Evidence of meeting #39 for Natural Resources in the 40th Parliament, 3rd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was alberta.
A recording is available from Parliament.
President and Chief Executive Officer, Canadian Energy Research Institute
My apologies. I was trying to--
Conservative
The Chair Conservative Leon Benoit
Some of these things probably don't translate that well either. But go ahead.
President and Chief Executive Officer, Canadian Energy Research Institute
Numerous other words and jobs describe the manufacturing and fabrication industries that develop products used by the oil and gas sector in the construction of thousands of field facilities that dot the western Canada landscape. At the end of the economic life for a field facility, the final word is “abandonment”. The OGS sector also includes companies responsible for sealing, removing, and reclaiming the disturbed land footprint back to its original condition.
In order to estimate the economic contribution of the OGS sector, we utilize the Stats Canada 2006 P Input, modified base price of input-output tables at the “W” level of aggregation. These were examined. There are 38 industries that are either totally dedicated to the oil and gas services or partially dedicated with varying degrees of contribution. These 38 industries participate in manufacturing or utilizing 225 commodities that are employed by the OGS sector.
The many contributors to the OGS include industries that supply gravel for well-site road access, to the sands used for fracking, to engineers, designers, welders, carpenters, and electricians who manufacture modular components for field installations, to drill pipe, concrete, chemicals, boilers, tanks, heaters, and compressors, and to the truckers and mail service that support the OGS activities. Also included were the local machine shops, portable welding trucks, warehousing, transportation facilities, communication systems, nuts, bolts, and wire that indirectly support the OGS sector. From the Alberta fabrication facilities in Leduc, Alberta, to the pipe manufacturing facilities in Regina, Saskatchewan, to the manufacturing industries in southern Ontario and Quebec, the OGS sector covers thousands of companies employing hundreds of thousands of people located in virtually every province and territory of Canada.
Based on this examination, we came up with the following results:
It was determined that Canada's GDP, at a specified basic price for the year 2006, was $1.35 trillion.
The oil and gas service sector of the Canadian economy generated $65 billion, or 4.8% of that GDP.
In 2006 the provincial and federal governments took in $225 billion in government revenues over and above the oil and gas royalties.
The oil and gas service sector contributed $9 billion, or 4.1%, of the taxes paid to the provincial and federal governments.
In 2006 the oil and gas producers paid $12 billion in royalties from conventional resources, and an additional $2.1 billion from oil sands, totalling $15 billion.
In 2006 the Canadian economy employed 16.5 million people. The oil and gas service sector employed 800,000 people, or 4.8% of the total workforce.
Comparing these numbers against other industries, the oil and gas producers generate GDP of $87 billion; the automotive sector, $25 billion; the agriculture sector, $26 billion; the mining sector, $18 billion; the forestry sector, $29 billion; residential construction, $34 billion; non-residential construction, $15 billion.
Stating the GDP contributions of OGS by industry type, we came to the conclusion that 48% of the OGS is classified as “direct impacts” and covers the activities in the province where the developments are occurring; 25% is in indirect manufacturing, and this coverd industries that are manufacturing components for the oil and gas sector; and 27% is in other industries, made up of things like truck transportation, communication, engineering, warehousing, etc., which takes place all across Canada.
While the direct industries are specifically related to locations where oil and gas activities take place in western Canada, western Canada accounts for the majority. The other industries are located throughout the country. Breaking these numbers down, Alberta-based industries account for 67% of the oil and gas impact; Saskatchewan and British Columbia account for an additional 20%; Ontario and Quebec account for 12%; Manitoba and the Atlantic provinces account for 1%.
I would add one point: that the industries in Saskatchewan that generate pipe rely on the steel plate that is sourced from Ontario.
In 2009 international revenues from select Canadian-headquartered, Canadian-controlled OGS companies were $12.8 billion. A selection of these companies included eight drilling companies, 25 oil and gas sectors, and three pipeline companies. These companies have Canadian head offices and Canadian finance; they file provincial and federal tax returns but they do activities outside the country.
In summary, the oil and gas service sector contributes $65 billion to the Canadian economy, employs 800,000 workers, and pays $9 billion a year in government income and corporate taxes. In one form or another this sector can be found in virtually every province in Canada, and trade between the provinces makes this industry what it is today.
Thank you very much.
Conservative
The Chair Conservative Leon Benoit
Thank you very much, Mr. Howard.
We go now directly to questions, starting with Mr. Tonks, and if there's time left, Mr. Andrews.
Go ahead, please, Mr. Tonks.
Liberal
Alan Tonks Liberal York South—Weston, ON
Thank you very much, Mr. Chairman.
And thank you to Professor Coulombe and Peter Howard for being with us.
It's an interesting juxtaposing of theory and practice, if you will. I'd like to follow up on some of the questions that have been asked by Mr. Cullen.
To Professor Coulombe, with respect to the Dutch disease, how can we compare 1960, and the rather insulated regional impacts of the North Sea resources opening, to 2010, when the movement of capital and investment is critical to multipliers, which you have just heard from Mr. Howard are absolutely critical to the future of all Canadians?
Pursuant to your thesis of the Dutch disease, how can we in a global economy allay the impacts you have outlined, which I acknowledge happened in the sixties? How can we apply those experiences and lessons to 2010 with respect to an energy strategy that is going to do the kinds of things we all want to do in terms of value added throughout the country, not just in regional pockets, as you have quite rightly pointed out?
Professor, Department of Economics, University of Ottawa
The big difference, as you pointed out, between 1960 and today is that we have much more movement of capital today than we had in the 1960s. But capital does not play an important role in the Dutch disease mechanism. The mechanism was operating probably in the 16th century, 50 years ago, and it is operating now and it will in the future.
