The subject of our presentation today is to briefly summarize a study that CERI released in October 2005. The focus of the study was to look at the macro-economic impacts of oil sand development under certain scenarios.
What I'll do today is give a little background about the study and the objective we sought to accomplish. The slides are not numbered, but this is a slide called “Outline”. There's a key finding in that study and some sensitivity analysis that we conducted.
The study background.... Obviously, as Mr. Donihee mentioned, it is one of the world's largest resources, deposits of oil, second only to Saudi Arabia in proven reserves, but the crude bitumen in place is much larger than that, and it's 1.6 trillion barrels. It's equal to or exceeds the total conventional oil deposits in the world. About 11% of that, the total in-place oil, is proven reserves, and 174 billion or 175 billion barrels remain to be exploited. To put it in perspective, this is sufficient to supply Canadian demand for oil for 250 years.
The study motivation.... Projected investment in the oil sands to 2020, over 20 years, is about $100 billion—we will be talking about a lot of large numbers here today—and that investment will result in the production of crude oil valued at $570 billion.
As Mr. Donihee mentioned, the development of the oil sands requires vast amounts of energy, among other inputs and resources, to enable that production. Initial investment of any type, really, would ripple through the economy and produce a multiple of it by the time the interaction with the rest of the economy occurs, and that's really the basis for our study here: to trace the value of the production investment in the oil sands throughout the Canadian economy, even globally, beyond Canada, to see what the macro-economic effects of that development might be. That's what the objective of the study is, really, to assess those economic effects of the oil sands development over a 20-year period at the local, provincial, national, and international levels.
The methodology we use is a CERI-developed model called the input-output model. Those types of models have been used for decades, and really what they portray is the interaction of different sectors in the economy. If you introduce a disturbance or injection in one sector, how does it then flow through the rest of the economy and what might the final impacts be?
We measure the impacts on the economy by four major parameters or indicators: the first is gross domestic product; the second is employment; the third is employment income, labour income, the results from that; and finally, government revenues that result from the revenues that are generated in this sector and in other sectors that are affected by it.
On the next slide, “Oil Sands Production—Unconstrained Case”, we have two cases where we look at the future development of oil sands, and we go to 2022 in this slide.
One case is what we call the unconstrained case or the potential case. All projects are announced and known and proceed as scheduled, with no delays, no resource constraints, and business as usual. Obviously, we think it's not a realistic outlook, but it's what we would see if development proceeded without any constraints. It will be somewhat over four million barrels per day by 2022.
We then apply our expert judgment. We know there are constraints and there'll be issues with projects proceeding. We apply some delays to projects depending on where they are in the development stage, where they are announced only or under construction, at permitting stage, and so on.
Depending on where they are in the development stage, we assign them either a zero delay, if they are well under construction and on their way, or delayed a number years, depending on whether they're announced or speculative. We then apply probabilities to create an expected output. A fraction of 100% of each of those categories of projects are delayed because of resource constraints.
Once we do that, we get to what we call best case investment, which is approximately $100 billion cumulative over the period. Again, the production resulting from that, both bitumen and upgraded bitumen to synthetic crude oil, add to the value of it to $570 billion.
What drives these analyses is really the monetary value. We need to translate the physical output into monetary value to then measure the economic effect.
On the impact that we had estimated in the study, the economic impact first on GDP, the first parameter or indicator is that the total impact worldwide of this development would be $885 billion cumulative, almost a trillion dollars.
About 10% of that will be generated outside Canada, and 90% of it or $785 billion will be generated in Canada. Of that, an increase of $634 billion in GDP over that period will occur in Alberta; $102 billion will occur in Ontario; and $8 billion will occur in Quebec. The rest of Canada would experience an increase of $45 billion in GDP. Outside Canada, other countries would experience an increase of $96 billion, as I said, about 10% of the total.
The reason that the other provinces and the rest of the world are affected by this development is again because the world is interconnected economically. We trade with other provinces, and Canada trades with the rest of the world.
To the extent that the inputs used in the oil sand development are imported, the development of the oil sand will then have a positive impact on the economies where those inputs are imported from, be they within Canada or outside Canada.
