
regarding potential compliance costs.
-- Remove uncertainty regarding environmental policies that affect
conventional oil production. Federal, state, and provincial governments
need to remove uncertainty over possible environmental policy changes
related to atmospheric emissions that would affect conventional crude
oil production. This is especially important in the case of heavy crude
oil, because measures to curb greenhouse gas emissions will impose
considerable costs and will influence investment decisions. For similar
reasons, uncertainties over possible changes to environmental policies
surrounding offshore oil exploration and production development need to
be removed.
-- Remove moratoria on offshore exploration and development. Moratoria on
petroleum exploration and production in areas such as the U.S. Pacific
Offshore and the Queen Charlotte Basin should be lifted once the
authorities are satisfied, having studied the cause of the BP Deepwater
Horizon crude oil leak in the U.S. Gulf of Mexico, that the
environmental risks can be mitigated. With the lifting of the moratoria,
new areas for potential discoveries will be opened and additional
indigenous oil supplies can be tapped.
-- Streamline regulatory processes for obtaining energy pipeline
construction permits. Government involvement in the construction-
permitting process should be confined to non-commercial aspects such as
safety, the environmental impacts, and other matters of importance from
a public interest perspective.
-- Adopt standard, consistent procedures for resolving aboriginal land
claims. Such an approach will prevent these issues from delaying
pipeline project construction and saddling the ultimate users of the
energy commodities with inappropriate transportation costs.
-- Adopt measures to improve labour mobility. Extending the labour mobility
clause in the North American Free Trade Agreement that applies to
professionals to include the skilled trades would improve skilled worker
mobility among the United States, Canada, and Mexico. The United States,
Canada and Mexico should also explore the possibility of securing
bilateral labour mobility arrangements with other countries, similar to
the arrangement in place between Australia and New Zealand.
-- Reduce barriers to Mexican oil production growth. In Mexico, heavy
taxation and constitutional restrictions on foreign direct investment
severely limit the ability of PEMEX, the Mexican state-owned petroleum
company, to invest in technology and resource exploration. Opening
investment to foreign companies would significantly boost Mexican oil
exploration and production development and help prevent Mexico from
becoming dependent on oil imports for years to come.

The report notes that accelerated development would bring domestic oil demand and production into closer balance, helping to improve continental energy security by reducing the vulnerability of oil supply to disruptions in shipments from the Middle East and other regions.

"Government must avoid intervening in energy investment decisions because the allocation of resources is best left to those who are motivated by market forces, have an in-depth knowledge of the technologies involved, and are prepared to take risks based on their understanding of how energy requirements are likely to change," Angevine said.

Towards North American Energy Security: Removing Barriers to Oil Industry Development is the second instalment in the Institute's Continental Energy Strategy series, which will culminate in forthcoming studies examining the natural gas and electric power sectors, as well as a report analyzing the role of renewable policy. The complete study can be downloaded as a PDF, free of charge, from www.fraseramerica.org.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 80 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraseramerica.org

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Contacts:
Fraser Institute - Media Contact
Gerry Angevine
Senior Economist, Global Resource Centre
(403) 216-7175 ext. 424 or Cell: (403) 703-4968
gerry.angevine@fraserinstitute.org

Fraser Institute
Dean Pelkey
Director of Communications
(604) 714-4582
dean.pelkey@fraserinstitute.org
www.fraseramerica.org

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