:
Good morning, everyone. We're here today to continue our study on energy security in Canada.
We're dealing today with the section of the motion that we passed to give a framework to this study. We're dealing today with regional economic impacts of oil and gas development.
We have with us today two groups of witnesses on the first panel and we also have two groups of witnesses on the second panel.
In the first panel today we have, from the B.C. Oil and Gas Commission, Eric Alexander Ferguson, commissioner and chief executive officer. Welcome, Mr. Ferguson.
And we have, by video conference today from Edmonton, Alberta, Alberta's Industrial Heartland Association, Neil Shelly, executive director, and Jana Tolmie-Thompson, economic development officer. Welcome to both of you from Edmonton. The area you're talking about today extends into the constituency I represent, so you're particularly welcome today.
We will go directly to presentations in the order listed on the agenda.
Mr. Alexander, go ahead with your presentation for up to seven minutes.
Good morning, everyone. I am Alex Ferguson, commissioner and chief executive officer for the British Colombia Oil and Gas Commission.
Some earlier submissions to this committee have highlighted the fact that unconventional gas--and more specifically, shale gas--is changing the energy landscape in Canada. Believe me, nowhere is that more evident than in British Columbia today.
In this submission I'll speak about our role as a regulator in British Columbia and the extent of the province’s natural gas resources from what we know today, and look forward a little bit from our perspective.
Certainly natural gas exploration and production has grown to become a crucial part of our province's economy, and as such, safe, responsible development has become a priority to stakeholders and citizens. The resource is abundant within our borders, and advances in horizontal drilling technologies have enabled more efficient capture. However, being rich in natural gas isn't the only piece we have in front of us. The government has driven competitive royalty regimes and a progressive regulatory structure we operate within. Prioritizing environmental and social stewardship has put us in the position we are in today.
My organization is a crown corporation that was signed into existence in 1998 through a piece of legislation in the province. We're headquartered in Fort St. John, which is the heart of our oil and gas industry for the province. We also have offices in Victoria, and satellite offices in Fort Nelson and Dawson Creek. We are an independent regulatory agency with responsibilities for overseeing oil and gas operations in the province through exploration, development, and pipeline transportation, all the way to reclamation--essentially a one-stop or single-window regulatory agency.
Essentially this means there's a split between government policy and the regulatory world. The province sells the land tenure, which gives companies the right to operate, and develops policies, whether they're environmental policies or fiscal policies, while we take on the regulatory responsibilities or the implementation of those policies. Our one-stop format not only brings all the industry requirements together in one place for streamlining; it provides a really good focus for coordinated, responsive decision-making. Part of our role is to inform our decision-making with a range of interests, from environmental to first nations and public concerns.
Our core roles as a commission, a regulatory agency, include reviewing and assessing applications for industry activity, consulting with first nations on every application, ensuring industry complies with the legislation, and cooperating with partner agencies. We don't do it alone. The policy interpretation work requires a lot of back and forth with different government agencies. The public interest is protected through the objectives of ensuring public safety--which is paramount for us, protecting the environment, conserving petroleum resources, and ensuring equitable participation in production for all operators.
As I said earlier, we are a crown agency funded by application review fees and production levies. Our sole shareholder is the Province of British Columbia, and our governing body is a board of directors appointed by cabinet. Regulatory decision-making is vested in me as commissioner. I also serve as the chief executive officer for the crown corporation in terms of keeping the operation running.
Decision-making authority is further delegated--I have the power to delegate authorities into the operation. We have three core operational divisions led by deputy commissioners: project assessment and compliance assurance; engineering, which is a core strength for us; and regulatory affairs and stewardship. Of course, we support that business with a variety of other administrative functions as a functioning business.
Natural gas in British Columbia is significant and growing. With the price of gas lately, it is a bit of a headache for people trying to figure out where that gas will go. But we have an opportunity in the province--it's the ninth year in a row that our reserves estimates have grown. We are one of the few jurisdictions in North America that have had consistent growth year-over-year, prior to unconventional gas discoveries through today.
