How Much Will Canada Lose if they can't build the Energy East Pipeline?
Exporting Canadian dollars to import oil when we have a surplus of oil in the west, is a massive waste of our money. The only winners are OPEC and our other competitors, while all Canadians lose out when we export dollars to import barrels of oil.
For every barrel of oil left landlocked, we lose out on oil royalties, good paying jobs, corporate income taxes, sales tax, indirect personal income taxes, land sales and reduced equalization payments. Energy East will have the capacity to transport 1.1 million barrels of oil a day, saving Canadians thousands of jobs and earning governments billions of dollars a year.
Alberta collected $2.245 billion and $5.049 billion in royalties from conventional oil and the oil sands respectively in the 2014/2015 fiscal year according to the Alberta Energy website. There was 3,751,718 barrels of production per day including bitumen. Conventional oil production was 591,280 barrels of oil per day. This works out to an average royalty rate of ($2,245,000,000 in royalties ÷ (591,280 barrels a day x 365 days)) = $10.40 per barrel for conventional oil in Alberta. The average royalty rate for the oil sand operations is ($5,049,000,000 ÷ ((3,751,718 - 591,280) x 365)) = $4.38 per barrel of oil. On average, across the province a barrel oil or oil sands bitumen will have a royalty rate of ($7,294,000,000 ÷ (3,751,718 x 365)) = $5.33 a barrel in the 2014/2015 fiscal year. If 1.1 million barrels of production was land locked and unable to get to market, the Alberta provincial government would have lost on average ($5.33 x 1,100,000) = $5,863,000 a day or $2,139,995,000 annually in oil royalties in the 2014/2015 fiscal year or $1,758,570,000 if all the land locked oil was from the oil sands.
Equalization transfers are based on the average potential revenue that a province can tax, against the national average based on; personal income taxes; business income taxes; consumption taxes; 0% or 50% of natural resource revenue depending on (provinces get the greater of the amount they would receive by fully excluding natural resource revenues, or by excluding 50% of natural resource revenues, however, a province’s actual revenue generating capacity includes 100% of natural resource revenues).
In the long term, an extra $2,139,995,000 in oil royalties in Alberta will increase Alberta's and Canada's fiscal capacity by $2,139,995,000. This will work out to an extra $1,069,975,000 in equalization transfers to the have-not provinces. This would increase the equalization transfers by 5.98% for the expected 2016/2017 fiscal year. This works out to an extra $102,424,000 for Manitoba, an extra $135,936,000 for Ontario, an extra $591,770,000 for Quebec, an extra $22,420,000 for PEI, an extra $100,772,000 for New Brunswick and an extra $101,598,000 for Nova Scotia.
Each barrel of day in production that will reach tide water will pay the Quebec provincial government ($591,770,000 ÷ 1.1 million barrels of oil a day) = $537.97 in additional annual transfer payments from the federal government.
Sooner or later, and it looks like sooner, the oil companies will stop investing their capital in Canada if they can't get their product to tide water or to more refineries in North America. In 2014, approximately 133,053 people were employed in Alberta’s upstream energy sector, which includes oil sands, conventional oil, gas and mining. So it would take roughly 28.2 barrels of oil produced per day to create an oil related job (3,751,718 barrels a day ÷ 133,053 = 28.1976). An additional 1.1 million barrels of production would create/save around 39,010 typically high paying jobs (1.1 million barrels a day ÷ 28.1976 barrels a day = 39,010.412).
There would also be an increase in corporate profits, which would create more corporate income taxes and possibly higher dividend pay outs. We also didn't add any economic benefits of keeping billions of dollars from leaving Canada and the economic benefit of building and maintaining the pipeline itself.
In total the Energy East pipeline could save 39,000 jobs, earn the Alberta government over two billion dollars annually on the increased royalties alone, help Quebec with close to six-hundred million in extra equalization payments and keep $13.432 billion, $18.8048 billion or $26.864 billion annually from leaving the country when oil sells for $50, $70 or a $100 a barrel respectively (we are currently importing 736,000 barrels a day or 268,640,000 barrels a year.
KPMG in Canada – A Guide to Oil and Gas Taxation in Canada
Alberta's Resource Revenue Collected
Alberta Conventional Oil Statistics
Energy Markets Fact Book 2014–2015 by Natural Resources Canada
Alberta's Oil Sands Facts and Statistics
Cost of Canadian Imports by Energyeastpipeline.com
Federal Support to the Provinces