Thank you, Mr. Chairman and the committee, for inviting me to speak.
Just as a quick background, I am chief energy economist and managing director of ARC Financial. ARC Financial has been around for over 20 years. In the past 10 to 12 years, it has raised $2.7 billion from domestic and foreign sources to invest in Canada's energy industry, predominantly the oil and gas business. We are investing mostly in oil and gas and oil and gas services, including the oil sands, and we continue to do so.
The topic today is energy security, in particular with respect to the oil sands. Energy security, as I think of it, has a number of different dimensions. It's a relatively nebulous term. We can think of security as either being our own Canadian security, continental security, or if the world feels secure in its energy needs that makes us all feel secure. To me, it's a rather difficult question or context to be speaking in.
I'm not an environmental expert on the oil sands. My expertise spans a couple of different dimensions. One is understanding how societies evolve with their energy needs and fulfill those energy needs on the supply side, and the changes that occur over time as unsustainable events occur. I translate those trends into investment theses, which my firm then takes and decides how to allocate capital into different types of energy systems and commodities.
I'm also following very closely the Canadian oil and gas business in terms of the financial flows, how it is that the Canadian oil and gas industry has evolved over the last 100 years, and what it is that makes it profitable or not profitable. The oil sands are indeed a very large part of that.
I will speak about the oil sands, but I have to tell you that speaking exclusively about the oil sands is a very limiting conversation. I do believe you really have to look at the hydrocarbon economy in general within Canada: conventional oil, oil sands, and natural gas all together. I don't really think you can disaggregate one of those commodities out of the other, because they all tap into the same labour pools and the same capital pools. So again, it's complex to be thinking about isolating just the oil sands out of the entire industry.
I am going to highlight two big issues that face us as Canadians and the industry. But as a backdrop to that, the sale of all upstream hydrocarbon products—oil, oil sands, and natural gas—amounts now to about $100 billion a year, or $270 million per day. The sale of oil sands products as a total of that $100 billion is about $36 billion per year. It is actually the largest product selling commodity in Canada.
The things that concern not only my firm but also me as a Canadian citizen are that we have made a conscious decision for almost a century to export our hydrocarbons. I'm very concerned that we are not maximizing the value of those hydrocarbons in a global context. In other words, we sell our hydrocarbons at a discount, and we, as Canadian citizens, are not optimizing the value. The principal issue is that we are selling into one market, the United States market, which now has a flat to declining demand. It is also not as wanting of our hydrocarbon commodities as other global players.
If we consider that the discount we are receiving, whether it's on the natural gas side or the oil side...we conservatively estimate that at 10%, that is a $10 billion a year loss of revenue. Every Canadian should be very concerned about this and the royalties and taxes that are mitigated as a consequence of this. The discounts are not narrowing; they're actually widening.
The second big issue I'd like to highlight is that this $100 billion a year that comes into our economy, in particular the $36 billion from the oil sands, which is growing, is a very large sum of capital. And $55 billion of that $100 billion is reinvested back into the oil and gas economy.
We in Alberta in particular are a very small labour pool. That means we are very susceptible to wage and service inflation. And these inflationary pressures are building up again. That is a detriment not only to the oil sands, as costs go up and commodities are potentially priced out of the global market; it's also inflation that spills over into other segments of the economy and certainly into other segments of the hydrocarbon economy. The inflationary forces are something we need to be very concerned about. They spill over into issues such as human resources and how we are going to tap into skilled labour and labour pools going forward.
That's a backdrop to some of my thoughts. As I said, two big issues as they relate to the hydrocarbon economy, in particular the oil sands, are first, not maximizing the value--having widening discounts, which we are seeing for both natural gas and our oil products--and second, the cost inflation we see.
I'm going to leave it at that. If the discussion takes us into other areas of concern, I can highlight those as well. But in the context of the time I have, that's all I'd like to say.