Trump Administration can’t ignore significant economic benefits Canadian oil/gas generates in United States
Canada will sit at the table to re-negotiate NAFTA with the United States in the near future and energy is expected to be a substantial part of the discussions. A new study on the impact of the Canadian oil and gas industry on both economies is intended to provide officials with a better understanding of how integrated the North American energy industry has become, according to Allan Fogwill.
“What we wanted to really do was provide the decision-makers in industry and in government the numbers associated with how the economics are affected by those Canadian oil and gas activities,” the CEO of the Canadian Energy Research Institute (CERI) said in an interview.
Not surprisingly, the study found the economic impact from Canadian production and exploration over the 11 years from 2017 to 2027 is quite significant, especially for the Alberta oil sands, which accounts for about one-third of Canadian oil output.
CERI estimates capital investment will be CAD$380 billion, operational revenues will total CAD$1.8 trillion, while CAD$2.7 trillion of GDP and 6,572,000 person-years of employment in Canada (US$45.6 billion in American GSP and 406,000 jobs) will be generated by the sector.
The oil sands, which represents about two-thirds of Canadian oil output, has the highest impact on Canadian GDP throughout the forecast period: almost CAD$1.7 trillion (61% of total GDP impact) compared to CAD$630 billion for conventional oil and natural gas at CAD$422.5 billion.
Alberta, no surprise, is the biggest economic beneficiary of oil and gas production, with 64 per cent (4,173
thousand person-years) of the national employment benefits. British Columbia and Ontario are next in line with 12 per cent each.
“I wasn’t surprised about the Canadian numbers because we’ve done those in the past,” said Fogwill. “There’s a strong linkage between energy-producing provinces and those that provide services to those provinces, in particular Ontario and Quebec where there’s a lot of services provided, such as financial and legal,”
What did surprise Fogwill and his team was the impact on the United States economy, at least on some of the regions where one wouldn’t expect a significant effect.
The linkages between Alberta and Texas – the two biggest oil and gas producing regions in North America – are obvious and well understood by industry and decision-makers. Many producing companies and service providers operating in the oil sands and conventional oil and gas have their headquarters in Houston and their Canadian subsidiaries are located in Calgary or Edmonton.
Technology, equipment, services, and capital flows freely across the border between the two sub-national economies.
California, on the other hand, was a bit unexpected for Fogwill: “I was surprised at the strong linkage to California because it’s actually second after Texas in terms of economic benefits tied to Canadian activities.”
A number of surprising states, including Florida and Illinois, enjoy economic benefits generated by Canadian oil and gas activities.
I asked Fogwill if Canadian and Americans have a good understanding of the strength of those economic linkages?
“Generally, I don’t think it’s well understood. I think people knowledgeable within the industry would see that as obvious because in a lot of cases they’re actually travelling to these other locations to do business,” he said.
“Outside of the direct actors within the energy sector, it’s not always obvious that there’s the support requirements from other provinces or states.”
Fogwill says attention is often focused on annual capital expenditures by oil and gas companies, but ongoing operations actually generate as much, and sometimes more, economic benefits.
Capital investment in the Alberta oil sands has slipped from around $80 billion a year to $25 billion because $50 oil supports expanding existing SAGD or mining operations (brownfield), but not building new ones (greenfield). Optimizing requires much less capital than construction.
“There’s a lot of capital required for any oil and gas activities. The initial investments are important, of course, but the ongoing operations tend to be much more significant in terms of the overall economic benefits that are generated,” he said.
Fogwill argues that the economic and employment benefits of Canadian oil and gas production are often perceived to accrue only to Alberta, but the CERI study demonstrates just how broadly distributed they are across Canada and the United States.
“What we see here is a success story in terms of the North American economy and how interlinked we are, not only province to province, but province to state, and these activities are of major benefits to a vast number of people,” he said.
After President Donald Trump’s bellicose trade rhetoric, Canadian will be crossing their fingers that NAFTA negotiators make it clear to the Americans how much their country benefits from oil and gas production north of the 49th Parallel.
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