Thank you very much, Mr. Chairman.
Good afternoon, everyone. My name is Jim Saunderson. I am Western Economic Diversification's assistant deputy minister for the Alberta region.
I'm accompanied today by James Meddings, our assistant deputy minister for policy and strategic direction, who is based here in Ottawa, and Ryan Dunford, the acting director general for policy, who, like me, is from Edmonton.
I would like to thank the committee for the invitation to speak to you today. As the first representative from my department to appear, I would like to provide you with a very brief overview of our department.
Western Economic Diversification—or “WD”, as we like to call it—was established in 1987 and has a mandate to contribute to the development and diversification of the economy in western Canada. We are headquartered in Edmonton and have a presence in each of the four western provinces. This allows us to build strong relationships on the ground with provincial governments, industry, not-for-profit and indigenous organizations, and academia.
The department has four priorities, and I'll come back to them later on: innovation, trade and investment, indigenous economic growth, and federal defence procurement. To address these priorities, we have three main programs.
First, we have the western innovation program, which provides repayable contributions to for-profit companies to help them commercialize new technologies. Second is the western diversification program, which provides non-repayable contributions to not-for-profit organizations, including post-secondary institutions, to invest in projects that support our priorities. Third is the western Canada business service network, which includes 100 non-profit organizations that provide services and loans to small businesses across the west. Also, of course, we deliver the western component of national programs when asked to, including the Canada 150 program to celebrate the sesquicentennial of Confederation next year.
But I am here today to talk about the Alberta economy.
After many years of strong economic growth, conditions in Alberta have changed dramatically. Between the 2008 recession and 2014, Alberta's economy grew by nearly 20%, more than double the national average.
Alberta's population has grown to 4.2 million—just behind B.C. in size—and, despite the recession, the provincial GDP is the third-largest in Canada, behind Quebec and Ontario. Of course, as we all know, the Alberta economy is dominated by the oil and gas sector. It makes up about 27% of our GDP.
However, energy prices have dropped from a high of $107 U.S. per barrel in June of 2014 into the mid-$40 range today. This has caused the Alberta economy to decline by approximately 3.7% in 2015, and it's expected to decline by another 2.7% in the current year, 2016.
This will be the first time the Alberta economy will have contracted two years in a row since 1982. Unemployment rates and employment insurance claims are on the rise, while capital investments are in decline. The unemployment rate in Alberta is currently at 8.4%, which is above the national average, and is roughly double the level that we were experiencing two years ago. Also, of course, capital investment in the oil and gas sector has declined by the substantial amount of $50 billion annually between 2014 and 2016.
Of course, the results in 2016 have been exacerbated by the wildfires in Fort McMurray, which caused significant damage to the city and resulted in a reduction of approximately 40 million barrels of oil production when the plants were shut down for safety reasons. The impact of these wildfires on Alberta's GDP will result in a reduction of about 0.6% in 2016, but for 2017 the forecasts are suggesting that the GDP will be about 1% higher than it would otherwise be as the rebuilding efforts begin in earnest.
But all is not bleak. The fluctuation in global prices is nothing new for the energy industry, and most analysts expect oil prices to slowly recover over the next year.
In fact, oil sands production is expected to increase from 2.4 million barrels per day in 2015 to about 3.7 million barrels, as previously planned projects come online.
I think it is important to note that when we talk about the price of oil—I think it was $44 U.S. this morning—that is really the headline price for West Texas Intermediate, which is the benchmark price for lighter U.S. oil. Alberta producers typically receive about $14 U.S. a barrel less for their Western Canadian Select heavy oil. The interest that you hear from Albertans in improving pipeline capacity is not about simply increasing the volume of oil that is exported; it is about adding new customers so that we can introduce an element of competition. It is about maximizing the value of the province's resources, which even at today's reduced prices accounted for about 12% of total Canadian exports last year.
It is important to note that the industry is taking action to increase its competitiveness, as well as to lessen its environmental footprint. For example, Canada's Oil Sands Innovation Alliance, commonly called COSIA, brings together the major oil sands producers and others to develop new approaches and improve environmental performance. To date, COSIA reports that over 800 technologies have been shared among its members.
Of course, the Alberta economy is about a lot more than oil and gas. For example last year, 2015, Alberta was Canada's third largest agriculture and agrifood exporter, with exports totalling about $10 billion, and we were the fourth largest producer of forestry products, with revenues in the $3-billion range.
In terms of building value added to our resources, Alberta's industrial heartland near Edmonton is one of the world's leading chemical, petrochemical, upgrading, and refining clusters. It has attracted over $30 billion of investment to date from over 40 companies.
The ICT sector is a key component of the Alberta economy. It includes nearly 4,500 companies employing approximately 50,000 Albertans. Their expertise ranges from bioinformatics and global positioning systems to health management systems and wireless communications.
A great example is a company called ResolutionMD, which WD supported through our western innovation program. It enables doctors to review patient information, collaborate, and diagnose using a wide variety of electronic devices. This technology has been accredited internationally in the United States, China, Hong Kong, Europe, and other countries.
Also, Alberta is home to the flagship of nanotechnology research in Canada, the National Institute for Nanotechnology. It was established as a partnership between the National Research Council, the University of Alberta, the Government of Alberta, and the Government of Canada. I am proud to say that our department has played a role, both behind the scenes and with financing some additional equipment.
The environmental industry is an important industry in Alberta as well, with some 1,300 companies generating some $2.8 billion in annual revenues. These companies are active in the remediation of land, climate change solutions, water treatment, and waste management. A good example of our success at diversification as a province is TRIUM Environmental, which recently signed a $40-million agreement to pursue the soil and groundwater remediation market in China, with assistance from both the federal and provincial governments.
The life sciences and pharmaceutical sciences sector is also important in Alberta, comprising some 200 companies with an estimated revenue of $1.5 billion, building on the research strength of our universities.
There are two challenges I would like to speak about very briefly. First, Alberta's economy remains heavily dependent on the oil and gas sector, and diversification is therefore important. That is why my department supports innovative small businesses to commercialize their technologies in areas such as medical devices. The second challenge is the transition facing the oil and gas sector. To succeed, the Canadian industry must contain costs and develop new technologies to enhance environmental performance. Again, an example of my department's involvement is some assistance we have given to COSIA to bring the oil industry together with the very vibrant clean tech sector in British Columbia.
Alberta is fortunate to have a young and growing indigenous population. Approximately 6% of Albertans are indigenous people, which comprises about 15% of the total indigenous population in Canada. It is important to note that indigenous-owned and operated businesses have played a vital role in growing Alberta's economy, including the development of the oil sands. Alberta has a strong entrepreneurial spirit and the potential to grow by expanding the range of value-added products, increasing access to capital, and supporting entry into global markets. The new innovation agenda being spearheaded by the Minister of Innovation, Science and Economic Development will support these opportunities.
In conclusion, it is expected that Alberta's economy will begin to recover in 2017. Continued support and coordination from all orders of government will enable Alberta's businesses and communities to diversify and grow, and I think my department can play a key role in this respect.
Mr. Chair, I would like to thank you and the committee for this opportunity to speak to you this afternoon.
My colleagues and I will be very happy to take your questions.
