Thank you, Mr. Chair and members of the committee.
As president of the Alberta Federation of Labour, I represent many of the Albertans who for the past decade have found themselves at the heart of an economic juggernaut centred around the oil sands. For example, we represent thousands of manufacturing workers who produce the pipes and build the modules that are the building blocks of oil sands projects. We represent thousands of transportation workers who move these building blocks by rail and truck to remote locations in the northern part of our province. We represent thousands of iron workers, welders, electricians, and other construction workers who put the pieces together, in what is becoming one of the biggest industrial projects the world has ever seen. We also represent thousands of plant operators and maintenance people who keep many of the new and existing facilities running. We represent thousands of public sector workers in areas such as health care, education, and municipalities whose work is funded, at least in part, by the proceeds of resource development. Finally, we represent thousands of retail and service sector workers who benefit from spinoffs from the energy sector.
From a distance, the economic edifice that we've created in Alberta looks extremely impressive. Our unemployment rates are low. Our GDP per capita is 75% higher than the Canadian average, and our average wages are 30% higher than the rest of the country's. But as is often the case with things that look good from a distance, when you look at them more closely, cracks become evident. As Alberta workers, or the members of our federation, have taken a closer look, we've seen some troubling cracks.
In my presentation today I'd like to talk about some of these cracks. Given the time constraints, I'll focus my remarks on three areas: first, value-added jobs; second, royalties; and third, a grab bag of other issues that I've put under the heading of unintended consequences. I'll wrap up with a brief discussion of our proposed solutions and some ways forward.
When it comes to jobs in the oil sands, our big concern as a federation is that Canada in general and Alberta in particular are in the process of losing an historic opportunity to move up the value ladder. Up until very recently, more than two-thirds of all the bitumen produced in Alberta was upgraded in the province, meaning it was either transformed into synthetic crude or refined into higher-value products such as gasoline, diesel, or jet fuel. In the process, thousands of high-paying, family-sustaining, community-sustaining jobs were created among upgraders and refineries in places such as Fort McMurray, Fort Saskatchewan, and Edmonton.
To give you a sense of just how many jobs were created, consider the examples of Alberta's two original oil sands producers, Suncor and Syncrude. Both have mines and upgraders in the Fort McMurray area that employ about 5,000 people each in direct operations, and thousands more in ongoing maintenance contracts and other spinoffs. But over the past few years the traditional ratio of value-added upgrading to unprocessed raw exports has begun to slip. According to figures and projections recently released by Alberta's Energy Resources Conservation Board, the proportion of bitumen upgraded in Canada has already fallen from about 70% to 63%, and is projected to fall to 48% by 2019.
This, unfortunately, is exactly what we at the AFL predicted would happen when we appeared before the National Energy Board five times over the past four years to oppose the construction of massive new bitumen export pipelines. It's also what we predicted a year and a half ago, when we published a study called Lost down the Pipeline, which I'll make available to members of the committee. In that study, we identified 10 refineries in the U.S. that were being retooled to handle bitumen from the oil sands, with a combined refining capacity of 2.8 million barrels per day. We also pointed out that the NEB had approved two major bitumen pipelines to the U.S., particularly the Keystone pipeline and the Alberta Clipper pipeline, which have a combined capacity to export 1.4 million barrels per day of raw bitumen from Alberta to refineries in the U.S. We also identified six other planned pipelines, which together have the capacity to export 2.3 million barrels of raw bitumen across the border each day.
The size and number of these American refineries and the size and number of the American-bound pipelines is significant, because it means that the U.S. refineries will have the capacity to absorb all expected increases in Alberta's oil sands production over the next ten years, and likely beyond. In other words, we warned then and continue to warn now that if left to themselves, energy companies may decide they don't need any new Alberta-based upgraders, even after the global economy recovers and international prices for oil rebound.
That in fact is exactly the scenario that we see playing out in Alberta today. Almost all of the upgraded projects that had been on the books before the recession have either been mothballed or abandoned altogether, even though prices for oil have recovered and investment in the oil sands is starting to ramp up again.
Of the approximately 250,000 barrels per day in new production that came onstream in 2009, almost all of it is being exported from Alberta in raw form. Even stalwarts like Suncor and Syncrude, who traditionally have upgraded all of their bitumen in Alberta, are starting to export increasing amounts of raw bitumen.
