oilfiEld sErvicEs
One of the largest supply chain effects associated with oil sands investment is in the oilfield services industry. For every billion dollars of inflation-adjusted invest- ment, 745 person-years of employment are supported. The industry comprises a variety of support activities, such as contract drilling and other oil and gas field ser- vices. Essentially, these are the labour-intensive tasks associated with well development and maintenance that the major oil companies commonly outsource.
Among the major sectors affected by oil sands investment, oilfield services is the one where the effects are most con- centrated in Alberta, with 90 per cent of the employment effects being concentrated there. One reason for this is that, like many service industries, the degree of tradabil- ity for oilfield services is limited. Many of the services the industry provides require a physical presence on-site. However, despite this limitation some oilfield services are sourced from other provinces. Ontario accounts for 60 per cent of the effects outside of Alberta, with nearly all of the remainder being evenly split between Saskatchewan and British Columbia. Table 1 in Appendix B provides additional details about the supply chain employment effects by industry and region.
ProfEssional sErvicEs
The professional services sector encompasses a wide area of activities in which human capital is the major input. These businesses essentially sell the knowledge and skills of their employees. With 760 person-years of employment being supported for every billion dollars of investment, the supply chain effects for this sector are similar in scale to those of the oilfield services industry. In fact, both sectors account for nearly one-fifth of the total supply chain effects each.
In regards to oil sands-related activities, the single- largest source of employment within the broad profes- sional services sector is the architectural, engineering, and related services industry. Engineering is the largest activ- ity within this industry, but other activities important to oil sands investment include geophysical surveying and mapping, and testing laboratories. The industry accounts
for 12.3 per cent of the supply chain effects associated with oil sands investment. However, other industries within the professional services sector are also sup- ported by oil sands investment.
For example, every billion dollars of inflation-adjusted oil sands investment supports 82 legal and accounting person-years of employment. (See Chart 14.) The computer services (66) and advertising industries (17) also benefit. In fact, a wide variety of scientific service industries— everything from scientific and technical consulting (such as environmental consulting), to scientific research and development services (including research into things like carbon capture and storage and geological research), to specialized design services (such as graphic and indus- trial design)—are also affected.
Regionally, the largest impact is again in Alberta, but the effects are more widely spread among the provinces than for oilfield services, with 28 per cent of the supply chain effects occurring outside of Alberta. What is more, it is really only the architectural, engineering, and related services, and the legal and accounting industries where there is a high degree of concentration in Alberta. Half or more of the effects for the scientific services indus- tries occur outside of Alberta. For example, in the com- puter services industry the effects in Ontario alone are two-thirds of those experienced in Alberta.
chart 14
The “Other Province” Effects Are Larger Than Those for Alberta for Some Professional Services Industries (number of supply chain jobs supported by $1 billion* of oil sands investment)
*2010 dollars
Source: The Conference Board of Canada. Scientific services Advertising and related services Computer services Legal and accounting services Architectural, engineering, and related services
0 100 200 300 400 Alberta Other provinces
In aggregate, every billion dollars of oil sands invest- ment supports 214 professional services person-years of employment outside of Alberta. Only the broad manu- facturing sector experiences a larger out-of-province effect. In general, Ontario experiences the largest effects outside of Alberta, followed by British Columbia, but there are some exceptions. For example, the impact for the legal and accounting industry is larger for British Columbia than it is for Ontario. (See Table 1 in Appendix B for more detail.)
manufacTurinG
The broad manufacturing sector encompasses a wide variety of activities, from non-durable items like food and clothing, to durable goods like machinery and equip- ment. Manufacturers are another important source of inputs for oil sands investment, accounting for 16.5 per cent of the supply chain employment effects. Thus, for every $1 billion in price-adjusted investment, 654 manu- facturing person-years of employment are supported. The supply chain effects of oil sands investment are concentrated in a few specific manufacturing industries, including machinery, fabricated metal products, and pri- mary metal products. The machinery industry comprises businesses that manufacture industrial and commercial machinery, including mining and oil and gas equipment, machinery specific to other industries (such as construc- tion), pumps and compressors, engines and turbines, and heating and ventilation equipment. Fabricated metal pro- ducers use forging, stamping, forming, turning, and joining processes to produce metal products such as architectural and structural metal products, boilers and tanks, hardware, and metal valves. Finally, primary metal producers engage in smelting and refining metals and alloys from ore, pig, or scrap in blast or electric furnaces. The industry also includes rolling and drawing operations that produce sheet, strip, bars, rods, and wire from pur- chased ingots. Together, these three industries account for three-quarters of the manufacturing employment sup- ported by oil sands investment. Other manufacturing industries that are significant beneficiaries from oil sands investment include electronic and computer products, plastic and rubber products, and the printing industry.
Machinery is the single-largest manufactured input going into oil sands investment, accounting for 6.4 per cent of the total supply chain employment effects. In particular, oil and gas equipment is a major input, but manufacturers of pumps and compressors, metalwork- ing machinery, and construction machinery also benefit. (See Table 1 in Appendix B.) One interesting thing of note is that in the segments where the impacts are big- gest, Alberta’s share of the supply chain effects also tends to be highest. In essence, the more important oil sands producers are to a particular industry, the more likely it is that a large share of the inputs will be sourced from Alberta.
in terms of oil sands investment, manufacturers account for 16 .5 per cent of the supply chain employment effects— making them an important source of inputs .
We see a similar trend in the fabricated metal products and primary metals industries, the other two major manu- factured inputs into oil sands investment. For example, in the fabricated metal products industry, the two seg- ments with the largest effects are the machine shops and metal tank manufacturing industries, and in both cases more than three-quarters of the employment effects occur inside of Alberta. As well, in the primary metal industry, the segment with the largest impact is steel pipes and tubes, where two-thirds of the employ- ment effects occur in Alberta. However, in segments where oil sands producers may be only a secondary source of revenues, the regional mix of production tends to be more diverse.
