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NOIA Golf Tournament
Thursday, 16 Sep 2010
  
5th International Symposium on Oil and Gas Resources in Western Newfoundland
Wednesday, 22 Sep 2010
  
Maritime Human Resource Conference
Tuesday, 28 Sep 2010
  
Networking Social
Thursday, 28 Oct 2010
  
Member Christmas Reception
Thursday, 9 Dec 2010
  Lorneville Mechanical Contractors
  Martin Industrial Group
  Spatial Energistics Group Inc.
  Tailwinds
  Weatherford Laboratories
 
NOIA News
Canada’s Coasting Trade Act – What does it mean for Canada’s offshore petroleum industry?
 The success of the global offshore petroleum industry depends heavily on the services of a highly mobile international marine services industry.  While some of the support vessels and related services are long-term in nature – think supply boats and shuttle tankers – other assets work globally according to activity and overall demand.  This is particularly true of assets such as mobile offshore drilling units (MODUs) and seismic vessels.  

Canada’s offshore industry, including operation of MODUs and seismic vessels, is governed by a complex array of laws and regulations. These statutory instruments ensure that offshore operations take place in a safe and environmentally sound manner and that competitive local companies are provided with full and fair opportunity. The Coasting Trade Act (CTA) is one such instrument. It is intended to protect the interests of the Canadian shipping industry by reserving Canada's “coasting trade” to Canadian-flagged vessels; a foreign vessel may be licensed to temporarily engage in the Canadian coasting trade, but only if a suitable Canadian vessel is not available.

When the CTA was enacted, applicability to Canada’s offshore oil and gas industry was built in: “In the offshore, that is beyond the Territorial sea, all commercial marine activities related to the exploration and exploitation of non-living natural resources [read “hydrocarbons”] are reserved to Canadian Ships.”

In June 2006 Transport Canada initiated research into the impact of the CTA on the offshore oil and gas industry. This includes an examination of any negative or unintended consequences of applying the Act, such as economic consequences on the industry and related supply and service and domestic shipping industries, as well as the affect of the Act on international companies.  

What the Coasting Trade Act means for offshore oil and gas has been hotly debated for some time and was discussed at length through the Atlantic Energy Roundtable. Representatives of the Canadian Association of Petroleum Producers (CAPP), the Nova Scotia Department of Energy and the Newfoundland and Labrador Department of Natural Resources discussed the CTA with Canadian Transportation Agency and Transport Canada officials in 2005.

These discussions centered primarily on the application of the Act to MODUs and seismic vessels, which were cited as examples of global assets that are in demand around the world. CAPP argued that some provisions of the CTA create a barrier to East Coast oil and gas opportunities. Most significantly, CAPP took the position that the Act unfairly limits competition because it fails to allow for the intensely competitive and truly global character of petroleum exploration and the vessels that conduct it. Additionally, CAPP suggested that the Canadian Transport Agency, when deliberating on filed objections, should consider the business case as well as the technical suitability of the assets in question.
In 2004 an objection was filed by Ocean Rig regarding Marathon Canada’s application to use TransOcean’s Panamanian-flagged Deepwater Pathfinder for an exploration program offshore Nova Scotia.  Since no drilling units were Canadian registered at the time, the only option was to import a foreign-flagged vessel. Marathon had selected the Deepwater Pathfinder through a competitive bid process, on the basis of technical suitability and cost. Ocean Rig’s objection was based on its intention to re-flag the Eirik Raude (a harsh-environment driller partly constructed in Halifax, Nova Scotia) as a Canadian vessel.  TransOcean defended its vessel on cost and technical grounds, and maintained that a statement of intent to register a vessel in Canada did not make it a Canadian ship. The Agency ruled that the objector, Ocean Rig, did not sufficiently demonstrate that the Raude would be Canadian-registered by the time drilling was to begin, and therefore did not find it necessary to consider other arguments, including those related to technical suitability.
This was a landmark case, since it clarified the law around registration – specifically that a foreign-flagged vessel can be deployed in Canadian waters under the protection of the CTA, if the owner can demonstrate that it will be registered in Canada before the drilling operation is scheduled to start. The case also highlighted contentious aspects of the Coasting Trade Act - in particular, the role that technical suitability and cost should play in the Canadian Transport Agency’s decisions on licensing foreign-flagged vessels for temporary operations in Canadian waters.

