Thank you, Mr. Chairman. I welcome the opportunity to present our perspective on the current economic situation and its impact on Canada's oil and gas sector.
SEPAC bills itself as Canada's oil and gas entrepreneurs. Our association comprises small and medium-sized independent oil and gas exploration and production companies. The membership is about 400 companies currently; 80% are oil and gas producers and about 20% are companies that supply products and services to our industry, such as Mr. Herring's members, drilling contractors, investment banks, and so on.
The typical junior oil and gas company in Canada has fewer than a dozen employees, typically focused around core personnel in the geoscience professions, engineering, and finance professionals. The focus is mostly on western Canada and it's mostly on what we call conventional oil and gas exploration and development. But the junior sector is increasingly moving into unconventional resources such as shale gas and oil sands. That's a very encouraging sign for the future, that our smaller Canadian companies are able to participate in some of these very large resource development opportunities that lie ahead of us.
About 60% of the higher-risk exploration drilling in Canada is conducted by the junior sector. In 2006, which was a high point in the last few years, the junior sector invested over $5 billion in Canada in exploring for and developing new oil and gas reserves. That figure is only about half that much in the year we're looking at going forward. What's unique about the junior sector is that they invest two to three times their own cashflow. In other words, for every dollar they get out of their operation that is investable discretionary cash, they put another two or three dollars back into the ground. They raise those dollars from the equity markets here in Canada or they borrow that money from lenders. But typically you'll see junior companies putting every dollar they make here in Canada back into the ground, developing more oil and gas reserves. That's what their investors expect them to do.
So the junior sector is a key player in our oil and gas industry here in Canada. Although we're a much smaller total of the overall production, about 25% of the dollars spent in Canada in exploration and development drilling and production activity are spent by junior companies. This year we're forecasting that about $8 billion will be spent on drilling and completion work in Canada. The junior sector would be about 25% of that $8 billion. Note that this excludes oil sands investment spending; I'm speaking here more of the traditional drilling and development work. Compare that $8 billion in the year ahead with $14 billion a year ago in 2008, $16 billion spent on drilling and completion work in 2007, and—a high-water mark in our information—about $23 billion in 2006.
We do have some challenges here in Canada for our junior sector. Canada provides among the lowest rates of return on investment in the world for oil and gas investment. I know Canadians may be surprised to hear that, but in fact Canada ranks very low. I think Mr. Herring mentioned that we are maybe 50th out of a number of countries. Typical returns in oil and gas investment in Canada may be 10%, 11%, or 12% a year, and considering the risks our industry undertakes with capital, those are not astonishingly high returns.
We do have challenges here. We have a highly regulated industry. We have some of the highest environmental standards in the world. All of this increases the cost of operating in Canada. We have some growing resistance to the scale and pace of development in many areas of Canada. We are facing as an industry, and have for several years now, an uncertain regulatory climate for CO2 emissions. The uncertainty alone delays, deters, and discourages investment. Undoubtedly it's going to increase the costs of developing our energy supplies in what is already a very high-cost country to do so. We're also facing, as many industries are, looming workforce shortages a few years down the road.
We do have some exciting opportunities, though, in front of us. Energy demand is growing around the world, including in North America. It rises in tandem with higher GDP and higher per capita incomes.
I would point out, as was pointed out earlier, particularly for the junior sector, that both the junior and mid-cap companies in Canada are 70% weighted towards natural gas production. Natural gas production, in my judgment, is the cleanest source of energy this country has. There are no waste disposal issues, as you have with nuclear. There's a very light carbon emissions impact from natural gas. There's no environmental impact, as you have with hydroelectric in terms of damming free-flowing rivers and flooding otherwise productive forest and wilderness areas. Canada has tremendous natural gas reserves. We do today, and we will tomorrow with the development of tight gas resources, shale gas, and coalbed methane.
We have a very bright future ahead of us in Canada. We have an opportunity to achieve what some have called our opportunity to become an energy superpower. We have to be very careful that we don't put in place obstacles that would prevent us from becoming an even more important global player on the global energy scene. As was mentioned earlier, we're number three in the world in natural gas production. We're actually the number two country in the world for natural gas exports, second only to Russia. We have an opportunity over the next few years to move into the top four or five countries in the world in crude oil production.
These benefits are distributed coast to coast in Canada. As was mentioned earlier this morning, there are some half a million Canadians whose livelihoods are directly or indirectly impacted by the oil and gas industry, from Newfoundland to British Columbia and from the Yukon to southern Ontario. It's been well publicized in the last year that as much as 16% or 17%, nearly one-fifth, of Ontario's manufacturing production in the last few years has been destined for Alberta. That has largely been driven by demand in the development of Alberta's energy reserves. So this oil and gas industry we have is truly a national industry, and the benefits are widely distributed.
The big challenge we have in front of us as an industry is to reduce, and to continue to do so.... This industry has made some enormous strides in reducing our impact on air, water, and soil. In fact, the oil and gas industry outspends every industry, by far, in Canada, not only on environmental mitigation technology but also on energy efficiency investment. Our industry is leading the nation, I would say, in terms of those kinds of investments.
At the same time, of course, our ongoing drive is to provide Canadians, and indeed the continental market, with a secure source of domestic energy. Hopefully, down the road, we'll develop additional export opportunities that will allow our energy exports to find markets outside the country.
We have, as a sector, looked to the federal government to provide some clarity in the future on greenhouse gas-CO2 emissions policy. That's going to be a big issue for all of us in the next year or two. We are one of the few major energy-exporting nations that is at the same time trying to be a leader in what will ultimately look like some form of cap and trade continental CO2 emissions regime. We, as a nation, have a huge economic stake in making sure that our interests are protected.
We also look to the federal government to provide a stable, competitive fiscal regime for our energy sector, in particular for smaller companies. We have, in this country, a flow-through share regime that's critically important to our smaller independent oil and gas producers in terms of raising capital. We have recommended for the last four years that the federal government improve that flow-through share regime to allow the junior sector to more easily raise capital. Our colleagues in the junior mining sector have similar concerns. In fact, we recommended to the federal government in pre-budget consultations for the budget that was approved in January that rather than the government borrowing billions of dollars that have to be repaid, the budget stimulus should do more to mobilize private capital through tax incentives. I'm sorry to tell you that our recommendations were not accepted in the budget. But we think they would be good for Canadian taxpayers as well as for our Canadian-based oil and gas companies. I'd be pleased to elaborate on those proposals later this morning.
Those are my remarks, Mr. Chairman, and I think for all of us, we're happy to answer questions.