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Northern Gateway bad for economy? Not so say Economists
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Tags:
Economy,
trade diversification
Author: Northern Gateway
Dated: 7 February 2012
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In a recent report, Robyn Allan argues against Enbridge’s assertions that Northern Gateway would be net-positive for the Canadian economy.
Allan, who was appointed CEO of ICBC in the early 1990s by the then BC NDP government, took a look at Enbridge’s regulatory filing from an economic perspective.
The filing includes commissioned economic studies demonstrating the economic effects of export market diversification—studies that must stand up to the scrutiny of the quasi-judicial Joint Review Panel (Appendixes A & B here).
Allan’s report, submitted to the JRP by the Alberta Federation of Labour, claims higher oil prices would fuel higher gasoline prices across Canada, causing a dampening effect to the entire economy.
University of Alberta economist Andrew Leach, an oft-quoted media source on energy and environmental economics, decided to test some of Allan’s claims against the realities of gas market economics.
On his blog, Leach debunks Allan’s claims that a $2-$3 per barrel increase for our resource will cause gasoline prices to jump across Canada. He points out that Canadian retail gas prices are already reflective of world oil prices, not the deflated WTI benchmark prices that most of Alberta’s oil sands production is sold at.
As Leach says “Think about this before you decide that blocking export pipelines and stranding crude in Canada, which will lead to a discounted Canadian crude oil price, will translate to savings at the pump in Canada.”
Leach also reminds us of some of the benefits of higher oil export prices in the form of higher royalties and government tax revenues to pay for universal programs like health care and education.
Other recently published independent studies also support the obvious need for diversifying markets for Canadian energy.
This University of Calgary study says “With better access and new pipeline capacity, oil producers will see more efficient access to international markets which can add up to $131 billion to Canada's GDP between 2016 and 2030.”
Another independent study suggests the cost to the Canadian economy would reach into the billions if Northern Gateway is not built.
Post your comment
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Northern Gateway, Apr 09th, 2012 (1 month ago)
Hi Judy, thanks for your comment.
Other economists have written about Allan's currency value-related claims. Here's a blog post that highlights this subject: http://www.northerngateway.ca/news-and-media/northern-gateway-blogs/trade-diversification-for-canada/the-so-called-dutch-disease/
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Judy , Apr 08th, 2012 (1 month ago)
Yet the rebuttal does not include a consideration of higher Canadian dollar that Allan's report discusses.
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Northern Gateway, Feb 21st, 2012 (3 months ago)
Hi Matt, thanks for your comment.
The economic case for Northern Gateway is market diversification. Right now, the vast majority of oil produced in Canada is sold into one market. Because of this, the price of almost all Canadian oil is discounted, in some cases significantly, from the global market price. In order to narrow the spread between the global market price and the price Canadian producers are able to get today, new markets need to be opened. Northern Gateway will help to achieve economic diversification and help narrow the spread in price—leading to increased revenues for governments and producers; revenues that are used to support universal social programs, retirements, savings and investments in renewable energy and the environment.
The economic case for Northern Gateway is based on the most recent CAPP Canadian crude supply outlook, as is, without any upward supply adjustment due to the higher prices and greater market diversification provided by Northern Gateway. In other words, the case for Northern Gateway isn’t about increasing production, it’s about maximizing value.
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Matt Joyce, Feb 21st, 2012 (3 months ago)
How will rapidly liquidating an asset that will only increase in value be beneficial in the long-term? The way I see it, oil in the ground is an asset.
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Stefan , Feb 09th, 2012 (3 months ago)
"Is your money that good? Will it buy you forgiveness? Do you think that it could?" - Bob Dylan
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