Alberta's evidence contains multi-billion-dollar inflation of Northern Gateway benefits
Government consultant admits upgrading would solve market access problem
Edmonton - The Alberta Federation of Labour has identified a multi-billion-dollar error in the Government of Alberta evidence, showing the government's consultants are massively overstating the benefits of the pipeline to producers.
While the Government of Alberta analysis shows $8 billion/year impact if we do not have Northern Gateway access to Asian markets. That figure has been widely cited (see below). Under cross-examination, the government's consultant indicated the $8 billion-dollar impact was only for one year, not every year.
"Canadian producers not having sufficient access to premium heavy crude refining markets could lose about US $8 a barrel for every Canadian heavy crude barrel, with a revenue impact averaging $8 billion per year from 2017 to 2025," said the report, completed for the province by Wood Mackenzie.
Under cross-examination, the Government of Alberta consultant conceded to AFL counsel that pacing development and upgrading bitumen to synthetic crude oil – creating thousands of jobs – would also alleviate the problem of "market access," but that these alternatives were not explored in his report.
"The bottom line is Alberta is selling the wrong product," says Gil McGowan, President of the Alberta Federation of Labour.
"The glut of bitumen on the market is a result of bitumen looking for appropriate refineries. If the product was SCO, we could be selling the product to any refinery in North America."
Canadian Press, Dean Bennett, September 4, 2012.
MEDIA CONTACT: Gil McGowan, President Alberta Federation of Labour at 780-218-9888 (cell) or 780-483-3021 (office)
The battle over upgrading oilsands bitumen in Alberta dominated Northern Gateway pipeline hearings Wednesday, with a government consultant arguing local upgrading is not economically viable given the high cost of construction.
But the Alberta Federation of Labour pointed to a 2009 Alberta government report that set a goal of upgrading two-thirds of bitumen in Alberta. Upgrader Alley would have involved $314 billion in capital investment, created two million jobs across the country over 20 years and added $5 trillion to the national GDP.
Harold York, a witness for the province and author of the Wood Gundy report commissioned by Alberta Energy, predicted oilsands producers would lose $8 billion a year if the pipeline does not go ahead, because they would not get access to world prices for bitumen. The proposed pipeline will carry 525,000 barrels a day of bitumen to the West Coast for shipment to refineries in Asia.
York told the Joint Review Panel his analysis was focused on the benefit to oil producers and did not consider other government policy goals.
In response to questions, York said he was unaware of a provincial government goal of upgrading two-thirds of the bitumen in Alberta - though the government did mention to him, without providing details, that it wanted to encourage value-added resource development, he said.
Asked if upgrading the bitumen locally is a viable alternative to exporting, York said no, because building costs are high.
"The capital cost in northern Alberta is large - up to $15 billion for a large upgrader capable of handling 200,000 barrels a day," he said.
Leanne Chahley, a lawyer for the AFL, asked York if he had seen the report of the 2009 hydro-carbon upgrader task force produced by the energy department. York said he had not.
That report outlines a vision of "world-scale industrial complexes" northeast of Edmonton, known as "Upgrader Alley," that would produce higher value products such as synthetic crude oil and petrochemicals.
If the Northern Gateway pipeline goes ahead, experts have told the panel the amount of upgrading here will decline to 26 per cent by 2025, Chahley pointed out.
Earlier in the day, energy department official Christopher Holly, the only other government witness, confirmed the province will not present any other information to the panel. Holly rejected the suggestion that the energy department should have considered new pollution regulations set out in the recently approved Lower Athabasca Regional Development Plan when calculating the economic benefits for the oil industry.
Barry Robinson, lawyer for a coalition of B.C. environmental groups, told the panel that documents filed for Shell's proposed Jackpine oilsands mine expansion show that air quality limits (set out in LARP) will be breached if all planned oilsands projects go ahead.
The levels of sulphur dioxide and nitrogen dioxide will exceed the limits set out in the LARP, according to the documents.
The Edmonton Journal, Thurs Sept 27 2012
Byline: Sheila Pratt
Government of Alberta does not consider jobs, taxes, royalties, or the public interest in their evidence at Northern Gateway hearings
Government of Alberta does not consider jobs, taxes, royalties, or the public interest in their evidence at Northern Gateway hearings
Edmonton – AFL President Gil McGowan will be available to the media throughout today as the Federation quizzes the Government of Alberta on their evidence before the Northern Gateway panel.
