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Alberta's oil sands expected contribute $4 trillion to Canada's GDP over the next 25 years

Alberta's oil sands expected contribute $4 trillion to Canada's GDP over the next 25 years

The Canadian Energy Research Institute (CERI) released its 25 year outlook on Monday for the Canadian oil sands industry. The report entitled "Canadian Economic Impacts of New and Existing Oil Sands Development in Alberta (2014-2038)" summarizes the expected contribution of the oil sands industry to federal and provincial GDP, corporate revenues, taxes and employment across Canada over the 25 years period. The report is a revision of a previous 25 year study released in 2011. 

Click here for a link to the full CERI report

Some key highlights of the 25 year forecast:

  • Crude oil production from the oil sands is expected to hit 3.7 million barrels per day (bpd) by 2020 and 5.2 million bpd by 2030.
  • Total capital spending for new projects and sustaining capital projects (i.e. expansion of existing facilities) is expected to total $514 billion over the next 25 years.
  • Total capital and operating costs for the oil sands industry is expected to average $55 billion per year.
  • Total revenue to the oil producers is estimated at $2.5 trillion for that period.
  • The oil sands industry is expected to contribute $3.87 trillion to the Canadian GDP between 2014 and 2038. Alberta will net 89% of that benefit, or $3.43 trillion. The contribution to other provinces is forecasted at $440 billion over the 25 year span.
  • The province of Alberta will net $302 billion in taxes and $600 billion in royalties. 
  • The federal government will net $574 billion in oil sands related taxes over the next 25 years.
  • The total number of people employed in the oil sands - direct, indirect and induced - will grow from the current 514,000 jobs across Canada to 802,000 by 2028. Alberta’s share of the workforce will peak at 246,000 by 2024. The remaining jobs will be scattered across Canada.

CRUDE OIL PRODUCTION

BITUMEN PRODUCTION FROM THE OIL SANDS

Canada produced about 4.5 million barrels of oil per day (bpd) in the last quarter, with 2.5 million coming from the oil sands. CERI expects that number to reach 3.7 million bpd by 2020 and grow to 5.2 million bpd by 2030. By comparison, the Canadian Association of Petroleum Producers (CAPP) forecasted 4.8 million bpd by 2030 and the US-based Energy Information Agency (EIA) is projecting Canadian oil exports could reach 6.7 million in 2040.

Currently, about 60% of Canada's oil production is from the oil sands, with about 50% sold as bitumen and the remainder upgraded to synthetic crude oil. Since bitumen production continues to grow but no new upgraders are being built (or expanded), the percentage of upgraded crude oil is expected to drop. Major production growth expected from Imperial Oil's Kearl Lake and Suncor's Fort Hills will likely get sold to market as non-upgraded bitumen (or diluted bitumen).

CAPITAL EXPENDITURES

For oil production to grow, significant expenditures would be required by the oil sands industry. The CERI report estimates that total spending could exceed $514 billion over the 25 year period. That includes both capital expenditures for new plants and money spent on expansion of existing facilities (or sustaining capital projects).

Interestingly, capital expenditures are expected to peak in 2018, then level off. In contrast, maintenance and operating costs are expected to account for the majority of oil sands spending over the next 25 years. Total spending by the oil sands industry is expected to average $55 billion per year. 

TOTAL INITIAL & SUSTAINING CAPITAL REQUIREMENTS BY THE OIL SANDS

TOTAL INITIAL & SUSTAINING CAPITAL REQUIREMENTS BY THE OIL SANDS

TOTAL EXPENDITURES BY THE OIL SANDS - CAPITAL AND OPERATING EXPENSSES

TOTAL EXPENDITURES BY THE OIL SANDS - CAPITAL AND OPERATING EXPENSSES

JOBS

DIRECT EMPLOYMENT BY THE OIL SANDS - FORECAST

DIRECT EMPLOYMENT BY THE OIL SANDS - FORECAST

The CERI report differentiates between direct, indirect and induced employment. A direct job is defined as anyone employed directly by an oil sands producer or by an oil sands manufacturer (such as in the fabrication of modules), located mostly in Alberta. CERI estimated that 146,000 people are employed directly in the oil sands and this number is expected to peak at 256,000 by 2024. Post-2024, this number is expected to level off as the number of new projects coming on-line is expected to slow.

Indirect jobs are defined as oil service jobs and components manufacturing throughout Canada, such as piping, valves, equipment and instruments. Induced jobs are defined as employment generated by the income of the direct and indirect employers and employees throughout Canada.

The CERI study estimated that for every person directly employed in the oil sands, 1 indirect job and 1.5 induced job is also created in Canada.

“For every 1 direct job generated in the Alberta oil sands, 1 additional job is generated by indirect association and 1.5 jobs by induced association, in Canada. Oil sands related Canadian employment is expected to grow from the current level of 514,000 jobs to a peak of 802,000 jobs in 2028.”

TAXES AND ROYALTIES

BITUMEN ROYALTIES PAID TO THE ALBERTA GOVERNMENT

BITUMEN ROYALTIES PAID TO THE ALBERTA GOVERNMENT

The estimates in royalties and taxes paid by the oil sands producers and direct employees are nothing short of staggering. CERI estimates that approximately $1 trillion in taxes will be paid to federal, provincial and municipal governments in the form of personal and corporate taxes. The Alberta government is expected to collect $600 billion in royalties over the next 25 years.

Oil sands producers are expected to pay close to $5 billion in royalties to the Alberta government. If growth in oil production continues as planned, that number is expected to grow to over $19 billion by the year 2024.

Over the next 25 years, the oil sands industry is expected to contribute:
$3.87 trillion to the Canadian GDP
802,000 jobs to Canada's workforce
$902 billion in Alberta taxes and royalties
$574 billion in federal taxes
$2.5 trillion in corporate revenues.

The 2014 study assumes a revised oil price of US$85 per barrel for West Texas Intermediate (WTI) over the 25 year span. That’s significantly lower than the US$100 per barrel price the industry had previously been using. Interestingly, the distribution of benefits to Alberta versus the other provinces was also revised. The 2011 study estimated that Alberta would reap 95% of the economic benefits from the oil sands. That number has now been reduced to 89%. 

Why the big difference? The institute blames Statistics Canada, who traditionally lumps oil sands data in the same bucket as mining and industrials. This new CERI report splits out the impact of oil sands and shows just how important this industry is to the economy of Alberta and the rest of Canada.

ALL FIGURES AND PROJECTIONS COURTESY CERI BRIEFING PAPER NOVEMBER 2014 • ALL AMOUNTS QUOTED ARE IN CANADIAN DOLLARS UNLESS OTHERWISE STATED
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