We certainly have some of the more robust and defined basins for shale gas in Canada. The names of some of those basins are synonymous with anything you hear from the jurisdictions in the States: the Horn River Basin is one in particular; the Montney, in the south part of the Peace; the Cordova Embayment; and the Liard Basin. Those are significant opportunities, world-class shale plays or type gas plays.
The resource estimates for the Horn River Basin, for example, are anywhere between 500 trillion and 1,000 trillion cubic feet of gas. To put that in perspective, currently British Columbia produces approximately one trillion cubic feet per year. Given that one basin alone has upwards of 1,000 trillion cubic feet, we have a significant resource opportunity in front of us. These amounts of course are in addition to the approximately 90 trillion cubic feet remaining proven reserves in unconventional gas. These are reserves that are recoverable from our current technology.
Petroleum and natural gas land sales are a key indicator of industry’s investment in the province. The year 2008 was a record year for us, generating over $2 billion in sales for the province. In 2009 it was slightly below that, at about $893 million for the province. It is anticipated that 2010 will surpass 2009 at this point. This June saw the fifth-highest single sale in the province’s history, at over $400 million. Those are direct revenues to the crown. Royalties are forecast to increase $1.25 billion as a result of natural gas production increase alone between 2009 and 2013, and that trend is going to continue in the long-term forecast.
Coming back to the commission, we are recognized as a regulatory leader. We work well with other jurisdictions, most notably Alberta, our neighbour directly beside us. Our experience is being sought from other jurisdictions where unconventional gas interest is growing, for example, everywhere from Quebec, Atlantic Canada, and even Poland, as of the last few weeks. We're also a member of the Interstate Oil and Gas Compact Commission, a stateside agency that brings regulators together to share best practices. That's been a longstanding relationship we've had with all the jurisdictions across North America, in terms of understanding the regulatory pressures.
The commission maintains a number of working agreements and memorandums with different government agencies in the province. It's our way of properly interpreting the policy and legislation. The agreements we have support the commission’s authority with respect to upholding the values associated with those partner agencies’ mandates. We very much are a taker of their instructions and policies.
Commission employees ensure resources are recovered in the safest and most effective possible manner. We always attempt to ensure that liabilities incurred through these activities are borne by the operators. We interface with industry, first nations, landowners, the public, other government agencies, and of course peers in other jurisdictions.
The shift to unconventional gas in B.C. has been anticipated in the regulatory framework of the province. We recently enacted a new act in the province, the Oil and Gas Activities Act, which was brought into force on October 4 of this year. This legislation reflects a shift towards the future of oil and gas activity in the province, everything from ensuring we have the ability to incorporate technology advances, certainly the interest in unconventional gas and the different methods that are employed there versus the more conventional approach; increased social and environmental expectations—we've raised the bar in terms of addressing public and landowner issues—and also having the flexibility to allow the industry to drive forward.
In developing those regulations we've had extensive consultations over a four-year period with first nations, environmental groups, and industry. We believe we have a very streamlined and enhanced piece of legislation and regulations, reflecting the needs of those people, the environment, industry, and government itself.
On the ground we are certainly a newer jurisdiction, but we are one of the predominant shale gas operators in the country. In 2009-10 there were 557 wells drilled, which isn't a very large number. We're in the early stages of developing the plays.
Approximately 1,100 kilometres of pipeline were built in the province during this last year.
In the same period, on a yearly basis, we issued about 2,700 approvals for different aspects of oil and gas development in the province and we completed 4,300 site inspections with our field inspectors.
In conclusion, I really wanted to leave you with the notion that the success for us in responsibly developing this resource really comes down to four key attributes. One is what we like to refer to as “having the rocks”. We do have the resource. The shale is there and it's world-class. We do have a second component. It's having an effective and efficient regulatory model, which we believe we've slowly started to implement now. Third, it's having a competitive fiscal and policy environment, which is certainly not my mandate as the regulator, but I do see that evident in the province. And of course the fourth is executing well on all those as we go through.
We believe we are on the path to responsible, world-class shale gas development.
Thank you very much.