“We are very troubled by what we’ve heard so far today. The Government of Alberta did not put any evidence before the Board about jobs, taxes, or royalties, says McGowan, President of the Alberta Federation of Labour, representing over 145,000 unionized workers.”
“The Government’s evidence confuses what’s good for foreign-owned oil companies with what’s good for Albertans. Their evidence at Northern Gateway looks exclusively at industry profits, without considering jobs or royalties for Albertans.”
The province is “blurring the lines between profits for the world’s largest corporations and the public interest,” says McGowan.
“Oil companies are capable of advocating for themselves, they shouldn’t need the government’s help. It’s the government’s job to advocate for Albertans. They are failing to do that job at the Northern Gateway hearings.”
McGowan says the Government of Alberta’s evidence – though technical in nature and written by high-priced energy consultants – really tells a very simple story.
“The government allowed a stampede of development in the oil sands, without making good on their commitment to have 2/3 of our bitumen upgraded here,” says McGowan, adding that the province’s evidence predicts only 26% of Alberta’s bitumen will be upgraded in Alberta by 2025.
The result is a flooded market of an inferior product.
The Government’s evidence shows oil companies are getting a lower price for bitumen because Alberta doesn’t force them to upgrade it before it leaves Alberta.
“We are selling the wrong product,” explains McGowan.
“If we were selling upgraded synthetic crude oil, we would be getting better prices, and higher royalties as a result,” says McGowan.
Raw bitumen can only be turned into gasoline or diesel by a small number of refineries in North America. The rapid pace of development means there is too much bitumen on the market. The choice is simple: bitumen could be upgraded to synthetic crude before it leaves Alberta, creating thousands of jobs. It could then be refined at a large number of refineries around the world. Or, it could be shipped raw to China, and take thousands of jobs with it.
“There is not one word in the Government of Alberta’s evidence about the public interest. We are left to wonder if they care about jobs and royalties for Albertans, or if the priority is profits for oil companies backing the Northern Gateway pipeline – none of which are majority-owned by Canadians,” says McGowan.-30-
MEDIA CONTACT: Gil McGowan, President at 780-218-9888 (cell) or 780-483-3021 (office) Alberta Federation of Labour
Reality Check: Profits, Prices, and Access to Markets
Alberta is producing too much of the wrong product; no mystery why oil companies are getting a low price.
The Government of Alberta’s evidence filed with the Joint Review Panel for the Northern Gateway pipeline shows Alberta’s failure to upgrade bitumen is what is causing lower prices for bitumen and what is driving the alleged need for the Northern Gateway pipeline.
The Government of Alberta hired energy consultant firm Wood Mackenzie to do an analysis on the need for “new markets” for Alberta’s bitumen. The analysis is designed to support the Northern Gateway pipeline.
The report is technical in nature.
The GoA evidence says oil sands producers “could” lose up to $8/barrel because bitumen is flooding North American refineries incapable of handling it. Chinese refineries can handle bitumen, and it makes sense for oil sands operators deeply involved with Chinese state-owned oil companies to ship raw bitumen to Chinese refineries, who rely on lower labour and environmental laws.
There is plenty of North American refinery space for synthetic crude oil, which is upgraded bitumen. But the Government of Alberta hasn’t forced companies to build upgraders, and has allowed a stampede of development without any regard for keeping jobs in Alberta.
The Government of Alberta is responsible for the problems they describe in their evidence. We are pulling bitumen – a lower-quality product – out of the ground, shipping it out as fast as we can, flooding the market with a low-quality product, and wondering why we are losing money.
The Wood MacKenzie report before the NEB might be complicated and technical, but the explanation is quite simple. Upgrade the resource before it leaves Alberta, keep the good jobs here, earn more tax and royalty revenues for Albertans, and the economic case for the Northern Gateway pipeline evaporates.
Technical Backgrounder on the Wood MacKenzie Report
Wood MacKenzie’s $8/barrel “discount”
WMK’s $8/barrel discount prediction is a figure based on the concept of “refining value.”
The discount of value is driven by the fuel oil yield in the cracking configuration, which sells at a discount to the gasoline and diesel produced in a coking configuration.
