RNNR Committee Report

Investments in the oil sands ripple throughout the Canadian economy

Oil sands activities increasingly contribute to economic activity in Canada. Significant investments in the oil sands have repercussions not only in western Canada but also throughout the country in the form of spin-off benefits to related industries such as business services, manufacturing, retail, finance and insurance.

According to the Canadian Association of Petroleum Producers, investments in the oil sands totalled approximately $8.5 billion in 2005 and about $8.8 billion in 2006.¹ The industry forecasts that capital expenditures in the oil sands over the next five years will range between $8 billion and $12 billion annually.² In fact, the Committee heard that up to $125 billion dollars in oil sands investments have been announced for the period 2006‑2015.³ While not all announced oil sands projects will go ahead, the figure is nevertheless indicative of the buoyancy of this industry.

Impact of the oil sands on Canada’s gross domestic product

With growing production from the oil sands, the Canadian Energy Research Institute (CERI) estimates that the value of bitumen and synthetic crude oil produced over the 2000-2020 period could total over $500 billion.⁴ CERI estimates that oil sands and oil sands-related activities together could, according to their model, contribute some $789 billion to Canada’s gross domestic product (GDP) over the study period (2000‑2020). While the majority of the economic benefits associated with the oil sands will be felt in Alberta, CERI believes that Ontario could also see a $102 billion boost to its economy over the 2000-2020 period, while the GDP impact of oil sands and oil sands-related activities on other Canadian provinces and territories is estimated at $53 billion dollars over the same period. Provinces other than Alberta are affected by the oil sands mainly because “Even though the resource is located in Alberta, the goods and services and equipment are coming from all over Canada.”⁵ CERI’s analysis shows that outside of the crude oil and oil sands sector it is the finance, insurance, real estate, and manufacturing industries in places like Alberta and Ontario which stand to benefit the most from the development of the oil sands. Indeed oil sands projects are stimulating demand not only in Alberta but throughout Canada and beyond for business services, banking and insurance services, steel, vehicles and manufactured equipment and components. Nationally, CERI estimates that oil sands and oil sands-related activities will account for about 3% of Canada’s GDP by 2020, up from about 1.5% in 2000.

GDP Impact of Oil Sands Development, 2000-2020

Source:    CERI brief, 24 October 2006.

Impact of the oil sands on employment

CERI estimates that oil sands activities will generate approximately 5.4 million person years of work in Canada over the 2000-2020 period. While about two-thirds of the employment impacts will be felt in Alberta, the CERI study interestingly finds that oil sands activities contribute to substantial job creation in other sectors such as manufacturing and retail in other provinces and countries. As Mr. Marwan Masri testified before the Committee, “four times more jobs will be created outside the oil and gas sector than in the oil and gas sector as a result of this development.”⁶ Moreover CERI finds that about 19 percent of the total employment impacts within Canada will be felt in Ontario, notably in the business services and manufacturing sectors.

Employment Impact of Oil Sands Development, 2000-2020

Source:    CERI brief, 24 October 2006.

The economic impacts of the oil sands are also being felt in other, more subtle, ways. For example, Canadians from all regions of the country are leaving regions where employment opportunities are sparse and moving to Alberta in order to participate in the development of the oil sands. The salaries they earn often sustain other family members who have stayed behind in their home community. The Committee heard from a number of witnesses who emphasized time and again that the economic impacts of the oil sands are truly being felt across the country. For example, Syncrude’s Jim Carter offered this observation:

“One need only consider the number of direct flights that have been added between Fort McMurray and other parts of Canada over the past few years to gauge the economic impact of oil sands across the entire country. We anticipate that the $54 billion on capital investment projected over the next five years will create 26,000 direct jobs by 2011. For each of these, studies indicate a further three jobs are created in the service and support sectors, resulting in a total of 100,000 jobs created.”⁷

The oil sands and government revenue

While those companies active in the oil sands sector are clearly generating healthy profits, the development of the oil sands also generates considerable revenue for the Alberta Government, which owns the resource, as well as for the Government of Canada. The Canadian Energy Research Institute estimates that, in total, oil sands production and development activities could generate about $123 billion for governments in Canada during the 2000-2020 period, mainly in the form of corporate and personal income taxes, property taxes, and, in the case of Alberta, royalties. According to CERI’s model, the Alberta Government stands to collect about 36% ($44 billion) of that total while municipalities in Alberta would collect 10% ($11 billion). The Government of Canada’s share is modeled to reach 41% ($51 billion), the clear implication being that the oil sands industry is important not only to the Alberta Government but also to the country as a whole.

The other side of the ledger

Of course, besides contributing to economic expansion, job growth and government revenue, the development of the oil sands also gives rise to difficult to quantify but non-trivial environmental and social costs that must also be considered when assessing the impacts of the industry. These are discussed in greater detail in the sections that follow. Considerable emphasis is placed on greenhouse gas emissions and water use associated with oil sands activities.

The oil sands can be an important component of a secure future for Canada, but only if the right policies and technologies are developed and implemented so that this resource can be developed in a sustainable manner.