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Canada-US in oil tangle Disagreements over impact of bitumen oil exports on Canadian economy; IMF believes claims stretched; others point to benefits Gary Park For Petroleum News
To export or not is the question that is tying U.S. and Canadian crude producers, marketers and legislators in knots.
With the continent awash in surplus supplies and the old and cozy cross-border arrangement that saw Canada ship more than half of its oil output to the Lower 48 now in turmoil, the stage is getting littered with unresolved issues.
Canada has been endlessly told by federal and provincial governments that its economic growth is firmly tied to opening markets beyond North America, especially as the U.S. is propelled towards self sufficiency by rising volumes from its Bakken and Eagle Ford plays and is turning down the flow of crude across the 49th parallel.
But that argument is being challenged by a growing number of authorities, notably the International Monetary Fund, IMF. Others disagree.
Separately, while the U.S. grapples with decisions on chasing its own offshore exports, Bank of Nova Scotia analyst Patricia Mohr is among leading commodities analysts predicting that U.S. oil will enter Canada at a much faster pace over the next few years, while companies such as Enbridge and Crescent Point Energy are laying plans to re-export Canadian crude from the U.S.
Economic impact the issue The biggest sticking point in Canada, as TransCanada, Enbridge and Kinder Morgan press on with their plans for pipelines to the Pacific and Atlantic coasts to ship oil sands bitumen to Asia and Europe, is whether those projects are vital to the Canadian economy.
The IMF is in the forefront of those who believe the claims are being stretched, arguing that although expansion of exports would, on balance, be an economic plus, the positive impacts outside the energy sector and producing provinces would be modest.
Andrew Jackson, a professor at Ontario’s York University and senior policy adviser to the left-leaning Broadbent Institute, wrote in the Globe and Mail that the IMF study suggests “there is much more to a sound energy policy for Canada than building pipelines for export. Deepening economic linkages within Canada is certainly key to wider sharing of the benefits of further energy development.”
The IMF underscored the domestic importance of oil and natural gas production in Canada, supporting 23 percent of private non-housing investment and 26 percent of merchandise exports, compared with 15 percent and 14 percent in 2000.
However, the IMF pointed out that the overall economic impact of an expanding energy sector has negative elements, with higher energy prices raising the value of the Canadian dollar over the past decade, intensifying competitive challenges in non-energy sectors.
Direct rise to GDP small The direct impacts of rising oil and gas production on Gross Domestic Product expansion over the decade has been just 0.1 percentage points of the overall annual growth rate and has created only 1.7 percent of new jobs.
But, when the benefits to the engineering, construction, refining and finance sectors are taken into account, the IMF estimated the oil and gas industry accounted for one-third of cumulative GDP growth between 2007 and 2013.
The IMF study said that if oil and gas production grows by 20 percent from oil sands expansion and LNG projects, Canadian GDP would rise 2 percent in 10 years.
It estimated that every C$1 invested in the Alberta energy sector adds 89 cents to national GDP, of which 82 cents would go to Alberta, while the same C$1 boosts Canadian manufacturing GDP by a mere 3 cents.
Labor compensation More upbeat about the benefits of raw bitumen exports to Canada’s economy is a report by the School of Public Policy at the University of Calgary.
It said labor compensation in oil and gas extraction leads the way nationally at more than three times the average hourly earnings in the Canadian economy generally and 50 percent above manufacturing.
Trevor Tombe, an assistant professor of economics at the university, said it is “completely false to claim raw energy exports do not represent ‘high-paying, value-added jobs.’ The opposite is true.”
Labor productivity in oil and gas averages more than C$200 an hour, trailed by utilities at C$160, while manufacturing comes in at C$50, according to Statistics Canada data.
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