Canada is selling its resources at a deep discount these days, and the ripple effect will impact quality of life for Canadians.
The terms “differentials” and “discount” are circulating in newspapers and social media. They refer to the difference in Canadian oil price and the global oil price. That difference is disproportionately large right now — so large that it is making headlines.
In October, the Canadian economy averaged a loss of $30 million per day due to the discounted price. And the reality is, that impact affects communities across the country.
For example, if the differential price holds for a year, the province of Saskatchewan would lose about $500 million in royalties. That’s roughly nine per cent of Saskatchewan’s entire budget for the year.
Hop over to Alberta and you’ll find every $1 increase in the differential costs the province’s treasury about $210 million per year.
When government coffers take a hit, it affects us all in terms of cuts to public services, health care, and education, and reduced infrastructure spending. Canada’s entire standard of living suffers.
Health care already faces major challenges. Communities across the country need improved facilities, but it costs a lot. For example:
Construction of the new $1.4-bilion Calgary Cancer Centre is underway and will create 1,500 jobs in Calgary over the next six years. The cost is estimated at $1.4 billion. (The lost Alberta treasury revenue mentioned earlier, would pay for the cancer centre in less than seven years.)
The Government of British Columbia has approved a plan for the new Mills Memorial Hospital in Terrace. Planning is underway to ensure the facility will be able to meet the needs of the diverse surrounding communities and First Nations. The concept plan costs about $370 million.
Furthermore, the oil and natural gas sector is an important employer in many regions, including Indigenous communities. Oil sands companies purchased $3.33 billion in goods and services from 399 Indigenous-owned businesses in 2015 to 2016, and contributed $48.6 million to communities in support of education, sporting and cultural events.
With market access and a competitive investment climate, the oil and natural gas industry has the potential to add 120,000 additional long-term jobs to the Canadian economy over the next decade. Outside of Alberta, Ontario is the largest beneficiary of indirect jobs linked to the energy industry.
There is also potential for a $7.5-billion increase annually to government revenues, and $45 billion increase in gross domestic product by 2030. However, we are not on track to see those benefits. Canadian oil and natural gas will only see fair market value when the industry has better access to global markets.
Pipelines are a safe and economic way to ship product, and when it’s efficient to ship, we get a better price. Pipelines also make it possible to sell Canadian resources to new markets across the ocean. The demand is there, so when we have greater demand for our product, we can sell it for a higher price.
Unfortunately, the regulatory process in Canada is making it virtually impossible to get new pipelines built. This is about to get even worse if the federal government passes Bill C-69 in its current form. The Bill will change the National Energy Board and Canadian Environmental Assessment Acts, resulting in a new regulatory process. The government’s direction is flawed, and Bill C-69 will only increase complexity and uncertainty.
Capital investment in Canada’s oil and natural gas sector has dropped by half since 2014. As investors turn away from Canada due to regulatory uncertainty, we lose out on market opportunities, and our standard of living is put at risk.
As investment goes elsewhere, Canadians are losing jobs. It means industrial suppliers and manufacturers in Ontario are not getting the contracts connected with that investment, and the future prosperity generated by that investment is lost. Those consequences are significant and the impact will snowball.
There is no magic solution, but we must turn things around. It will take commitment and action from government to improve the situation for Canadians. Pause Bill C-69 until it is fixed and enables investment to return.