Global oil demand is set to reach record highs this year, with growth in natural gas demand on the horizon—and Canada's oil and gas sector could be a major source of clean and reliable energy, if policymakers help make the country a more desirable place to invest.

While investment in Canada’s oil and gas industry has increased steadily since 2020, it remains far below record levels achieved in 2014. In fact, investment in the sector fell from $76 billion in 2014 to $35 billion in 2023. Less investment means less money to develop new energy projects, infrastructure and technologies, and consequently fewer jobs and less economic opportunity for Canadians. While many factors are at play, investors point to Canada’s policy barriers as major deterrents to investment.

According to a recent study published by the Fraser Institute, which surveys oil and gas investors on the investment attractiveness of 17 energy-producing jurisdictions in Canada and the United States, Wyoming remains the top jurisdiction in terms of investment attractiveness followed by North Dakota and Saskatchewan, the only Canadian jurisdiction ranking in the top five.

Alberta, Canada's largest oil and natural gas producer, ranked 9th while Newfoundland and Labrador and British Columbia are among the least attractive jurisdictions, ranking 14th and 15th respectively. Put simply, with the exception of Saskatchewan, Canadian provinces are less attractive for oil and gas investment compared to U.S. states.

So, what policy factors hinder Canada’s oil and gas sector?

In short, uncertainty about environmental regulations, disputed land claims, regulatory duplication and inconsistencies, the cost of regulatory compliance and barriers to regulatory enforcement.

More specifically, according to the survey, 100 per cent of respondents for Newfoundland and Labrador, 93 per cent for British Columbia and 50 per cent for Alberta indicated that uncertainty concerning environmental regulations was a deterrent for investment compared to only 6 per cent for Oklahoma and 11 per cent for Texas. Overall, on average, 68 per cent of respondents were deterred by the uncertainty concerning environmental regulations in Canada compared to 41 per cent in the U.S.

This negative perception of Canada’s regulatory environment should come as no surprise. In 2019, the Trudeau government enacted Bill C-69, which introduced subjective criteria including the “social impact” of energy investment and its “gender implications,” into the evaluation process of major energy projects, causing massive uncertainty about the development of new infrastructure projects. While the Supreme Court declared this bill unconstitutional, the energy sector still grapples with uncertainty as it awaits new legislation.

Similarly, the Trudeau government passed Bill C-48, which bans large oil tankers carrying crude oil or persistent oils (including upgraded bitumen and fuel oils) off B.C.’s northern coast and limits access to Asian markets. The Trudeau government also created an arbitrary cap on greenhouse gas (GHG) emissions from the oil and gas industry (while all other GHG emissions were exempt) and introduced new rules on methane emissions. Energy industry leaders have also expressed concern over Ottawa’s clean-fuel standards, which mandate that firms selling gas, liquid and solid fuels reduce the amount of GHG generated per unit of fuel they sell.

Clearly, Ottawa’s aggressive regulations are hurting Canada’s oil and gas industry. In light of the vital role the energy sector plays in the economy, including job creation and government revenues, the federal government should eliminate barriers and implement reform to enhance the sector’s appeal to investors. Otherwise, Canada will keep losing opportunities to the more attractive investment climate south of the border.