chapter summary
Between 2012 and 2035, $364 billion in price- adjusted oil sands investment is expected to take place. In aggregate, we estimate that this will support 3.2 million person-years of employ- ment, or 8,800 for every $1 billion in price- adjusted investment.
Regionally, the majority of these employment effects will occur in Alberta, but there will be significant implications for most of the other provinces. Ontario will experience the largest effects outside of Alberta.
Oil sands investment also has significant implications for our international trade and investment flows. For example, the supply chain effects for international imports will actually exceed those for the provinces outside of Alberta
Any investment of this magnitude has significant implications for policy-makers, including issues such as sustainable development, building adequate infrastructure, workforce training, labour force mobility, fiscal policy, and foreign policy.
Regionally, the majority of these employment effects will occur in Alberta, but there will be significant impli- cations for most of the other provinces. For example, 30 per cent of the supply chain effects will occur out- side of the province of Alberta, with Ontario capturing half of these effects. As well, 41 per cent of the income effects will occur outside of Alberta. In aggregate, Ontario will be the largest beneficiary outside of Alberta, with it capturing 11.7 per cent of the employment effects. Ontario is followed by British Columbia (6.9 per cent), Quebec (3.4 per cent), the Prairies (3.1 per cent), and Atlantic Canada (0.7 per cent).
Within each province it is interesting to note what types of industries are affected. For example, in Alberta there is strong evidence that cluster effects are occurring, with businesses that specialize in supplying oil sands com- panies most commonly being established in Alberta. In contrast, it is more likely that secondary inputs come from other regions, where an industry may already have an established presence. Examples of this include forest products from British Columbia, steel products from Ontario, and tires from Nova Scotia.
This is not to suggest that how other provinces can benefit from oil sands investment is limited. Indeed, our interviews conducted as part of this study confirm that there is a general feeling of ample opportunities in a wide variety of industries. To take advantage of these opportunities, several key success factors were identified: Establishing a local presence in Alberta is an import- ant part of building a lasting relationship. Oil sands producers tend to use known and trusted suppliers, and having a local presence can help to build trust. Having a unique value proposition, either better prod-
uct features or a better price, is key to competing with established suppliers.
The ability to adapt your products and services to the specific needs of the different companies operat- ing in the oil sands is also important to success. The employment associated with supply chain and income effects overlooks one other aspect of oil sands- related employment, namely that a significant share of the people who work in the oil sands region don’t actually reside there. In fact, about one in seven workers in the
key industries of construction, oilfield services, and oil and gas extraction in the region of Wood Buffalo-Cold Lake lives out of province, but out-of-province workers are found in other industries as well. In total, we esti- mate that there were 5,200 out-of-province workers in Wood Buffalo-Cold Lake in 2011 and that they earned $280 million in labour income. Newfoundland and Labrador, British Columbia, and Saskatchewan are the largest source provinces for these workers. Some of the income they earn will remain in the prov- ince of Alberta, as the workers will spend some of their earnings on things like food and housing while they are working in Alberta. However, a significant share of this income will be remitted back to their home provinces. In the case of the Atlantic provinces, we expect that this will be a sizable supplement to the supply chain and income effects in those provinces. In Newfoundland and Labrador in particular, the income remittance effect is expected to be four times the size of the supply chain effects.
oil sands-related investment is expected to generate $79 .4 billion in federal and provincial government revenues between 2012 and 2035, on an inflation-adjusted basis .
Beyond the employment impacts, oil sands investment also has significant fiscal implications for the federal and provincial governments in Canada. In fact, oil sands- related investment is expected to generate $79.4 billion in federal ($45.3 billion) and provincial ($34.1 billion) government revenues between 2012 and 2035, on an inflation-adjusted basis. This includes the effects of per- sonal income taxes, corporate profit taxes, and indirect taxes (things like sales taxes and taxes on fuel). In terms of the breakdown by province, the largest benefits would accrue to Alberta, which would receive 76.9 per cent of the provincial total, or $26.3 billion. However, as federal government transfers to the prov- inces tend to follow a per capita distribution, all of the provinces would experience significant effects once their share of federal revenues is included, assuming the federal revenues were not used differently, such
as paying down debt. For example, Ontario would garner $17.6 billion of the federal fiscal benefits and $3.8 billion in direct provincial revenues.
Oil sands investment will also have a significant impact on our international trade and investment. For example, the supply chain effects for international imports will actually exceed those for the provinces outside of Alberta. Most of the imports that result from oil sands invest- ment will be manufactured goods, and the U.S. will be the largest beneficiary, as it remains the source for more than half of Canadian imports for nearly all of these products. We estimate that 192,000 person-years of manufacturing employment in the U.S will be sup- ported by oil sands investment and related activities. As well, in the last three years alone, 32 per cent of total investment in Canada’s oil and gas sector has been foreign, and much of this investment has been directed toward the development of the oil sands. The recent bid by CNOOC of China for Nexen is just the latest example of the importance of FDI to the development of the oil sands. This is part of a trend that is seeing Asia and to a lesser degree Europe playing a greater role in oil sands development, while the role of the U.S. is becoming less important. As well, FDI may be growing in import- ance for some of the industries that supply the oil sands, in particular in the oilfield services industry.
There is also some evidence that Canada’s expertise in the oil sands is supporting outward FDI and exports. For example, although Canada remains a net importer of capital for the oil and gas industry, its stock of outward FDI is rising and reached a record high in 2011. As well, Canada is a net exporter of capital in the oilfield services industry. Finally, Canadian exports of certain products like oil and gas equipment, and pumps and compressors (which are major inputs into the oil sands) have surged in recent years.
In summary, oil sands development will have wide- ranging effects on Canada’s economy, and this will translate into implications for policy-makers as well. On the domestic front, policy-makers will need to con- sider issues such as sustainable development, building adequate infrastructure, workforce training, labour force mobility, and fiscal implications, just to name a few. Given the role of foreign businesses in both developing the oil sands and ultimately in where the final product will be consumed, our foreign policy will also be a fac- tor. How we respond to these challenges will determine whether or not the economic potential of the oil sands is fully realized.