“The Refining Value, which is the value of refined petroleum products produced from a given crude oil, falls as a refinery configuration becomes more ‘simple’ because the simpler configuration has less capability to convert the lower-value heavy end of the crude assay to higher-value products, such as transportation fuels.”
The $8/barrel “discount” is attributable to:
- A glut of supply for coking refineries
- Too much non-upgraded bitumen looking for a home. It is finding its home in cracking refineries, thus simply producing fuel oil rather than diesel or gasoline
Prediction of losses of refining value are further attributable to:
- Not enough pipeline capacity to “premium heavy crude markets,” aka refineries that can process bitumen straight into gasoline or diesel
- Runaway growth in bitumen supply and a glut on the market
The Wood Mackenzie analysis relies on the following assumptions:
- A lack of upgraders in Alberta. If bitumen is upgraded to SCO in greater amounts, higher refining values can be achieved
- A prediction of just 26% of Alberta bitumen being upgraded by 2025, far below the Government of Alberta’s stated policy goal of 2/3 bitumen upgraded in Alberta
- A growth in supply due to ERCB approving every project, without associated upgrading capability
- A total lack of pacing by the GoA Department of Energy
- Ignoring the use of rail entirely, which is not only being used right now but also contained in Enbridge’s analysis
Heavy Crude Refining Predicted to Fall in Western Canada With Northern Gateway
According to Enbridge’s evidence before the National Energy Board, Western Canadian “heavy crude” – aka bitumen coming from the oil sands - will be increasingly refined in China, where state-owned companies are building massive refining complexes capable of handling bitumen.
2011 Refinery Throughput – Reported to CAPP
2018 Forecast By Enbridge – With Northern Gateway Pipeline
Heavy Crude, All Grades
Total Throughput – Western Canada
About the AFL Northern Gateway Reality Check Series
The Alberta Federation of Labour is a full intervener in the Northern Gateway Pipeline.
The debate around the Northern Gateway pipeline is heated, and we hear governments and industry saying all kinds of things to justify locking Canada in to being a raw resource producer, but never move up the value chain with our natural resource wealth.
“The Northern Gateway pipeline hollows out our value-added industries, imposes higher oil prices on consumers, and rewrites the rules of Canada’s oil industry. Gateway will reduce the amount of oil sands upgraded in Alberta and ship thousands of jobs to China,” Gil McGowan, President, Alberta Federation of Labour.
Page 1 of 12, A Netback-Impact Analysis of West Coast Export Capacity, Addendum Report for Alberta Department of Energy by Wood Mackenzie Inc, Appendix A, The Government of Alberta Responses to Information Request No 1, to Gitga’at First Nation.
 All 2018 Forecast figures for Western Canada and Ontario are taken from Enbridge Northern Gateway, “Market Prospects and Benefits Analysis For the Northern Gateway Project,” July 2012. Attachment 1 to Northern Gateway Reply Evidence. Prepared by Muse, Stancil & Co for Enbridge. Table A-9: Disposition of Canadian Synthetic and Light/Medium Conventional, Northern Gateway Case; Table A-10: Disposition of Canadian Synthetic and Light/Medium Conventional Base Case (No Northern Gateway); Table A-12: Disposition of Canadian Heavy Northern Gateway Case, All Heavy Grades.
AFL on witness stand at Northern Gateway hearings; President available to speak to media after testimony ends
Edmonton – AFL President Gil McGowan resumes his time on the witness stand today at the National Energy Board hearings in Edmonton, at the Westwood Conference Centre, 18035 Stony Plain Road.
McGowan is expected to deliver evidence until this afternoon and will be available to the media when he is finished.
The AFL opposes the Northern Gateway pipeline because it is designed to ship unrefined bitumen to China. Thousands of good jobs in refining and upgrading will be lost down the pipeline; the project is therefore not in Canada's public interest.
"Northern Gateway is not Canadian infrastructure. It is Chinese infrastructure," says McGowan.
"Enbridge compared this pipeline to the Canada Pacific Railway. It is certainly a nation-building project; it is certainly designed to guarantee energy security, but it will do those things for China, not Canadians," adds McGowan.
Northern Gateway will connect Chinese-owned oil sands production in Northern Alberta with refineries in China via the pipeline and oil tankers through Kitimat, BC. The National Energy Board must assess whether the project is in the public interest, and is empowered to reject the proposal under the broad definition of the "public interest" contained in Section 52 of the National Energy Board Act.
