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Canadian Oil Emergence
Outline
– Basic Overview of
Economic Status
• Economic
Performance
• Causes for Success
• Looking Ahead
• Current Trends
• Limitations
– Energy Sector
•
•
•
•
•
•
•
Looking West
Oil Statistics
Energy Distribution
Bitumen
Alberta Tar Sands
Money to be Made
Impacts
Economic Performance
–
For almost a decade, Canada has recorded the fastest
economic growth and strongest budget position of the
Group of Seven (G-7) major industrial countries.
Since 1995, Canada’s real GDP growth has averaged
3-1/2 percent a year—2-1/2 percent on a per capita
basis—narrowing the gap with the United States and
remaining well above most other G-7 countries.
Only G7 country in surplus in 2006.
–
–
•
–
Likely to continue in 2007 and 2008.
Canada has had the lowest total government net debtto- GDP ratio of any G7 country since 2004 (less than
27%).
Canadian Growth: 1995-2003
Canada
France
Germany
Italy
Japan
United Kingdom
United States
Unweighted
Average excluding
Canada
Real GDP
GDP per
Growth per capita
capita
3.5
2.5
31,942
2.2
1.8
27,047
1.2
1.1
28,104
1.5
1.5
27,480
1.2
1.0
28,278
2.8
2.4
27,777
3.3
2.1
38,031
2.0
1.6
29,453
General Government percent of GDP
Fiscal Balance
Net Debt
Average
2003
Change 1995-2003
2003
0.0
1.2
-34.5
34.8
-3.0
-4.1
3.8
42.7
-2.5
-3.9
12.3
52.0
-3.4
-2.5
-11.6
93.6
-6.2
-8.0
54.9
79.4
-1.2
-3.2
-3.8
33.5
-1.3
-4.7
-12.7
46.2
-2.9
-4.4
7.2
57.9
Causes for Success
– Strong institutional framework
• Inflation targeting
• National government committed to balanced
budget
– Continuing structural reforms
• Employment insurance system
• Tax cuts
• Trade liberalization (In particular with the
U.S.)
Looking Ahead
– The FY 2006/07 budget has centered on the new
government’s objective to reduce the federal debt by
C$3 billion a year.
– FY 2005/06 surplus (the ninth consecutive federal
budget surplus) to advance the target of lowering the
ratio of federal debt to GDP to 25 percent by FY
2013/14.
– The budget also aimed to contain expenditure growth
and lower the tax burden, through a 1 percentage point
reduction in the goods and services tax and other
measures designed to boost incentives to work, save,
and invest.
– Canada continues to add over 3% more jobs per year
Limitations
– Labor productivity going down (In relation to
U.S.) while the percentage of the population
working is going up.
– Canadian Dollar is currently at .9505, a level not
seen since the late 1970s.
• Consumption is staple of economy
– Manufacturing sector is struggling under the
weight of a strong currency and weak U.S.
demand Rising C$ had an effect on net exports,
which continues to be drag on economic activity.
Energy Sector
– Gross revenues from exports of all forms of
energy from Canada (mostly oil, natural gas and
coal with some electricity) amounted 22% of the
value of all Canadian goods and services sent
out of the country. The importance of the
Canadian energy sector has risen with higher
prices and growing oil production.
– Energy exports accounted for only 12.5% of the
value of all Canadian exports in 2002.
Looking West
– Rising revenues from commodity exportsnotably oil and gas.
– Labor demand shifting from manufacturing
toward the natural resource sector and services.
• Jobs shifting from east to west.
• Largest migration in over a century.
– Unemployment rate has fallen to a 31- year low
of 6.1 percent.
– Productivity growth has also accelerated since
mid-2005, following several years of lackluster
performance.
Energy Statistics
– 7th leading producer and consumer of oil in the world for
2006*
– Canada is a net exporter of energy
– Estimated to have the second largest oil reserves in
world**
– Canada is the largest importer of crude oil to the U.S.
– Canada is the largest petroleum importer to the U.S.
– Blended heavy crude oil accounted for 64% of total
Canadian crude oil exports in 2006 with light crude and
equivalent comprising the remaining 36%.
Oil Distribution
– Canada remained the leading source of oil imports to the
gulf coast, ahead of both Mexico and Saudi Arabia
– The main market for Western Canadian crude is the U.S.
Midwest where the refining centers of Chicago,
Minneapolis/St. Paul, Minnesota and Toledo, Ohio
absorbed 49% of total Canadian oil exports in 2006.
– In contrast, the export market for Eastern Canadian
offshore oil production is mainly the U.S. East Coast
which in 2006 accepted 82% of that production. Another
15% went to the U.S. Gulf Coast with three per cent to
"foreign" markets.
Top Ten Oil Reserves
Bitumen (Tar Sands)
– Bitumen:
• Soluble organic matter, solid at room temperature
• The crude bitumen within the sands is a naturally occurring
viscous mixture of hydrocarbons
• Solid in natural state
• Upon heating, bitumen will flow
 Hot summer days will cause bitumen to oozes from outcrops along
the river valleys in northeast Alberta
• Is refined into “synthetic” crude
• Producing a barrel of synthetic oil through mining involves using
hot water to extract tarlike bitumen from two tons of sand, and
then processing the bitumen into high-quality oil that sells for
about the same price as the benchmark West Texas
Intermediate.
Bitumen Mining
– The mining approach
excavates the oil sand,
removes it by truck and
separates the bitumen
from the sand by adding
warm water and agitating
it.
– The “in situ” process
removes the oil from the
sand underground
through a variety of
methods, such as cyclic
steam stimulation or
steam-assisted gravity
drainage. Once the
bitumen has been
extracted it is either
diluted and refined or
upgraded into synthetic
crude oil.
Alberta Tar Sands
– The area is estimated to
contain about 2.5 trillion
barrels of oil although
less than 300 billion
barrels are believed to be
recoverable with today's
technology.
– Alberta's oil sands
comprise one of the
world's two largest
sources of bitumen; the
other is in Venezuela.
Alberta Concentration of Bitumen
Money to be Made
– In 2004,
Canada led
the world in
planned
exploration
expenditures,
accounting for
almost 20%.
Why is Canadian Oil Attractive?
– For the U.S.:
• It is not foreign energy
• Existing infrastructure of pipelines and refineries
– For the rest of the world:
• Investment opportunities*
• It is a stable country/ government (Low Risk)
– It looks like this is the future of oil (as long as
prices stay above $60 per barrel**)
– Potential for a stable supply***
Impacts
– Canada becomes a “Big Fish” in the North American and world energy
market
• Given the importance of energy supply for the stability of the world
economy, this advantage could translate from economic benefit into
increased political power.
– Destabilize politics
• Competition for oil profits has the potential to destabilize the Canadian
political system.
• Ottawa may have a difficult time leveraging its oil wealth in foreign
policy, because provincial governments own the resources.
• Possible shift in domestic power from the east to the west.
.
– Economic gains from the oil sands boom are concentrated in the Canadian
west. The negative impact of increasing energy costs and a slowdown in the
automotive sector will be mostly felt in the Canadian east, particularly
Ontario.
Questions?