Canadian Energy Research Institute Economic Impacts of Low Crude Prices on the Canadian Economy Dinara Millington Canadian Energy Research Institute Ryder Scott Canada Reserves Conference May 10, 2016 1
Canadian Energy Research Institute Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, nonprofit research institute specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public. Our core supporters include the Canadian Government (Natural Resources Canada), the Government of Alberta (Alberta Energy), and the Canadian Association of Petroleum Producers (CAPP), Chemistry Industry Association of Canada (CIAC), Alberta s Industrial Heartland Association (AIHA), and the University of Calgary. In-kind support is also provided by the Alberta Energy Regulator (AER) and Petroleum Services Association of Canada (PSAC). All of CERI s research is placed in the public domain and can be accessed via our website at. 2
Agenda CERI s Study 156: Low Crude Oil Prices and Their Impact on the Canadian Economy : Background Modelling Methodology Assumptions Results on National Level Results for Selected Provinces Conclusions 3
Background: Crude Oil Prices (Jan 13 Mar 16) $140 $120 $100 US$/bbl $80 $60 $40 $20 Cushing, OK WTI Spot Price FOB (US$/bbl) Europe Brent Spot Price FOB (US$/bbl) $0 Source: EIA 4
Modelling Methodology: I/O Model CERI s Canada Multi-Regional Input/Output Model (UCMRIO 3.0): Addresses the way economic circumstances in one part of an economy can ripple through the rest of it; Determines an approximate impact on various economic variables due to the introduction to the economy of a particular set of expenditures or shocks ; Models any activity that leads to increased production capacity in an economy: the construction or development of the capacity, and the operation of the capacity to generate outputs. 5
Modelling Methodology: Scenarios Reference Case Investment: Reference Case Capital Investment in oil sands Operations: Oil Sands Revenues (Reference Case price and production) Low Case Investment: Low Case Capital Investment in oil sands Operations: Oil Sands Revenues (Low Case price and production) Change in non-energy exports* *Incremental change in non-energy exports as a result of a low exchange rate will only transpire on the operations side of the aforementioned economic sectors. In other words, no capital investment assumption is made to build production capacity in those five economic sectors in the 7-year time period. 6
Assumptions for Two Scenarios 7
Assumptions for Two Scenarios: Oil Prices $120.00 $100.00 $102.15 $98.88 $100.36 $93.26 2014US$/bbl $80.00 $87.63 $67.58 $69.94 $69.44 $70.43 $71.36 $72.88 $60.00 $53.25 $40.00 $46.26 $45.94 $46.14 $46.84 $48.61 $50.32 $51.52 $20.00 $- 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 EIA_AEO Ref.Case EIA_AEO Low Case Source: EIA 8
Assumptions for Two Scenarios: Oil Sands Production and Capital Investment ('000 b/d) 3,500 3,000 2,500 2,000 1,338 1,500 1,470 1,621 1,752 1,976 2,074 2,230 2,027 2,078 2,478 2,255 2,651 2,398 2,801 2,602 3,008 2,746 3,138 2,942 1,000 500-2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Net Bitumen and SCO to Market-Low Case Net Bitumen and SCO to Market-Ref Case 30,000 25,000 (Mln CDN$) 20,000 15,000 10,000 5,000-2015 2016 2017 2018 2019 2020 2021 Capital Investment-Ref Case Capital Investment-Low Case 9
Assumptions for Two Scenarios: Non-Energy Exports $30,000 $25,000 $20,000 (CDN Mln $) $15,000 $10,000 $5,000 $0 2015 2016 2017 2018 2019 2020 2021 Other balance of payments adjustments [C24] Consumer goods [C22] Motor vehicles and parts [C19] Industrial machinery, equipment and parts [C17] Metal and non-metallic mineral products [C14] Non-Energy Exports in CDN$ Special transactions trade [C23] Aircraft and other transportation equipment and parts [C21] Electronic and electrical equipment and parts [C18] Basic and industrial chemical, plastic and rubber products [C15] Metal ores and non-metallic minerals [C13] 10