"The oil industry has told us this pipeline is about chasing a higher price for bitumen in Asia.
"The benefits are only for big, foreign-owned oil companies. Canadians lose the jobs and the industry. Northern Gateway makes northern Alberta into China's gas tank," says McGowan. McGowan adds that federal and provincial governments ought to cooperate to create refining jobs across Canada, and support pipelines that reach "our east, not the Far East."
The Northern Gateway pipeline creates only 224 permanent jobs and about 1,850 short-term construction jobs. Upgrading and refining those resources in Canada would create tens of thousands of permanent jobs.
"Evidence submitted to the NEB shows that if this pipeline is built, in addition to all the other bitumen pipelines that have already been approved, Alberta will only be upgrading 26 percent of its bitumen in 2025, down from about 60 percent today," says McGowan.
"That means that tens of thousands of quality jobs will be lost down the pipeline to places like China. Oil companies and the Chinese government may be happy with this situation. But this is clearly not in the best interest of ordinary working Canadians."
For more information or to arrange for an interview with AFL President Gil McGowan, after he is finished delivering evidence, contact:
Shannon Phillips at 403-330-9878
Enbridge's proposed Northern Gateway oil pipeline to Canada's Pacific Coast could cost thousands of high-paying refining jobs in Alberta, a labour group warned in Edmonton on Tuesday as the company faced its first day of grilling at public hearings into the contentious project.
Alberta Federation of Labour contends the $6-billion line, which would ship 525,000 barrels a day of oil-sands- derived crude to tankers bound for Asia, would mean 5% less refinery throughput at home and the loss of 8,000 jobs.
Enbridge and the oil industry say it would open up lucrative new markets for growing volumes of Canadian crude in regions overseas where the producers can escape the deep price discounts their oil now sees in the North American market.
"China is in the midst of a building boom in terms of refineries and refining capacity, so our fear is that if our policymakers allow this pipeline to be built we'll end up in a situation where our own homegrown refineries are no longer economic and they'll close down," federation president Gil McGowan said during a break in the hearings.
"We'll end up in a situation where we're sending our raw bitumen oil to China and then buying back the refined product."...
Job Market Monitor, Wednesday September 5, 2012
This Labour Day, working Albertans have a lot to be thankful for.
We have the highest wages, the best job prospects and the highest standard of living in Canada.
So, it's entirely appropriate for Albertans to be smiling as they fire up their barbecues for the last long weekend of the summer: life here in the land of oil is pretty good.
But before we get too comfortable, it's important to recognize that not everyone is pleased with how well ordinary working people are doing.
In fact, recently disclosed documents show that some of our country's most influential CEOs and business lobbyists are asking the federal Conservative government to help them suppress wages.
This revelation comes from a Department of Finance briefing note that summarizes the proceedings of an economic policy retreat organized by federal Finance Minister Jim Flaherty.
The retreat was held last summer and attended by a long list of business leaders and representatives from right-wing think-tanks - all eager to advise members of the Harper government on how they should take advantage of their long-sought-after majority.
The assembled business audience told the finance minister that Canadian workers are overpriced and that Canada could only become truly competitive if governments and businesses addressed the "wage differential in labour markets between countries."
In order to drive down wages, participants advocated the introduction of American-style anti-union labour laws.
For good measure, they also called for deep cuts to public services and the introduction of two-tier health care - while at the same time asking for more corporate tax cuts.
There are at least three reasons why working Canadians should be concerned about this meeting.
First, there is no evidence that the federal government challenged the notion that Canadians are overpaid.
This is troubling because, after adjusting for inflation, wages for average Canadian workers have stagnated over the past 30 years. In fact, the share of national economy going to wages for Canada's middle class has been dropping, while the share being gobbled up by corporate profits and incomes for the wealthy has been increasing.
Even here in prosperous Alberta, nearly a quarter of all working people earn $15 per hour or less. And the average hourly wage earned by permanent, full-time workers is $27. That's the best in the country, but barely enough to afford a decent home in either Calgary or Edmonton.
If there is a problem with wages, it's not that Canadians are overpaid - it's that a growing number are not paid enough to maintain to a secure, middle-class lifestyle.
Second, working Canadians should be concerned, because the wage-suppression wish list outlined by business leaders last summer has quietly, but clearly, become a central part the federal government's agenda.