I wanted to give you a little bit of history on Alberta's Industrial Heartland Association, why it came to be. We were actually incorporated in May 1998 and became operational in January 1999. What's important is that prior to that, between 1993 and 1998, we worked very closely with the industry. This in fact was an industry-driven initiative, wanting the municipalities to come together and get some common regulations, guidelines for industries to exist.
We encompass five municipalities, and each municipality at the time had different municipal development plans, area structure plans, etc., and different rules. It was making it difficult for industries that worked in one and had pipelines going to another for the regulations. That was very much a local impact, getting the local industries—and these are mega-players, your Dow, Shell, Sherritt—coming together to incorporate or to have municipalities incorporate this.
I sent a map to you. I don't know if you received it or not. I'm assuming you did. It gives you the geographic outline of the heartland. We are 582 square kilometres, zoned heavy industrial primarily, with of course some conservation area and buffer zones in there.
We presently have 48 industries existing in the area. They employ over 7,500 staff, full-time and contractors, and the majority are very highly skilled and trained employees—the managers, the operators, the PhDs, etc. Based on the multiplier effect of one to four, that's equivalent to about 30,000 jobs directly and indirectly created just due to the industries. That's not including the different positions such as engineering EMPs, the maintenance, the turnarounds, etc.
In terms of value of job creation, revenue generation, it's very important within the Alberta context and of course the greater Edmonton region.
In addition, on the map, we also have 20 land holdings that folks are holding onto. They purchased land back in 2003, 2008. Suncor, Petro-Canada, etc. are looking to build their upgraders. A lot of those have been deferred right now. Hopefully something will happen on those lands as well, because we have the potential of creating another 2,000 to 4,000 jobs, excluding the construction jobs.
We do work very closely with our province, our provincial government, with Alberta Energy, Finance and Enterprise, Environment, and Intergovernmental Relations.
I'll pass back to Neil for an overview of Heartland again.
That gives you an overview. In our area, in addition to Sarnia, are some of the major hydrocarbon processing areas. There's been a lot of discussion lately regarding the development of Canada's oil sands resources and their future, but extracting the material from the ground is just part of the story.
The bitumen that is extracted from the oil sands is one of the heaviest forms of crude oil in the world, and, unlike conventional oil, must be upgraded before it can be used in the refining process. The upgrading process transforms this very heavy crude oil into a material called “synthetic crude oil” that has properties as good as, if not better than, light sweet oil and can be used at any refinery operation virtually anywhere in the world. These upgraders are very capital-intensive and create huge economic spinoffs in terms of the construction and operation jobs in the region in which they are developed.
But the upgrading of the bitumen into that synthetic crude oil is just the first step in the process. There are other benefits to upgrading that lead to future opportunities. One material that is produced as a byproduct is actually very rich in the basic chemical feedstocks required for the petrochemical industry.
We've looked at these opportunities and how we can advance further up the value chain. Studies done by us in conjunction with the Government of Alberta and supported by the federal government have identified numerous opportunities to actually take our raw resources more towards a consumer-ready type of product.
The bottom line in our analysis is that, at a minimum, two-thirds of the value of the resource in the oil sands lies in the processing of the materials, and the region that processes the materials is the one that's going to gain the most economic opportunity and diversity from these materials.
This trend towards exporting raw products in a raw form with less processing in Canada is becoming apparent when we look at the refining situation in western Canada. In 2000 western Canada as a region was a net exporter of refined products. If you fast-forward to 2008, you'll see that western Canada is actually now a net importer of refined products. A recent study done by the Government of Alberta indicates that if we don't get more processing capacity, western Canada alone could actually be importing 200,000 barrels a day of refined products into our region to meet our needs.
While the west is sort of becoming what's being considered an energy superpower, the trend is to extract the raw products, ship the materials out of the country, and have somebody else process and refine them. We are then buying back the finished products. Not only does this rob us of an economic opportunity, but it has created a situation where in western Canada we are now running into fuel shortages. It seems to happen just about every year now as we rely upon longer and longer supply chains to get diesel to our farmers, our miners, and our logging operations.