This represents considerable evidence that cluster effects are occurring in Alberta around oil sands investment. Businesses that specialize in supplying oil sands com- panies appear to be most commonly established in close proximity to their customers, in Alberta. Potential reasons for this include logistical challenges and the size of the equipment and components used in oil sands investment. In contrast, it is less critical for secondary suppliers to the oil sands to be located nearby. This doesn’t mean that other provinces cannot benefit from oil sands invest- ment; it merely influences how they are benefiting.
Indeed, manufacturing is the area where the rest of Canada most benefits from oil sands investment. About 86,000 person-years of manufacturing employment out- side of Alberta will be supported by oil sands investment; this is equivalent to 236 person-years for every billion dollars of price-adjusted investment. However, the mix of manufacturing employment effects is quite different in Alberta than in the rest of Canada. In Alberta, 84 per cent of the effects occur in the machinery, fabricated metals, and primary metal industries, versus 59 per cent outside of Alberta. (See Chart 15.) We discuss the peculiarities of production in each province later in this chapter.
WholEsalE TradE
The wholesale trade activity is an intermediate step in the distribution of merchandise, with wholesalers generally selling merchandise in large quantities to other businesses. However, some wholesalers, such as those that sell non- consumer capital goods (such as large pieces of industrial machinery), sell merchandise in single units to final users. Wholesalers can also provide logistics, marketing, and support services.
The impact of oil sands investment on the wholesale trade sector is surprisingly large, supporting 201,000 person- years of employment. This is equivalent to 551 person- years for every billion dollars of investment. Given the support role that the wholesale trade industry plays, it is perhaps not surprising that the regional breakdown of these employment effects is similar to the total for all industries. Alberta accounts for 66.5 per cent of the employment effects, followed by Ontario, British Columbia, and the Prairie provinces.
Unfortunately, there is no finer detail available on which types of wholesalers benefit from oil sands investment. However, the segment with the largest impact is most likely machinery and equipment wholesalers. These are the firms that facilitate the movement of heavy machin- ery, computer and office equipment, and other business- oriented machinery from manufacturers to the businesses that use them. Given the important role that machinery plays as an input into the oil sands, the wholesalers of this equipment likely benefit as well. Wholesalers of metal products, such as steel, are also likely beneficiaries.
financial sErvicEs
The financial services sector covers a diverse array of activities, including banking, insurance, and investment- related services. As well, activities like the rental and leasing of machinery, equipment, and real estate are included. In aggregate, oil sands investment is expected to support 87,700 person-years of employment in the financial services sector between 2012 and 2035. This is equivalent to 241 person-years for every $1 billion in investment.
The two areas where the supply chain effects are largest in the financial services sector include the rental and leasing of equipment, and banking, which account for 1.6 per cent and 1.4 per cent, respectively, of the supply chain employment associated with oil sands investment. (See Table 1 in Appendix B.) The effects for the rental and leasing industry have a high degree of concentration in Alberta (85 per cent), as does the real estate industry (77 per cent). This is an intuitive result in that the rental and leasing of machinery, equipment, and real estate is commonly a local activity, particularly if it is for a short period of time. You would not rent a car in Toronto if you needed it in Edmonton.
chart 15
The Manufacturing Supply Chain Effects Are Much More Diverse Outside of Alberta
(share of supply chain manufacturing employment effect by region, per cent)
Source: The Conference Board of Canada. Alberta
Other provinces
0 20 40 60 80 100
Machinery
Fabricated metal products Primary metals
Computer and electronic products
Plastics and rubber products Printing
Chemicals Other manufacturing
Some of the other segments of financial services, such as banking, insurance, and management companies have above-average effects outside of Alberta. These are all services that are more easily tradable, and thus less location-specific. As well, these are industries that have a sizable established presence outside of Alberta. For example, most of Canada’s largest banks and insurance companies are headquartered in Ontario.
TransPorTaTion and WarEhousinG
The transportation and warehousing sector transports passengers and goods, storage services, and ancillary support services related to these primary activities. The modes of transportation include trucking, ground pas- senger, rail, water, air, and pipelines; couriers and the postal service are also included.
Oil sands investment over the next 25 years is expected to support 81,400 person-years of transportation and ware- housing employment, equivalent to 224 for every billion dollars of investment. Fully half of these jobs will be in the trucking industry. This reflects the significant logis- tical challenge involved in moving sufficient material into the oil sands region. The postal service and courier industry experiences the second-largest impact within the transportation sector. This may be a reflection of oil sands companies making use of courier services for speedy delivery of small, high-value items.
It is also of note that nearly half of the supply chain employment effects in the transportation industry fall outside of Alberta. At first blush this may be a surprising result. Just as is the case with wholesale trade, transpor- tation plays a supporting role, and we might expect a regional distribution similar to that for all industries. However, oil sands operators may be making heavy use of in-house transportation capabilities for short-haul trips. In essence, oil sands operators have their own vehicles, and their use would by definition not be part of their external supply chains. Since the model’s sup- ply chain results capture only outsourced activity, and long-haul trips outside of the province are the ones most likely to be outsourced, we are seeing a sizable impact on transportation in other provinces versus Alberta. To put this into perspective, consider this. The broad mining sector, which includes oil and gas activities, accounts for nearly 5 per cent of the stock of trucks held by businesses in Canada.3 As well, it was recently
reported that Suncor’s in-house airline alone flies enough passengers to make it between the 10th- and 12th-largest airline in Canada.4 Many of the other major oil sands
operators also operate their own aircraft.