How else can we interpret the Harper government's decision to allow employers to use more temporary foreign workers and to pay them as much as 15 per cent less than Canadians?
Or rule changes that force many unemployed Canadians to take any available work after six weeks on EI, even if it pays up to 30 per cent less than their previous job?
There's also the Harper government's decision to raise the retirement age to 67 (which is obviously designed to force older workers of modest means to keep toiling away in lower-wage jobs) and their ongoing attacks on unions and collective bargaining (which are designed to undermine the ability of workers to have a say in their own wages and conditions of work).
Taken together, these policy initiatives amount to what is essentially a low wage strategy.
The third reason why working people should be concerned about Flaherty's previously secret meeting with business leaders is that it is not an isolated case.
The truth is that representatives from groups like the Fraser Institute, the Canadian Federation of Independent Business and the Merit Contractor's Association (representing non-union construction companies) have dramatically ramped up their lobbying efforts in Ottawa and provincial capitals over the past year.
With the most ideologically conservative prime minister in Canadian history holding the reins of a majority government, they see this as their political moment.
Unfortunately for working Canadians, these lobbyists have been disturbingly effective. In addition to influencing the federal government, they've won allies at the provincial level.
For example, Saskatchewan Premier Brad Wall and Tom Hudak, leader of Ontario's official Opposition, have both been advocating U.S.-style union-busting laws.
Some people may shrug and say "who needs unions anyway?"
But as Nobel-prize-winning economist Paul Krugman has said, unions - as imperfect as they may be - are the only counterbalance we have to unbridled corporate power. They also provide one of the only mechanisms we have for ensuring the more equitable distribution of income necessary for the creation of a vibrant middle class.
So as working Albertans enjoy the Labour Day long weekend, it's important for them to understand that a battle of world views is raging around them.
Will the low-wage advocates who attended Finance Minister Flaherty's private policy summit win the day? Or will Canadians reassert their traditional preference for a more progressive approach - characterized by fair taxation, investment in quality education and infra-structure, and policies that see unions as vital partners in the economy?
For the sake of Canada's middle class, let's hope that the high-road vision prevails. Because if it doesn't, more of us may end up flip-ping burgers at McDonald's on Labour Day instead of flipping burgers at the lake.
Gil McGowan is president of the Alberta Federation of Labour.
The Calgary Herald, Monday September 3 2012
Op-Ed, Gil McGowan
While Horner blamed volatile world markets for the gloomy first quarter, opposition MLAs and other critics said the results are a vindication of their accusations the Redford government wildly overestimated its income projections in its pre-election budget last February.
"The bubble has officially burst on the 'Alison Wonderland' budget," Wildrose critic Kerry Towle said. "This government's inflated budget projection are now exposed for exactly what they were, a pre-election scheme to deceive Albertans and hide the true extent of their fiscal incompetence and mismanagement."
The February budget called for a relatively modest $886-million deficit, which the government promised was to be the last of five straight years of deficits before returning to a surplus in 2013-14.
The budget was based on the belief revenue would exceed $40 billion for the first time in the province's history, a target opposition critics said was unrealistic in light of the continued struggles of the global economy.
The results unveiled Thursday seem to uphold those arguments, as the province said revenue was off by $400 million in the first-quarter from April 1 to June 30. That now has the government on track toward a deficit of between $2.3 billion and $3 billion, triple what was initially estimated.
The biggest reason for the change is a massive drop in energy income. The province expected to take in almost $2.8 billion in non-renewable resource revenue during the first three months, but instead ended up with about $1.9 billion. Bitumen royalties alone were off target by about $550 million, while lease sales of Crown land were down about $215 million.
The decline was partially offset by better-than-expected revenue in other areas, including personal income tax and money from premiums, fees and licences.
Horner rejected the idea his department had been too optimistic in its revenue estimates.
He said the budget was based on a belief oil prices would average about $99 a barrel during the year, a prediction that corresponded with projections made by various banks and financial organizations.
However, prices in the first three months trended considerably lower, dropping as far as $77 in late June. Bitumen royalties were also affected by pipeline and refinery shutdowns. Horner said that inability to get product out means that Alberta gets a lower price for its oil than what is charged on the world market.
Standing in front of large coloured charts that showed the ups and downs of various fiscal updates over the past few years, Horner urged Albertans not to read too much into this year's first-quarter results.
