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The Trans Mountain Expansion Project (TMEP) has a huge, positive effect on Canada’s prosperity according to a new study from the Conference Board of Canada. The study, titled Who Benefits, builds on previous work carried out by the Board for TMEP, and takes an unprecedented look at upstream and downstream economic and fiscal benefits. “Overall, these additional benefits would generate 678,000 person-years of employment and $18.5 billion in fiscal benefits over the first 20 years of the TMEP’s operations. This is equivalent to 33,900 jobs and $925 million per year over this period.”

The Conference Board’s earlier study determined the Project’s employment effects at 123,000 person-years of work including 58,000 during construction and 65,000 during the first 20 years of operations. About 62 per cent of construction-phase employment occurs in British Columbia — nearly 36,000 person-years of work — including direct, indirect and spinoff jobs.

Once the impacts of building and operating the pipeline are added to the upstream and downstream impacts, the benefits of the Project rise to more than 800,000 person-years of employment — equivalent to 40,000 jobs per year through construction and operations — and $47 billion in government revenues between 2012 and 2038.

We recently spoke with Michael Burt, Director, Industrial Economic Trends for the Conference Board to get some additional insights about the new study.

The new study talks about ‘upstream’ and ‘downstream’ benefits. What do these two terms describe in the oil business?

Upstream refers to where the oil is coming from — the production part of the business. Companies that take the oil out of the ground and get it ready to move to market via a pipeline.

Downstream refers to venues where the oil is transported or used once it leaves the pipeline. That could be oil tanker activity, a refiner or users of oil products.

How many jobs would Trans Mountain Expansion Project create in the upstream and downstream sectors?

There would be 678,000 person-years of employment and $18.5 billion in tax benefits over the first 20 years the expanded system is up and running. This is equivalent to 33,900 jobs and $925 million per year in benefits. This is in addition to employment benefits from pipeline operations. If you include jobs operating the pipeline, it comes out to 37,000 jobs per year.

The report suggests Canadian oil will be more valuable if it can reach international markets. Why is that?

At present, we can really only sell into the Canadian or US markets. We don’t have the ability to move it outside of those markets. Oil demand in North America has been fairly stagnant and production has been rising. There’s basically too much oil in the middle of the continent and not enough capacity to move it away from there. The Trans Mountain Expansion Project would provide a relief valve.

The impact of the current situation is apparent in how Canadian oil prices compare to prices in other countries. For example, Canadian conventional heavy oil or diluted bitumen is fairly similar to the oil that’s produced in Mexico but it’s generally selling at a discount of several dollars a barrel, sometimes as much as $10 or $12 a barrel below Mexican heavy crude. That difference boils down to Mexican oil having access to the ocean — it can go anywhere in the world — and Canadian oil cannot.

The report says the extra money is generated as a result of greater market access without additional expenditure on production. Why is that?

There is a cost associated with moving the oil through a pipeline and obviously with building the pipeline. But basically the end result is Canadian producers, without doing anything other than changing their market access, are able to get an average of about $2 a barrel more. The Muse Stancil market analysis on the Trans Mountain Expansion Project calculates $74 billion in additional producer revenues over 20 years. Some of this revenue gets paid out in higher corporate taxes and royalties but it gets dispersed through the economy in other ways as well, primarily in the form of increased dividends and investment.

The report talks about ‘dividends’. Does that mean if you hold oil company stocks in your retirement plan, you could see more benefits?

About one-third of that $74 billion, approximately $24 billion, gets paid out in the form of higher royalties and higher corporate taxes. That leaves roughly $50 billion. We looked at what oil producers would do with that money over 20 years. About $14.5 billion or 30 per cent of it gets distributed as dividends and the remainder is available for investment by the companies. Anyone who directly or indirectly owns oil and gas stocks would benefit from the dividends, whether it’s directly by owning shares of a company such as Suncor or indirectly through a pension plan or a mutual fund that owns stock in an oil and gas company.

The report says most of the money generated through higher oil sale prices will stay in Canada. Could you explain why this is the case?

The industry has a significant amount of foreign ownership, about 40 per cent, so roughly 40 per cent of the dividend payments go to the foreign owners. But when you talk about the investments those companies make in oil and gas production, we believe all of that would stay in Canada rather than go outside. This is because in the last decade we’ve seen huge inflows of foreign capital into the Canadian oil and gas sector, net billions of dollars moving into Canada.

Could you talk a bit about the marine sector benefits?

The vast majority of the (marine) benefits occur in the Lower Mainland. You’re talking about approximately one oil tanker per day coming into Port Metro Vancouver and each of those vessels is spending a little over $360,000. That’s more than $125 million per year being spent in the Lower Mainland. We also estimate about 1,100 jobs per year being supported in BC just by that tanker traffic.

The report notes there are additional economic and employment benefits that haven’t yet been calculated. Could you talk about those?

We didn’t look at the impact from oil and gas companies increasing production as a result of increased investment. If for example Canada starts producing an additional 100,000 barrels a day, that would lead to additional benefits — more royalties, more corporate taxes, all those sorts of things. In British Columbia we do expect some new investment — primarily developing gas fields rather than oil fields in the province. But that would lead to fiscal benefits for the government as well as additional jobs in the province.

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