Simply, when you have a very rich resource you are exploiting, that will increase the real exchange rate of the economy. It will make the other sectors of the economy that export on the international scene.... I am not talking about the same sector the other person was talking about; I'm talking about the exporter of goods and services in the rest of the world. With whatever we have—mobility of capital, labour mobility—the mechanism is operating.
I am not saying this is bad for Canada; I am saying this is bad for the sector of the economy that exports manufacturing goods to the rest of the world.
Liberal
Alan Tonks Liberal York South—Weston, ON
Okay, thank you for that clarification.
Mr. Howard, when you talked about the impacts, economic value added, in a very wide spectrum of 67% in Alberta, and then it came down to 12% in Ontario, those statistics seem to give validity to the theory that the professor has put forward, that the value added is inequitably distributed across the country.
I have an observation from the Alberta's Industrial Heartland Association. I don't know whether you heard their presentation, but they were prior to you. They indicated it was absolutely critical to achieve the high value added: the jobs, the equity in terms of a national job strategy, if you will, to process and upgrade more bitumen, and to do more refining in Canada, as opposed to our dependence on piping across the United States and so on and so forth.
Could you respond to that? First, do you think there is an ongoing challenge that value added will not be equitably distributed as a result of the oil and gas sector? Second, do you think commensurate with that we should be upgrading more of our bitumen, and refining, I guess in order to utilize the spinoffs? Do you think that should be part of a national strategy?
President and Chief Executive Officer, Canadian Energy Research Institute
If you were to look at today's current differential between WTI pricing and Edmonton pricing as far as bitumen is concerned, the suggestion would be that upgrading does not make a lot of sense, primarily because there isn't enough value in that basis differential to support it.
However, historically, the basis has been in the $15 to $20 per barrel range. That by itself, if that were to be the case in the future, would support upgrading here in Alberta and sending refined petroleum products to the United States.
That definitely would add to a national strategy of employment. That is not just employment in Alberta. Since upgraders and refineries utilize components that are sourced from Ontario and Quebec, that would definitely assist in those businesses. Second, there are additional structural products; namely, steel, structural beams and stuff like that, which would have indirect and induced employment in Ontario and Quebec.
The thing I would be concerned about is the northern tier refiners in the United States. If they were not receiving Canadian bitumen, that means they would be looking for feedstocks out of the Gulf of Mexico, which then would put refined petroleum products on a very head-to-head competition in the northern tier states, and I'm not sure of the outcome of that.
Liberal
Scott Andrews Liberal Avalon, NL
If there are 15 seconds, I have one quick comment.
Dr. Coulombe, I'm glad you identified that Newfoundlanders have the most productivity. We're doing our best to make sure many of them go to work in Alberta to help the productivity in Alberta as well.
Conservative
Roger Pomerleau Bloc Drummond, QC
Thank you, Mr. Chair.
Thank you, Mr. Coulombe. I very much enjoyed your presentation. I found it extremely scientific.
First of all, I would like to know if it was in the context of your study that you found that 275,000 jobs had been lost in the manufacturing sector. Since manufacturing jobs are mainly in Ontario and Quebec, I imagine that is where most of them were lost.
Professor, Department of Economics, University of Ottawa
Approximately 90% of the jobs lost during that period were lost in Ontario and Quebec, with about two-thirds of them lost in Ontario and one-third in Quebec.
Bloc
Roger Pomerleau Bloc Drummond, QC
So, when people tell us that the oil sector pays royalties, it also costs us jobs. People often use that argument. People say lots of money must be invested in oil and gas because it pays for equalization. It has made us poor, because the gas is there and it costs us jobs.
Professor, Department of Economics, University of Ottawa
That's right. Equalization has redistributed part of the surplus revenue the federal government has brought in with the oil and gas boom, but there have also been some job losses in the manufacturing sector mainly in Ontario and Quebec, of course.
Bloc
Roger Pomerleau Bloc Drummond, QC
I am not an economist. Can you explain to me more specifically how large-scale primary sector development affects rising exchange rates? Can you explain to me how that happens?
Professor, Department of Economics, University of Ottawa
Yes. Canada exports more natural resources that it imports. Therefore, when there is a natural resource boom or an increase in the price of natural resources, this increases the value of our exports, which automatically increases the value of the Canadian dollar.
Note that this increase in the value of the Canadian dollar helps stabilize the resources sector, because when the price of oil goes up from $60 to $80 and the Canadian dollar increases at the same time, oil revenues—in Canadian dollars in Canada—are stabilized. Thus, fluctuations in the Canadian dollar stabilize the natural resources sector, because they follow the cost of raw materials, but they destabilize the manufacturing sector, which exports products.
Professor, Department of Economics, University of Ottawa
That needs a much more stable currency.
Bloc
Roger Pomerleau Bloc Drummond, QC
Exactly.
Since I have heard this argument and I have an economist before me, I have another question. Because of the debate surrounding shale gas, all kinds of arguments have been invoked. One argument I've heard against the use of shale gas is that no one has looked at the impact it will have on electricity sales. If gas prices increase or push up the value of the currency, is there any chance we will have a hard time selling electricity and therefore do we risk losing on one side what some people claim we are gaining on the other side?
Professor, Department of Economics, University of Ottawa
I do not think that shale gas production in Canada will lead to an increase in the value of the Canadian dollar the same way that oil production has. The reason for that is because the profit, the surplus over the price on production costs, is much lower in the case of shale gas. That activity is going to have a relatively minimal impact on the Canadian dollar. It will likely be comparable to softwood lumber or other primary resource production. Primary resource production is more likely to affect the value of our currency when the sale price and the production costs vary significantly. Such resources include oil, potash and those kinds of activities.
