Oilsands investment benefits flow beyond Alberta, study released in Edmonton finds

EDMONTON – The economic benefits of Alberta’s oilsands development – estimated to be $364-billion between today and 2035 – have spread across Canada and to other countries, says a new study released Wednesday.

The Conference Board of Canada looked at private investment and the spinoff economic activity – including the chain of supplies and services needed to develop the oilsands.

The board found Alberta will receive 70 per cent of all economic benefits over the next 23 years, followed by Ontario and British Columbia.

But when total benefits are calculated, Alberta’s share drops to 50 per cent, and the United States comes in ahead of Ontario.

“The international effects are larger than the Canadian effects (outside Alberta), and the United States is half of the international effect (ahead of Europe, Asia and Latin America), while Ontario is half the interprovincial effect,” said Michael Burt, director of Industrial Economic Trends for the board.

The report, Fuel for Thought: The Economic Benefit of Oilsands Investment for Canada’s Regions, was presented at the National Buyer Seller Forum, taking place in Edmonton this week.

“The development of Canada’s oilsands deposits constitutes one of the largest development projects in the country’s history,” Burt said. “It is so large, that it will rival massive public works projects in scale, such as the building of the interstate highway system in the United States.”

In the past decade, the cumulative investment in Canada’s oilsands has surpassed $100 billion. The board estimates the $364-billion worth of private investment it now expects to take place by 2035 will support 3.2 million person years of employment – or 8,800 person years for every $1 billion in investment.

Burt estimates that translates into 140,000 to 150,000 jobs by this additional oilsands development.

In addition to the direct effects associated with spending on new projects – as well as spending on improvements, maintenance and repairs to capital assets – the study considers “supply-chain effects,” employment associated with the use of intermediate inputs or other support services that are part of oilsands investment.

Alberta industries geared to oil and gas in general, and the oilsands in particular, are major beneficiaries of oilsands development. They include oilfield services, engineering, manufacturing, as well as pumps and compressor companies.

Ontario will get 14.8 per cent of the interprovincial oilsands benefit, largely from manufacturing industries, steel mills, forging and stamping operations, and control systems.

B.C. will get 6.7 per cent of the interprovincial benefits in a variety of sectors from plastic, wood and paper products as well as scientific, legal and computer services, transportation and travel-related industries.

Quebec’s 3.7 per cent share of the interprovincial benefits is due in part because of the many large businesses that are headquartered in the province, including CGI computer systems to Canadian National Railway.

Saskatchewan and Manitoba will see a 3.7 per cent share, largely in the manufacturing and transportation area. Atlantic Canada’s tiny 0.8 per cent of the interprovincial benefit is due to iron ore production in Labrador and Newfoundland, and Nova Scotia’s Michelin tire facility.

But in another category, Newfoundlanders lead the way.

There will be $172 billion in wages and benefits generated by the new developments, and while Albertans will capture 74.2 per cent of this, Ontario workers will see an 11.7 per cent share and British Columbia workers will see a 6.9 per cent share.

Burt estimates there were at least 5,200 out-of-province workers in the Wood Buffalo-Cold Lake region of Alberta in 2011 – a figure he admits is likely low. Newfoundland and Labrador, British Columbia and Saskatchewan are the largest source provinces for these workers, and the money taken home can provide a huge economic boost in those provinces.

For example, in Newfoundland and Labrador, the so-called income remittance effect is expected to be four times the size of the supply-chain effect.

Of course, all forecasts are just that, and Burt says many things could derail the board’s report.

“There are risks (to new oilsands projects) in new sources of supply” such as what happened when fracking unleashed a flood of cheap natural gas and new sources of oil, he said.

And if demand drops – from a global carbon-reduction program, for example – that could drive down the price of all crude oil.

Stand-alone oilsands mines, such as a new Suncor or Syncrude, will need prices of at least $70 per barrel to be economically feasible, while SAGD (steam assisted gravity drainage) oilsands projects will require prices of at least $50 per barrel.

But a shortage of pipeline capacity is a huge headache for producers. While benchmark West Texas Intermediate oil prices are around $90 per barrel, the bottlenecks have forced Canadian shippers to accept discounts of between $15 and $30 per barrel this year.