Thanks very much, Mr. Chairman.
Good morning to the members of the committee. I'm very pleased to have an opportunity to appear before you. My name is Dave Collyer. I'm the president of the Canadian Association of Petroleum Producers.
We have a single recommendation for consideration in the next federal budget that I'd like to briefly review with you today. The details are obviously in our more comprehensive submission.
We have abundant natural gas resources in Canada, and we have an opportunity to continue to contribute in a substantive way to employment and revenue growth in the country and to a lower-carbon energy future by optimizing the use of those resources. However, the reality is we have some very challenging near-term market conditions for the natural gas industry, largely driven by the evolution of shale gas and the significant increase in U.S. supply of shale gas. This has had an impact on the available market for western Canadian gas. As an indicator of that, since 2005 Canadian production of natural gas is down by about 20%, and U.S. production is up by 25%.
I would be the first to acknowledge there is a variety of conditions that are impacting the natural gas business, and there are some things that producers need to do to address those challenges. One important competitive factor is that the U.S. tax system encourages U.S. domestic production of natural gas through, in our view, a much more attractive tax deductibility for development expenditures related to natural gas than is afforded to comparable activity in Canada.
Our specific proposal is as follows: we propose that the federal government allow Canadian natural gas development and completion costs to be deducted at a 50% straight-line rate for a time-limited 24-month period. This proposal, by our estimate, would produce about 12,000 new jobs across the country and almost $1 billion in incremental capital investment over three years, and requires no direct funding from the federal government.
We've appeared before this committee before with similar proposals. We've appreciated very much the support of some members of the committee for the proposal we've brought forward. That proposal has not found its way into the budget to date. We believe it continues to have significant merit, and frankly that's why we are back to talk about it again today.
With the limited time available, I would like to very briefly directly address five objections to this proposal that we've heard from some quarters in previous submissions.
The first objection is that we should be prepared to let the market work. We fully understand that producers have to adapt to changes in market conditions. However, our view is that it should not preclude targeted and focused action—by both industry and government—to sustain the competitiveness of the industry.
The second objection is that the oil and gas industry is already subsidized, and that action on federal taxes is therefore not warranted. Let me be really clear: in our view, this is not a subsidy. In fact, it's comparable to tax treatment that has been afforded and extended to other industries, specifically manufacturers and exporters.
On the subject of subsidies for the oil and gas sector, which is an issue that has come up previously, I would commend to you—and we can provide this to the committee if you wish—a recent paper by the University of Calgary's Jack Mintz, who's widely recognized as an authority on this subject. In that paper, it very clearly states that the oil and gas sector in Canada is not, in fact, subsidized at all. I again would commend that paper to you.
The third objection is that two years is too short of a window for action, and that the industry will be back requesting an extension to this tax treatment at some point in time. We would say that two years is, in fact, a significant opportunity to get some momentum on new market development, whether that be domestic or export. The decision as to whether this tax treatment is extended—if it is afforded—is obviously completely that of the committee and the government at that point in time.
The fourth point—I'll wrap up here in just a moment—is that the federal government's focus is on reducing overall tax rates and eliminating deductions for specific individual sectors. We understand and appreciate that's the focus of government. However, as I mentioned earlier, this type of treatment has been afforded and continues to be afforded to other sectors that are facing temporary economic challenges.
The fifth and final objection we've heard is that the near-term fiscal cost is too high. You have to be the ultimate judges of that. Our view is that this proposal would have a significant positive impact on jobs and revenue and that it would more than pay for itself over time.
Mr. Chairman and members of the committee, let me just conclude by saying the success of the Canadian natural gas industry matters to all Canadians in terms of jobs, in terms of revenue generation, and in terms of improved environmental performance. You have an opportunity, we believe, to improve competitiveness of the industry by endorsing this proposal.
Thank you very much. I look forward to your questions.