He said the "roller-coaster" Alberta is experiencing is largely due to factors beyond its control, including economic uncertainty in the U.S. and Europe, political instability in the Middle East and massive growth in China.
"They can make it a challenge when it comes to forecasting revenues that will go into our coffers over the course of the full year," he said. "It's important to remember that much of the fiscal year is still ahead of us. This is a snapshot of a certain point in time and doesn't tell the whole story."
He noted oil prices have since returned to about $95 a barrel. For every $1 oil falls below the projected rate, Alberta loses about $220 million.
While revenue remains a challenge, Horner said the government does have control over its spending. Among the belt-tightening measures coming, the minister said he is asking provincial departments to come up with $500 million in savings this year, though it's not yet clear where those cuts will be applied.
Horner said department spending will also be capped at original budget allocations, meaning there will be no new money available for public sector contracts until the financial picture improves. He said that didn't necessarily mean a pay freeze for public sector workers, but departments will have to live within whatever funding they received at the start of the year.
"I think there should be a message in this for them (the unions) in the sense that we are going to hold the line on our spending. We are tightening our belts, so we would expect all others to do the same."
Furthermore, capital spending will also be reviewed. This week, the government announced it was cancelling a new police college for Fort Macleod, and Horner said he will as departments to look for similar projects that may not be needed right away. The new Royal Alberta Museum is safe, he said.
Shannon Phillips, a policy analyst with the Alberta Federation of Labour, said Horner's warning has produced concern that workers such as teachers and doctors — two groups currently in negotiations — will pay the price for government mismanagement of the books. She said the government wouldn't have such revenue problems if it took a fair share of royalties from oil companies, and increased taxes on wealthy corporations and individuals.
"Basing your budget on rosy oil prices is like basing your household budget on what you might win at a VLT terminal."
Alberta Teachers' Association president Carol Henderson said she expects the province to keep its promise to better fund education. She said as long as the government keeps to the budget that was already allocated, there shouldn't be an issue during negotiations.
Alberta Medical Association president Dr. Linda Slocombe said in statement it was unclear how Horner's warning might affect negotiations with doctors, who haven't had a fee increase since 2010.
While NDP critic David Eggen called on the government to fix the situation by taking in more royalties, Towle said the solution is to reduce spending. She said the financial problems will get worse as the premier tries to implement election promises, including scores of new schools and Family Care Clinics.
Any year-end deficit will be paid for out of the province's sustainability fund, which had declined to about $6.3 billion as of June 30.
Despite the government's struggles, Horner said the Alberta economy is doing well with low unemployment, and strong growth in housing starts and retail sales.
Much of 2011-12 was also gloomy and unpredictable, with the province initially projecting a $3.4-billion deficit. By year's end, the red ink was reduced to just $23 million, largely thanks to record land lease sales.
The Edmonton Journal, Thursday August 30 2012
Nexen could be just the beginning...
In June, the Alberta government launched a website publicly outing employers who haven't paid their workers—an online hall of shame. Among these "deadbeat bosses," as the media quickly dubbed them, the worst offender was a subsidiary of China Petrochemical Corp. (Sinopec), a Chinese state-owned oil giant. That same subsidiary, along with others, is facing charges after the deaths of two Chinese workers flown in to work on a site near Fort McMurray, Alta., in 2007. After much delay, the trial begins this fall.
It's the kind of bad press Chinese firms can't afford as they seek to buy up swaths of Alberta's oil patch and attempt to win over Canadian regulators and a wary populace. Last week, Chinese state interests went after two Calgary-based companies. China National Offshore Oil Corporation (CNOOC) Ltd.'s $15.1-billion bid for Nexen Inc. got the most attention by far: it's the biggest-ever takeover of a Canadian company by a state-owned entity. On the same day, Talisman Energy Inc. said it would sell a 49 per cent stake in its U.K. North Sea outfit to Sinopec for $1.5 billion. "Virtually overnight, Chinese investment in the energy sector has doubled to over $30 billion," says Wenran Jiang, director of the Canada-China Energy & Environment Forum. Although the deals have yet to be approved, it's a sign of things to come.