So as we said, while the extraction side of the business seems to be enjoying a resurgence in these last days, we cannot say the same thing for the value-added side of the business. A recent report from Alberta's Energy Resources Conservation Board predicts that by 2020 our share of processing of this bitumen material will go from where it's at currently, at about 64%, down to about 44%, unless something is done. What this means is that the majority of our resources will be shipped out in the raw form and other countries will enjoy the benefits and the economic diversity of processing these into consumer-ready types of products.
The lost opportunity we're looking at by exporting these materials is fairly staggering. Based upon the analysis we've done of five individual projects that may or may not go ahead in our region, the economic impacts amount to $40 billion in capital investments, 50,000 person-years of construction jobs, 10,000 person-years of engineering design work, and close to $1 billion in federal and provincial corporate income tax.
Another aspect of this, as well as the environmental interests associated with upgrading, is that our region, the Heartland region, actually has some very good geology for carbon capture and storage in and around the area. In our area we actually have three projects on the go that are looking at carbon capture and storage, supported by the provincial and federal governments.
By tying the processing into a carbon capture and storage project, we can actually reduce the carbon footprint of our oil-sands-based fuels to standards that would actually meet what's being considered in California for carbon-intensity standards. So when we take a look at energy security for Canada, by processing it here and employing carbon capture and storage technologies, we can actually have control over the environmental factors and help set the agenda around this matter.
So what can and should be done? Well, this is a very complex situation. It's something that we are discussing right now with the provincial government. We feel that it's something the federal government, through its policies and processes, needs to consider as a very important part of the agenda for Canada when we look at energy security and how we maintain the maximum economic opportunity for our country.
Thank you.
[English]
Mr. Ferguson, it's really interesting to have you here, because of course I'm from Quebec, and there are issues regarding shale gas.
Of course we want to be respectful of jurisdictions. You are a provincial regulatory body, and natural resources are under provincial jurisdiction. Nevertheless, I think that the Government of Canada might have a role to play vis-à-vis the monitoring.
I'm going to ask you a few questions to understand how it works, because clearly, what we've been learning since day one and what we hear every time we're talking about shale gas and the regulatory body is that, frankly, B.C. is a model. I'd like to understand more.
[Translation]
First of all, I would like to know how your organization works. When we talk about shale gas, that involves drilling holes, of course, which can lead to certain situations regarding the public.
How is your organization dealing with concerns between individuals and the industry? Specifically, what is your role? You talked about protecting people and the environment, but when it comes to people, what is your role in protecting the public?
We do, as a matter of course, with our fellow regulatory agencies across Canada and the United States, share a lot of information. So we're quite familiar with and understand what each jurisdiction is struggling with and tackling in terms of issues and opportunities. At least we try to share it.
As an example, one of the jurisdictions that both Alberta, as a regulator, and I visited three or four weeks ago was in Poland. The request, other than to have three or four days of a lot of meetings, was to help the Polish government, through the Canadian government, understand what different regulatory models might look like for that jurisdiction, which frankly doesn't have one at this point. Of course, it's a very heavily populated area. There are 39 million people living on a land base a third of the size of British Columbia who have a significant shale gas play in the works underneath them. There's cause for a lot of work on their part to get the resource out using a very well-defined energy security model and to understand, at the same time, how that affects the energy balance for the country.
I think all those types of things, if I use Poland as an example, certainly speak to the kinds of issues we have across Canada, whether they're in Quebec or Alberta, Saskatchewan, the Maritimes, or certainly British Columbia. I think the varied issues across those jurisdictions, as I know them today, offer experience and tools that can be applied and shared with the rest of the countries in the world. I think Canada has a great opportunity to demonstrate leadership in providing that expertise beyond our borders.
It took the English-speaking economic community in Canada over ten years to properly pronounce my name. It was not easy.
In the few minutes I have here today, I would like to address two subjects. The first is the issue known as Dutch disease, in the Canadian context. The second subject has to with the relationship between oil and gas development and regional increases in productivity.
With respect to Dutch disease, the name comes from an article published in The Economist in the 1960s regarding the Dutch economy. The Dutch manufacturing sector suffered considerably following the discovery of oil and gas in the North Sea. Several theoretical and empirical studies were then conducted. To put it in extremely simple terms, Dutch disease results from the relationship between a booming resource sector and the manufacturing sector.