Another example I draw your attention to from today's news, on the front page of the business section in the Globe and Mail, is a story about Husky Energy making a decision to invest another billion dollars in the Alberta oil sands. It's important to note that the project that is discussed in this article, the Sunrise project, will be an extraction-only project, and that Husky will be sending all of the bitumen produced from that mine to two refineries that they've bought in the Ohio area.
Without more Alberta-based upgrading, Canada will lose thousands of good jobs in upgrading and refining and associated petrochemical production. Thousands of jobs in plant maintenance and other spinoffs will also be lost. Instead of creating long-term value-added jobs in places like Fort McMurray, Fort Saskatchewan, or Edmonton, those jobs will be shipped down the pipeline to places like Ohio and Illinois. Once the Keystone XL pipeline is complete, many of those jobs will be sent to places like Texas, Mississippi, and Alabama. That's the first big crack in Alberta's economic edifice, and from our perspective it's opening to become a big chasm.
The second crack that I'd like to talk about has to do with royalties. The starting point for this discussion is a reminder about who owns Alberta's energy resources. It's not the energy companies. It's not the pipeline companies. Despite all their talk about continental energy strategies, it's not the American government. Instead, our energy resources are owned by the Canadian public. And in the case of Alberta's oil, gas, and oil sands resources, they're owned by Albertans. Royalties aren't a price we pay. Royalties are the price we as owners charge energy companies to develop and sell the resources. This is an important point. Royalties are not a tax. They're a price, a price we receive for selling something we own, and which energy companies pay for something they need to run their businesses.
It's also important to note that royalties are only paid after the company using the resource has paid off its costs and taken a normal profit of roughly 10%. Everything earned over and above these amounts is what we call resource rent. The problem we're experiencing in Alberta is that our provincial government has been, from our perspective, lax in collecting the rents that are owed to them as owners of resources.
In that regard, I'll draw the committee's attention to a recent study produced by the Parkland Institute, which is housed in the faculty of arts at the University of Alberta. In the study entitled “Misplaced Generosity”, which was released last week, the Parkland Institute demonstrates that despite having a stated target of collecting between 50% and 70% of resource rents from the energy sector, the Alberta government has consistently failed to meet those targets.
As an average over the last ten years, they haven't even met the lower range of that target. So, on average, over the last ten years the Alberta government has collected only 47% of available resource rents. The result is that they have forgone literally billions of dollars in revenue that could have been taken in by the government on behalf of the citizens who own the resource and been made available either for savings or to spend on valuable public services. Those figures refer to the energy industry as a whole.
The situation is even worse when it comes to the oil sands. On average, over the last ten years the Alberta government has collected only 14.6% of available resource rents.
I see that I'm being asked to wrap up, so I'm just going to skip over the unintended consequences—I would encourage the committee to ask me a little bit about that when it comes time for questions—and talk about solutions. In particular, I want to present two suggestions and pose a question.
From our perspective, the first solution that should be considered by both provincial and federal governments is to begin negotiation on the establishment of a national energy plan. We are one of the few energy-producing jurisdictions in the world that doesn't have an overarching energy plan to deal with things like job creation, building industries, environmental impacts of development, and creating opportunities for green energy. As a result of this lack of a plan, decisions are being made, but they're not being made by elected people like yourselves who are accountable to the public; instead, the decisions are being made by industry. I would submit to you that what's good for the industry may not be good—and in many cases it is not good—for the public.
The second suggestion we have, which relates to the first, is that in order to build an energy policy that supports the public interest, governments at the provincial and federal levels should get over their reluctance to consider a more interventionist approach to the oil sands. In particular, I think the Alberta government and the federal government should learn lessons that were learned by the previous Alberta government of Peter Lougheed. He built a petrochemical industry in Alberta where none had existed before explicitly by using the levers of economic public policy to create the conditions for investment.
The final thing I want to do is to ask a question. Given the track record of the Alberta government on these issues, can that government be left on its own to make decisions that obviously have impacts not only on the province of Alberta, but across the country? We're a small economy, with a small population, and I would argue that in many ways our provincial government has become captive of the industry; it cannot by itself make decisions about the development of the resource in the broader public interest.
I'll wrap up there, and I'd be happy to answer questions.