Percentage-wise, on the distribution of GDP impacts in total, 72% of it will occur in Alberta; 11% will occur in Ontario, equal to the effect on economies outside Canada; another 11% occurs outside Canada; Quebec receives 1% of the GDP impact; and the rest of the provinces receive 5% of the total impact, which is about a trillion dollars.
To put that into perspective, the economic impact measured in terms of GDP, over the 20-year period, is cumulatively equal to about 61% of Canada's GDP in 2004.
On the annual GDP impact in Alberta, in the year 2000, the beginning year of our analysis, the oil sand impact on GDP accounts for about 9% of Alberta's GDP. That is projected to increase to 20% of annual GDP in Alberta by the year 2020.
For Canada, the annual GDP impact is about 1.5% in 2005 and will rise to about 3% in the year 2020.
I'd next like to talk about the employment impacts. I should say this is the demand for labour that will be created by this development.
This development will require 6.56 million person-years over the entire period, and 5.43 million of that will occur in Canada. Alberta's job creation from this development will amount to about 3.7 million person-years; Ontario's will be about a million person-years; Quebec's will be 125,000 person-years; the rest of Canada will be 612,000 person-years; and 1.1 million person-years will be created in other countries, making up the total of 6.5 million person-years.
On the distribution of this employment across Canada and the world created by this development, 44% of the total employment impact will occur outside of Alberta, with 56% in Alberta. Ontario's share in this employment creation will be about 16% of the total. Quebec's share will be 2%, and the rest of the Canadian provinces will be 9%. For economies outside of Canada, their share of the employment created by the oil sands development will be 17% of the 5.6 million person-years.
We also assessed the employment impact on the local economy. As we said, 68% of the jobs created within Canada will occur in Alberta. In the Wood Buffalo and Cold Lake region, where most of the development will take place, employment will increase by about 780,000 person-years, which will be about one-fifth of the total employment created in Alberta.
Outside of Canada, job creation will be about 1.1 million person-years. It's more than any other province except Alberta, but less than the total provinces combined.
Another thing to understand here is that with the oil sands development, job creation does not occur only in the oil and gas sector; it occurs throughout the economy. In fact, four times more jobs will be created outside the oil and gas sector than in the oil and gas sector as a result of this development. The oil and gas sector will receive about 18% of the total job creation, and the other 82% will be created in other sectors of the economy.
The last thing we measured on the macro-economic impact of development is government revenue from the economic activity created. On the value of output and income that will be created from both business and labour, in addition to different kinds of taxes the total will be $138 billion of tax revenue globally. Of that, $124 billion will be in Canada and the rest will be generated in the economies outside of Canada.
Of the $124 billion in tax revenues that will be generated in Canada over 20 years, we estimate the federal government will receive $51 billion--the largest recipient. The Alberta provincial government will follow with $44 billion. Other provinces and territories will receive $12 billion in tax revenues. Municipalities will receive $17 billion. Outside of Canada, $14 billion of tax revenues will be generated, for a total worldwide of $138 billion.
On the distribution of this $138 billion of tax revenues, the federal government will receive 41%; Alberta will receive 36%; Alberta municipal jurisdictions will receive 9%; other municipal jurisdictions will receive 5%; and other provinces besides Alberta will receive 9%.
The tax revenue comes from many sources, the sources of government revenue that we talked about. The largest portion from which this revenue is generated is personal income tax—25% of all tax revenue, followed by corporate income tax, which is 21% of the total. Next is royalty revenue—and this occurs only in Alberta—20% of the total. Indirect taxes—PST, GST, excise taxes, and all these other non-income taxes—account for 16% of the total tax revenue. Property taxes amount to 18%.
We conducted a few sensitivity analyses on the different prices for oil. For the base case, I used $32, in 2005 dollars, per barrel of crude oil. We then looked at $25 per barrel—I don't know if we'll ever see that again. We also looked at $40 per barrel of oil, for sensitivity. We did that for both what we call the expected, or constrained, case and the potential, or unconstrained, case. Then we looked at a case of increasing the portion of bitumen that's upgraded in Alberta. For this we assumed a base case price of $32 per barrel of oil.