Canada’s oil and gas sector has a well-known investment problem. Upstream capital spending has gone from $54.5 billion in 2015 to $21.4 billion in 2020. Its share of total business investment has plummeted in recent years to just 9 per cent. While this problem affects all provinces with an oil and gas sector, Newfoundland and Labrador stands out.

Consider the 2021 Canada-US Energy Sector Competitiveness Survey, which tracks the perceptions of oil and gas investors, ranked Newfoundland and Labrador 16th out of 22 Canadian and American energy-producing jurisdictions (unfortunately, no Canadian province or territory featured in the top 10 most attractive jurisdictions). So why the disappointing results for the province?

Regulations are a leading cause.

According to the investors surveyed, Newfoundland and Labrador performs poorly in terms of regulatory duplication and inconsistency, the cost of regulatory compliance, labour regulations and environmental regulations. Specifically, all respondents for the province indicated that regulatory duplication and inconsistencies deter investment in the province. On this measure, the province is the worst-performing jurisdiction in the survey. Additionally, 88 per cent of respondents identified the cost of regulatory compliance as a deterrent for oil and gas investment in the province—higher than the Canadian average (70 per cent) and more than double the average (43 per cent) for the United States.

Of course, regulatory barriers are not just a Newfoundland and Labrador problem. According to investors, regulatory factors continue to hamper Canada’s overall energy competitiveness. This year’s respondents pointed to uncertainty around environmental regulations, regulatory duplication and inconsistencies, and the cost of regulatory compliance in Canada, particularly when compared to the U.S. (indeed, at least half of respondents for all Canadian jurisdictions indicated that uncertainty around environmental regulations scared away investment).

To be sure, market forces have played a role in declining oil and gas investment in past years. However, policy decisions at the federal and provincial level have resulted in many self-inflicted wounds, impacting the country’s ability to attract oil and gas investment.

For example, the Trudeau government recently enacted Bill C-69, which overhauled the federal review process for major energy projects by establishing a new agency for reviewing new projects with additional review requirements. Under the bill, new more stringent and more subjective criteria have been added to the regulatory process, which has created massive uncertainty about how—and if—new infrastructure projects will get approved.

Bill C-69 is just one example of an overall regulatory regime that’s increasingly burdening the industry. Most of the major participants in Newfoundland and Labrador’s oil and gas sector are multi-national companies, which make investment decisions on a worldwide basis. It’s only natural that investment will decline in jurisdictions that create hostile regulatory regimes.

Over the past three decades, the oil and gas sector has helped create jobs and prosperity in the province. Improving the policy environment and making Newfoundland and Labrador more attractive to investment could help turn things around for the province and provide much-needed capital and jobs in a post-pandemic world.