A booming resource sector leads to rising production costs and an appreciation of the national currency. That is what happened in Holland's case and in many other countries like Australia, Norway and Canada. This increase in the value of the exchange rate decreases the competitiveness of the manufacturing sector.
In Canada, Dutch disease has a very particular regional dimension because, generally speaking, the resource boom is in Alberta and Saskatchewan. The secondary sector, manufacturing, is in Ontario and Quebec. Australia is facing a similar problem.
For instance, during the resource boom of 2002-2007, Canada lost approximately 275,000 manufacturing jobs. In a study I did with some European colleagues, we estimated that approximately 50% of these job losses in the manufacturing sector were caused by the impact of the resource boom on the value of the Canadian dollar.
Clearly, the question we must ask ourselves is this: Is Dutch disease really a disease—a bad thing—or is it simply a question of labour market adjustments? When there is a boom in one sector, jobs must come from elsewhere.
I would now like to quote Mr. Krugman, the 2008 Nobel Prize winner in economics. When he was an economist, and not a journalist, he said: “The worry seems to be that when the natural resources run out, the lost manufacturing sectors will not come back.”
As far as Canada is concerned, it is pretty clear that our oil and gas resources will not run out any time soon. One way to address this problem would be to significantly drop the price of oil, for instance, in the medium and long term. This could also create a problem like the one Krugman describes.
It is worth noting that Canada's manufacturing sector has not always been depressed by the resource sector. Prior to 2002, for about six years, the opposite effect was noted. With a drop in the cost of raw materials and a decline in the value of the Canadian dollar, many jobs were created in Canada's manufacturing sector.
The basic problem with the relationship between Canada's resources sector and manufacturing sector is that there seems to be excessive volatility in the manufacturing sector. This excessive volatility stems from how natural resources affect the value of the Canadian dollar. Thus, it is pretty clear that Ontario and Quebec benefit from having a more stable currency that does not depend on the uncertainties of the recourses sector, therefore, a currency like the euro or American dollar.
My second point pertains to certain facts from a study I am currently preparing for the C.D. Howe Institute on the relationship between Canada's resources sector and regional productivity.
In the study, I compared the strong growth of resources in Newfoundland following Hibernia, so Terra Nova and White Rose, and the growth in Alberta.
Note that productivity in Newfoundland has seen the largest improvement in Canada in the past 25 years, and this is mainly because of changes to the economy's structure. I am summarizing and simplifying, but we have gone from a very low-productivity resource, fish, to a very high-productivity resource.
In contrast, Alberta has seen among the lowest growth in productivity in Canada. Since 2002, productivity growth has been relatively weak in Canada. Note that the level of productivity is still very high, but the growth has been very weak. Basically, this is because we have moved away from oil production using normal standards with relatively high productivity. That source has been partially used up and there is growing reliance on extracting oil from the oil sands, which requires more labour and very high production costs.
I have provided a graph that shows both productivity measures. The graph shows that the oil boom has caused extraordinary growth in productivity in Newfoundland, while productivity in Alberta has actually decreased.
When we look at what is going on in the economy as a whole, we again see the opposite effect. It may seem a little surprising, but in Alberta, productivity growth has been extremely strong in sectors other than natural resources since 2002. Thus, the resource boom in Alberta appears to spread more easily to the other sectors of the economy, while this has not at all been the case in Newfoundland.
So that is basically my second conclusion for you here this morning. We must not assume that oil and gas development will always have the same effect on regional economies. It basically depends on the type of resource.
Thank you.
Good morning. My name is Peter Howard, and as the moderator indicated, I am the president and CEO of the Canadian Energy Research Institute.
Founded in 1975, the Canadian Energy Research Institute, or CERI, as we call it, is an independent, non-profit research institute specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research.
Members of the institute include the Government of Canada, the Government of Alberta, the University of Calgary, the Canadian Association of Petroleum Producers, and the Small Explorers and Producers Association of Canada.