Exploration is the rate-determining step in the petroleum industry, and East Coast Canada is vying with other highly-competitive jurisdictions to attract upstream investment. There is little doubt that the Coasting Trade Act, and indeed any regulatory instrument that affects the attractiveness of our offshore and the competitiveness of our upstream industry, will continue to be of interest to NOIA members. We look forward to the results of Transport Canada’s research.  


Treat this as a blow-out box:

For an up-close perspective on how the CTA works in practice, NOIA spoke with Bernard (“Tanny”) Collins, president of PF Collins (PFC) Customs Brokerage.  PFC has been providing consulting services to offshore petroleum players (among others) for over 40 years. These services include submissions to the Canadian Transportation Agency, applications for temporary entry of both Canadian non-duty-paid and foreign vessels, negotiations with Canadian ship owners regarding the suitability and availability of their vessels for specific scopes of work, and representation of the interest of foreign ship owners seeking to temporarily enter the coasting trade of Canada.  Collins says that, with increased offshore exploration and development activity on Canada’s three coastlines and the expanded mandate of the CTA to govern these continental zones, the number and variety of specialized vessels active in our waters is increasing also.

We asked three specific questions about the CTA and Transport Canada’s research project, and we’re sharing the answers with NOIA News readers.  

Transport Canada’s research tender calls for an examination of how the legislation impacts international as well as local companies. Why is the international impact important?
 
Many of the vessels that are temporarily imported into Canada are specifically constructed to meet the exploration and development demands of the petroleum industry. Vessels such as large floating cranes, MODUs of various types, dive support, dredgers and other specialized vessels are often referred to as “world assets”, as they travel the world supplying their highly specialized services to international development projects. For Canada to be competitive in the development of its offshore resources it is important for government agencies to understand how these “world assets” are treated in other jurisdictions.
 
By granting duty relief on MODUs, the Transport Canada has acknowledged the importance of global assets to the industry. In your opinion, why hasn't this recognition extended to other global assets?
 
The duty relief that the government has extended on MODUs is intended to encourage exploration activity for a current temporary period of five years. The decision did not directly impact Canadian industry as there are currently no MODUs construction yards in Canada. It is important to make the distinction between duty costs and permission to temporarily operate under the Coasting Trade Act. There has been no relaxation of the requirement for MODUs to still obtain a Coasting Trade licence for operations in Canada, giving preference to Canadian flagged and or duty-paid vessels. I full expect that as part of the CTA study they will review their current processes as they relate to MODUs and other specialists vessels.
 
How do you see it possible to ensure access to technically capable, available and competitively priced services while protecting access for Canadian companies?
 
Canada has not traditionally been a big international player in global transportation or oil exploration. The majority of the Canadian fleet is occupied in domestic marine transportation, with the exception of a few successful companies participating in international transportation. The increasing requirement for highly sophisticated vessels to meet the specialized needs of the petroleum industry will require both a change in the mind set of Canadian vessel owners and a change in the legislation of various government departments that make the operation of Canadian vessels non-competitive in the international market place. One example of prohibitive legislation to operate internationally is the Customs treatment of Canadian duty-paid vessels returning to work in Canada: Canadian vessels pay a considerable penalty, when retuning to Canada, for any repairs or modifications performed while abroad. The legislation is intended to protect Canadian shipyards that traditionally have not been involved in the construction of these specialized vessels. Canada may wish to introduce a second flagging legislation for those vessels operating in the international mark
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