Summary of Results: Total Impacts on Canadian Economy (Cumulative 2015-2021) 2015-2021 Unit of Measure Ref.Case Low Case Low vs. Ref. Case % Change GDP Growth Compensation Mln CDN$ Mln CDN$ 830,336 626,887 ($203,449) -24.5% 384,578 297,680 ($86,898) -22.6% Employment Federal Taxes Provincial Taxes Thousand person-years Mln CDN$ Mln CDN$ 4,109 3,298 (811) -19.7% 95,063 71,307 ($23,756) -25.0% 58,543 45,457 ($13,087) -22.4% 11
Total Annual Impacts: Canadian GDP Case 2015-2021 Annual Average (CDN$Mln) Ref. Case $ 118,619 $160,000 Low Case $ 89,555 $140,000 GDP Growth (CDN Mln$) $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $- 2015 2016 2017 2018 2019 2020 2021 Ref Case Low Case 12
Total Annual Impacts: Employment Case Employment (2015-2021 Avg) (Jobs/yr) Ref. Case 587,006 800,000 Low Case 471,118 Employement ('000 person-years) 700,000 600,000 500,000 400,000 300,000 200,000 100,000-2015 2016 2017 2018 2019 2020 2021 Ref Case Low Case 13
Total Annual Impacts: Compensation Case Compensation (2015-2021 Avg) (CDN$Mln) Ref. Case $ 54,940 Low Case $ 42,526 $70,000 Compensation (CDN Mln$) $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- 2015 2016 2017 2018 2019 2020 2021 Ref Case Low Case 14
Total Annual Impacts: Federal and Provincial Taxes Federal taxes (CDN Mln$) $20,000 $15,000 $10,000 $5,000 $- 2015 2016 2017 2018 2019 2020 2021 Case 2015-2021 Avg (CDN$ Mln) Ref. Case $ 13,580 Low Case $ 10,187 Ref Case Low Case Case 2015-2021 Avg (CDN$ Mln) Ref. Case $ 8,363 Low Case $ 6,494 Provincial Taxes (CDN Mln$) $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $- 2015 2016 2017 2018 2019 2020 2021 Ref Case Low Case 15
Provincial Impacts for AB and ON Rank Industry % Share of GDP Ref Case Low Case % change AB 1 Oil Sands 39.72% $ 331,018 $ 227,898-31.2% AB 2 Household 11.71% $ 97,582 $ 67,834-30.5% AB 3 Finance, Insurance, Real Estate and Rental and Leasing 7.89% $ 65,755 $ 46,115-29.9% AB 4 Conventional Oil 6.13% $ 51,080 $ 36,250-29.0% AB 5 Owner occupied dwellings 5.12% $ 42,675 $ 29,665-30.5% ON 1 ON 2 ON 3 ON 4 ON 5 Finance, Insurance, Real Estate and Rental and Leasing Wholesale Trade Household (Labour) Other Manufacturing Transportation & Warehousing 23.22% $ 13,491 $ 16,083 19.2% 11.08% $ 3,310 $ 7,678 132.0% 10.79% $ 5,407 $ 7,476 38.3% 10.16% $ 5,460 $ 7,037 28.9% 7.87% $ 2,893 $ 5,455 88.6% 16
Provincial Impacts for BC and NFLD Rank Industry % Share of GDP Ref Case Low Case $ M % change BC 1 Finance, Insurance, Real Estate and Rental and Leasing 16.05% $ 3,232 $ 3,173-1.8% BC 2 Household (Labour) 12.58% $ 2,727 $ 2,486-8.8% BC 3 Other Manufacturing 11.26% $ 2,460 $ 2,226-9.5% BC 4 Wholesale Trade 9.24% $ 1,370 $ 1,828 33.4% BC 5 Transportation and Warehousing 8.59% $ 1,661 $ 1,699 2.3% NFLD 1 Conventional Oil 26.46% $ 155 $ 119-23.2% NFLD 2 NFLD 3 Finance, Insurance, Real Estate and Rental and Leasing Transportation and Warehousing 8.30% $ 45 $ 37-18.0% 7.60% $ 42 $ 34-17.9% NFLD 4 Household (Labour) 7.35% $ 41 $ 33-19.2% NFLD 5 Other Mining 7.16% $ 31 $ 32 3.2% 17
Conclusions Low oil prices are influenced by low economic growth in Asia, Europe and North America. They are also influenced by increased oil production efficiency and high amounts of supply. The low oil price environment is expected to continue for several years. As a net oil exporter, Canada is and will be affected by the lower prices, operating through several channels. Stronger US growth and a weaker Canadian dollar have boosted non-energy exports. Investment spending and job creation have also begun to pick up in nonenergy sectors, although significant slack remains in the labour market. Overall, Canadian economic growth could contract by an average of 23 percent if low oil prices persist over the next seven years. In summary, for the duration of the forecasted time horizon (2015-2021), every dollar gain in the annualized price of WTI, would increase national Canadian GDP by $1.7 billion on average. 18
Thank you! 19