On the oil and gas industry in Canada, the oil and gas component of the Canadian economy is historically focused on hydrocarbon production, pricing, royalties, and taxation. Success or failure is usually measured by levels of production, the profitability of hydrocarbon exploration and production companies, the royalty, and taxation levels of government. Often absent from this group of companies are the tens of thousands of workers that support the efforts of the E and P sector, namely the oil and gas service sector, or the OGS.
My brief this morning will focus on the economic impacts of the oil and gas service sector and its relationship to the Canadian economy.
Before I start I would like to go over a few definitions. The oil and gas producers are the corporate entities whose business it is to explore and develop hydrocarbon resources in the form of oil, oil sands, natural gas--including conventional, tight, and shale--and natural gas from coal, commonly referred to as coalbed methane.
Oil sands operators are a subset of the oil and gas producers who explore and develop oil sands resources. These companies may or may not have involvement in conventional oil and gas exploration.
The natural gas industry is a subset of the oil and gas industry, which covers all activities related to exploration, development, and transportation of just natural gas from the resource pools to the city gate meter stations. This includes exploration, drilling, production, gathering, processing, and pipeline transportation. The report generated by America’s Natural Gas Alliance, ANGA, in 2008, whereby it states that natural gas activities support more than 600,000 jobs and contribute $100 billion to Canada’s GDP, is an example of this portion of the oil and gas industry.
The oil and gas service sector is made up of the companies that offer products and services employed in direct support of oil and gas exploration and production activities for the oil and gas producers. These activities include exploration, drilling, completion, production, construction, processing, transportation, logistics, manufacturing, maintenance, and fabrication. This activity covers all conventional hydrocarbons, including oil, gas, and coalbed methane; all unconventional activities, including tight gas and shale gas; and all oil sands developments, but it does not include gas transmission in the form of pipelines.
On the oil and gas service sector, wells drilled, production rates, revenues, royalties, and taxes are replaced by words like casing, production strings, tubing strings, bits, wellheads, rig move, rig days, rig release, packers, plugs, fracing, cementing, coring, testing, and abandonment. Engineers, landmen, geologists, and geophysicists are replaced by surveyors, rig crew, drilling supervisor, trucker, loader operator, jug hound, mud man, snubber, well tester, tool push, well site geologist, and safety supervisor.
:
Numerous other words and jobs describe the manufacturing and fabrication industries that develop products used by the oil and gas sector in the construction of thousands of field facilities that dot the western Canada landscape. At the end of the economic life for a field facility, the final word is “abandonment”. The OGS sector also includes companies responsible for sealing, removing, and reclaiming the disturbed land footprint back to its original condition.
In order to estimate the economic contribution of the OGS sector, we utilize the Stats Canada 2006 P Input, modified base price of input-output tables at the “W” level of aggregation. These were examined. There are 38 industries that are either totally dedicated to the oil and gas services or partially dedicated with varying degrees of contribution. These 38 industries participate in manufacturing or utilizing 225 commodities that are employed by the OGS sector.
The many contributors to the OGS include industries that supply gravel for well-site road access, to the sands used for fracking, to engineers, designers, welders, carpenters, and electricians who manufacture modular components for field installations, to drill pipe, concrete, chemicals, boilers, tanks, heaters, and compressors, and to the truckers and mail service that support the OGS activities. Also included were the local machine shops, portable welding trucks, warehousing, transportation facilities, communication systems, nuts, bolts, and wire that indirectly support the OGS sector. From the Alberta fabrication facilities in Leduc, Alberta, to the pipe manufacturing facilities in Regina, Saskatchewan, to the manufacturing industries in southern Ontario and Quebec, the OGS sector covers thousands of companies employing hundreds of thousands of people located in virtually every province and territory of Canada.
Based on this examination, we came up with the following results:
It was determined that Canada's GDP, at a specified basic price for the year 2006, was $1.35 trillion.
The oil and gas service sector of the Canadian economy generated $65 billion, or 4.8% of that GDP.
In 2006 the provincial and federal governments took in $225 billion in government revenues over and above the oil and gas royalties.
The oil and gas service sector contributed $9 billion, or 4.1%, of the taxes paid to the provincial and federal governments.
In 2006 the oil and gas producers paid $12 billion in royalties from conventional resources, and an additional $2.1 billion from oil sands, totalling $15 billion.