The proposed Nexen deal would be the latest—and by far the largest—in a string of acquisitions. Last fall, Sinopec bought Calgary-based Daylight Energy Ltd. for $2.1 billion, the first time a Chinese state-run company made a successful bid for a North American energy ﬁrm. Earlier this year, PetroChina bought Athabasca Oil Sands Corp., giving China its first full ownership of an oil sands project. The Nexen deal takes things to another level. It's worth more than all of China's direct investment in Africa in 2011 ($14.7 billion), according to Gordon Houlden, director of the University of Alberta's China Institute. Jiang says China's interest in Canada is ramping up partly because we've become more welcoming. Prime Minister Stephen Harper once vowed not to sell Canadian values to the highest bidder and bestowed honorary Canadian citizenship on the Dalai Lama, to China's chagrin; lately he's softened his stance. In January, after the U.S. rejected the Keystone XL crude oil pipeline from the oil sands to the U.S. Gulf, Harper courted the Chinese more aggressively, visiting Beijing to discuss oil sales as part of a trade mission. (With the vast majority of Canada's crude oil going to the U.S., he's said he's keen to diversify.) The controversial Northern Gateway pipeline, if approved, will tap into the surging demand in Asia.
If last week is any indication, China could quickly become a dominant—if not the dominant—player in Canada's oil sands. Many critics question the motives of state-run firms, which operate like other Western companies but ultimately answer to the Chinese government. Beyond that, China's markets remain largely closed to foreigners. On July 27, U.S. Democratic Sen. Charles Schumer wrote a letter asking Treasury Secretary Timothy Geithner to block the deal until China opens its markets. (Nexen has offshore holdings in the Gulf of Mexico, so the deal also requires U.S. approval.) "I urge you not to miss this opportunity—the largest foreign acquisition ever by a Chinese company—to hold China to the commitments it has made to provide a level playing field for U.S. companies seeking to access Chinese markets," Schumer wrote, calling the current investment relationship between the U.S. and China a "one-way street."
Other critics worry about whether Chinese companies will respect Canadian regulations on the environment and labour standards, where Beijing's track record remains notoriously poor. "Does it matter who owns the oil sands? You bet it does!" said Gil McGowan, president of the Alberta Federation of Labour, in a statement about Nexen. He argues that foreign governments would "develop the oil sands in their own best interests," keeping the best jobs for themselves, and ignoring Canada's energy needs and environmental priorities. McGowan has previously expressed concern about overreliance on temporary foreign workers in the oil sands, driving down wages for Albertans. The NDP, too, criticized the Nexen deal for lacking "hard commitments on the environment."
So far, at least, it seems that China's interest in our energy sector has been of benefit to both sides. Here, China has found a stable place to invest. Resource-rich and democratic, this country is undeniably attractive, and China has been burned in the past; in Libya, it had to evacuate more than 35,000 workers after civil war broke out, Jiang notes, losing $18 billion in the process. Nexen made an ideal target. It has considerable assets abroad, where the Chinese are also interested in expanding (just 28 per cent of Nexen production is in Canada). Nexen's stellar corporate image and brand reputation also make it appealing—Nexen was featured in Maclean's in May as one of Canada's top 30 green employers, its third year on the list.
Still, it's not hard to see why Nexen felt pressure to sell. The firm has been plagued by operational difficulties at its Long Lake oil sands project. "It wasn't creating value for shareholders, and its stock price wasn't performing well [relative to its peers]," says Lysle R. Brinker, director of equity research on integrated oils and national oil companies at I.H.S. Herold in Colorado. In January, Nexen removed CEO Marvin Romanow, and CNOOC swooped in. It offered an all-cash price of $27.50 per common share in its bid, a 61 per cent premium to Nexen's closing price on July 20.
This takeover is undoubtedly the best possible outcome for Nexen shareholders, but whether it's best for Canada is still up to regulators to decide. The deal now faces review by Industry Canada and the federal Competition Bureau. Even though Harper has insisted that "nothing should be assumed," experts agree this takeover will almost certainly go ahead.
First, though, it must be shown to have a "net benefit" to Canada, a condition that CNOOC has clearly considered. The company said it will put its North and Central American headquarters in Calgary, list its shares on the Toronto Stock Exchange, and hold onto Nexen's management and employees. "CNOOC looked at why Potash didn't go through, and made some adjustments," says Robert Schulz, professor in the University of Calgary's Haskayne School of Business, referring to BHP Billiton Ltd.'s $40-billion hostile bid for the Saskatchewan fertilizer company, which was withdrawn after regulators indicated there was no net benefit.
