Good morning, Mr. Chairman, and members of the committee. Thank you for hosting me here today for a presentation.
The Canadian Association of Petroleum Producers represents the upstream oil and gas sector in Canada, which accounts for approximately 80% of total Canadian production.
Encouraging oil and gas investment is key to strengthening our national productivity and competitiveness. Our industry employs approximately 600,000 people in Canada, contributes $113 billion in GDP, supports 24,000 businesses across the country, and procures $3.9 billion from aboriginal companies.
Our sector is struggling, however. Technology has unlocked an abundance of resources at prices lower than were thought possible just 10 years ago. The future is a lower price, higher volatility, and increased competition, and the U.S. has embraced this opportunity. The U.S. will produce a record amount of crude oil this year, and their oil and gas exports to Canada are displacing Canadian supply. U.S. oil and gas investment will increase 38% this year, and that's approximately $46 billion in growth alone. This is equivalent to the entire value of the Canadian upstream.
In contrast, oil sands investment has declined for the fourth consecutive year, from $34 billion in 2014 to $15 billion in 2017. On the conventional side, while investment is on the rise this year, we are still 40% below 2014 levels.
The challenges confronting our sector are both economic and policy-related. The U.S. is deregulating, encouraging investment, and expanding access to markets, while in Canada we estimate there are between 40 and 50 different government policy initiatives that could negatively impact the industry.
There is, however, a global opportunity for Canada. By 2040, global population will be 9.2 billion, and the middle class is expected to double in size. As a result, global energy demand is expected to increase by 30%. While renewables will be part of this growth, oil and natural gas demand will also increase substantially, and Canada has an opportunity to position itself as a supplier of choice to the world. We are the most stringently regulated jurisdiction, and our industry is strongly committed to environmental performance.
Canada's Oil Sands Innovation Alliance alone has invested $1.3 billion in environmental technologies, and the world is recognizing this. In a poll commissioned by CAPP involving 32 countries and 22,000 people, by a two-to-one margin, global citizens prefer to get their oil from countries that have strong climate policies. If given the chance, these citizens would buy oil and natural gas from Canada more than any other country in the world.
Basically, the world wants more Canadian oil and gas, and all we need is a policy environment that will enable us to satisfy this demand. Canada's income tax system is a key tool in this regard. For oil sands, the future has always been in technology. The 1993 national oil sands task force realized this vision, and since 2005 oil sands has represented the third-largest source of global oil supply growth. That's a phenomenal accomplishment.
The next wave of technology will focus on environmental performance, cost reduction, GHG emissions, water use, and land footprint. However, it's very difficult for companies to commercialize new technologies, because of the risks and drain on cashflow during commercialization. The accelerated capital cost allowance is the most significant tool to encourage investment in large-scale technology projects. The ACCA is a deferral of tax until costs have been recovered and is suitable for industries with high upfront capital costs and long lead times until payout. The national oil sands task force saw the value of this tool, and now we need it to advance environmental technology.
CAPP recommends that the federal government introduce an ACCA for oil and gas investment in clean tech and value add.
On the conventional side, our sector has become increasingly disadvantaged. In the 2017 budget, the Canadian exploration expense was curtailed so that only when an exploration well was deemed unsuccessful could a claim be made. This small change raised Canada's marginal effective tax and royalty rate by half of one percentage point. Even prior to this, Canada was at a disadvantage versus the U.S. The Canadian development expense, CDE, which is the tool for companies to expense intangible capital costs, only offers a maximum 30% deduction. In the U.S. these costs are between 70% and 100% deductible.
We recommend that the Canadian government update the CDE regime to make it comparable with tax conditions in the U.S. oil and gas industry. This would ensure that investments in Canadian resources are not seen as less attractive relative to competing jurisdictions.
In closing, thank you for the opportunity to present to you today, and I look forward to your questions.