In 2006 the Canadian economy employed 16.5 million people. The oil and gas service sector employed 800,000 people, or 4.8% of the total workforce.
Comparing these numbers against other industries, the oil and gas producers generate GDP of $87 billion; the automotive sector, $25 billion; the agriculture sector, $26 billion; the mining sector, $18 billion; the forestry sector, $29 billion; residential construction, $34 billion; non-residential construction, $15 billion.
Stating the GDP contributions of OGS by industry type, we came to the conclusion that 48% of the OGS is classified as “direct impacts” and covers the activities in the province where the developments are occurring; 25% is in indirect manufacturing, and this coverd industries that are manufacturing components for the oil and gas sector; and 27% is in other industries, made up of things like truck transportation, communication, engineering, warehousing, etc., which takes place all across Canada.
While the direct industries are specifically related to locations where oil and gas activities take place in western Canada, western Canada accounts for the majority. The other industries are located throughout the country. Breaking these numbers down, Alberta-based industries account for 67% of the oil and gas impact; Saskatchewan and British Columbia account for an additional 20%; Ontario and Quebec account for 12%; Manitoba and the Atlantic provinces account for 1%.
I would add one point: that the industries in Saskatchewan that generate pipe rely on the steel plate that is sourced from Ontario.
In 2009 international revenues from select Canadian-headquartered, Canadian-controlled OGS companies were $12.8 billion. A selection of these companies included eight drilling companies, 25 oil and gas sectors, and three pipeline companies. These companies have Canadian head offices and Canadian finance; they file provincial and federal tax returns but they do activities outside the country.
In summary, the oil and gas service sector contributes $65 billion to the Canadian economy, employs 800,000 workers, and pays $9 billion a year in government income and corporate taxes. In one form or another this sector can be found in virtually every province in Canada, and trade between the provinces makes this industry what it is today.
Thank you very much.
:
Okay, thank you for that clarification.
Mr. Howard, when you talked about the impacts, economic value added, in a very wide spectrum of 67% in Alberta, and then it came down to 12% in Ontario, those statistics seem to give validity to the theory that the professor has put forward, that the value added is inequitably distributed across the country.
I have an observation from the Alberta's Industrial Heartland Association. I don't know whether you heard their presentation, but they were prior to you. They indicated it was absolutely critical to achieve the high value added: the jobs, the equity in terms of a national job strategy, if you will, to process and upgrade more bitumen, and to do more refining in Canada, as opposed to our dependence on piping across the United States and so on and so forth.
Could you respond to that? First, do you think there is an ongoing challenge that value added will not be equitably distributed as a result of the oil and gas sector? Second, do you think commensurate with that we should be upgrading more of our bitumen, and refining, I guess in order to utilize the spinoffs? Do you think that should be part of a national strategy?
Before I start, I want to make sure I heard this right. I don't think Mr. Cullen was saying that he wants us to subsidize oil to build new refineries, but I might have heard that. I don't know that that's what his leader necessarily supports. Anyway, I just thought I would throw that in.
Professor, I have just a couple questions with respect to a study that was released on October 7, 2010. It was done by the Quebec Oil and Gas Association as well as SECOR Consulting. It talked about the potential economic benefits to the province of Quebec, for example, from the development of the shale gas. Are you familiar with that study at all?
Dr. Serge Coulombe: Yes.
Mr. Mike Allen: Okay. It talked about the benefits to Quebec. It said if 1,000 wells were in production at 150 sites, the Government of Quebec could receive $150 million in royalties annually. Under a second scenario with 7,000 wells, that would translate to annual royalties of slightly above $1 billion. The study of the benefits does not include expenses incurred for transportation, distribution of natural gas extracted, or corporate taxes paid by the industries and their suppliers, nor does it integrate the dynamic or structural effects for the economy of Quebec.
With regard to your comment on your C.D. Howe background that you're preparing, following Hibernia, Terra Nova, and White Rose, Newfoundland and Labrador saw the largest improvement in productivity. Doesn't that make the case, when you look at those numbers and this study, that Quebec should be looking at fostering this development of shale gas?