Foreign investment has long been a reality in the oil sands, but if the U.S. is the "devil that we know," China is the devil we don't, Jiang says. State-run companies still have to obey Canadian laws, pay royalties and taxes, just like any other company here. Jiang points to a poll from the Asia Pacific Foundation noting that a majority of Canadians feel uncomfortable with Chinese foreign direct investment. This anxiety stems "from concerns about human rights and democratic development, to product safety and Chinese defence buildup," notes Paul Evans, director of the Institute of Asian Research at the University of British Columbia. "There's not a deep knowledge about these Chinese state-owned enterprises and how they're conducting themselves."
China is the largest energy consumer in the world, and will use as much as 70 per cent more energy than the U.S. by 2030, says Jiang. What if Canada, in the face of deep economic troubles, decided that oil resources would be better used to benefit Canadian interests? It's not inconceivable. The country flirted with nationalization under Prime Minister Pierre Trudeau when he introduced the National Energy Program in 1980 to boost Canadian ownership and government revenues. Canadians rejected it in favour of a market-based system. "We need to make a choice: will Canada maintain its market-economy status, or convert our natural resources into a state-owned enterprise?" Jiang says. If we really are "open for business," China will continue buying from us.
The Nexen deal is "a tough first test," Evans says. If it gets the go-ahead, we'll see other state-owned companies—from China and elsewhere—wading in. How this will reshape Canada's energy sector is an open question. Among the opposing camps who either welcome the Nexen sale or view it with trepidation, one point is agreed upon: this is only the beginning. "If China now has the second-largest economy on earth, and is en route to number one, there may not be much choice but to deal, trade with and work with China," Houlden says.
One of the downsides with having one of the hottest -- if not the hottest -- economies in the world is that there comes a time when you might not have enough labour to meet the demand.
Alberta experienced that just a few short years ago. And if you accept the Alberta government's most recent projections, Alberta may be in for the most pronounced labour shortage of its history -- a shortage of as many as 114,000 workers by 2021.
Unless, of course, you ask the Alberta Federation of Labour. They, apparently, have a very short memory, and insist that everything is going to be a-OK.
Apparently, their complaint is that the Alberta government used a formula to compute these numbers that they don't like.
At the core of their complaint is that the government used a formula that subtracted annual change in labour demand from the annual change in labour supply. Apparently, the AFL prefers a method that simply subtracts labour demand from labour supply.
"These projections are built on a lie, they're designed to manufacture a crisis where there is none. So, what do we do about it?" demanded AFL President Gil McGowan. ""I've written a letter to (Employment and Immigration Minister Dave Hancock), asking him to justify his decision, and the government's decision, to use such a discredited approach (to formulating labour projections)."
But whose approach to projecting labour availability is actually discredited? It turns out it's the AFL's.
The weakness in the AFL's favoured approach is obvious: it treats both labour demand and labour supply as static. It fails to take into account growth of labour demand on a year-by-year basis, and overlooks the number of workers that can be brought in on the same basis.
The AFL describes the government's method of calculating labour supply as "discredited," but the truth is that based on the labour shortages Alberta experienced very recently -- labour shortages the province turned out to be largely unprepared for -- and by the looming labour shortage the province is already on the very verge of. Placement agencies have already turned to recruiting US Army veterans to fill jobs in Alberta.
This is something that many left-wing Canadians took to their Twitter accounts to protest, but the AFL has a very unique interest in this matter. After all, should a minimum of 114,000 new workers stream into Alberta over the next nine years, there's no guarantee that they'll agree to join union shops. In a seller's labour market, absolutely no one will be able to coerce them to. They could just as easily decide to ply their trades with a MERIT contractor, and would probably be much better off for it That might result in an awful lot of new competition that the flagging AFL just might not be able to stand up to.
That the only "academic forum" the AFL can find willing to air their grievances is the Progressive Economics Forum is also very telling.
It seems worth noting that the Progressive Economics Forum has also given Robyn Allen an outlet for her own junk economics. As reluctant as I am to simply attack the source, it seems that anything originating from the PEF needs to be taken with multiple grains of salt. Judging from history alone, their projections that Alberta's labour market will remain hunky dory is definitely one of those things.
Examiner.com, Sat Aug 4 2012
Dave Hancock, Patrick Ross