U.S. Indecision on Pipeline Means Canada will look Elsewhere
The following is from Alex Carrick, Chief Economist for CanaData:
The United States may have just pushed Canada into adulthood. The decision by the State Department requiring TransCanada Corp. to find another route through Nebraska for its Keystone XL oil pipeline delays approval on the project until at least 2013.
That will place it on the other side of the Presidential election in November 2012. President Barack Obama will be able to maintain his credibility with the large environmental rump within his party, while still holding out the hope of large employment gains eventually.
To the Americans, it’s basically just another pipeline.
Although, in truth, that’s not really the whole story. There is the matter of energy self-sufficiency in North America and how the Arab Spring and the line of succession in Saudi Arabia make the outlook for global oil supplies as precarious as ever.
To Canada, it’s about our heritage.
The delay by Washington threatens to leave some of our oil shut in the ground.
It would be a disgrace to squander the gift we have been given.
The effort must be intensified to put in place a means to ship our heavy oil and natural gas to customers in the Far East, whether by pipeline or rail.
In fact, establishing such a transportation system may be every bit as important for our future as other national initiatives that distinguished our past. Building the St. Lawrence Seaway in the 1950s springs to mind.
When it comes down to approval of a pipeline from Alberta through B.C. to the coast, opposition on environmental grounds in this country is likely to be fierce.
What’s often overlooked is how initiatives in resource development won’t just mean sales dollars and jobs in construction and production. Through research and monitoring, they will also provide cutting-edge employment in the area of best environmental practices.
There is also a regional component to the argument. The West can’t be denied its chance to catch up with and perhaps surpass the East economically-speaking. And Quebec is more likely to want to stay within a country that has a vibrant energy sector than in one without.
That the Canadian economy depends on world trade is a truism. But underpinning that statement are two key building blocks: Commodities and construction.
By 2014, the current dollar value of construction in Canada is expected to have doubled, from $150 billion to $300 billion, according to CanaData. The engineering component of the total will increase at an even faster rate, two-and-a-half-times.
Much of the impetus for civil/heavy work will come from expansions in the resource sector.
We’ll be supplying precious and base metals, iron ore, coal, potash, diamonds, uranium and forestry and agricultural products to the emerging nations. Oil and natural gas, the latter through liquid natural gas (LNG) terminals on both coasts, are being added to the list.
In the early 2000s, there were three manufacturing jobs to every single on-site construction job in Canada. That ratio has now fallen to 1.5 to one.
Manufacturing employment has been in steady decline for almost a decade with no end in sight.
Over the same time frame, the number of jobs in construction has been trending higher with few corrections.
It’s wrong to look at this as a rivalry. Approximately half of the value of construction is comprised of manufactured building products. A significant proportion of the manufacturing community will be looking to sales opportunities in new and retrofitted projects.
This is evolving beyond traditional products and systems to encompass improvements in energy efficiency, durability and security.
Nor are resource projects only about establishing work camps and building access routes to remote locations. They also need large support staffs working in office buildings in urban locations.
Calgary and Edmonton are two obvious examples of this effect. The downtowns of Saskatoon and St. John’s, Newfoundland have been transformed by tall office buildings that are owned or leased by resource companies.
Ontario and Quebec are the heartland of manufacturing in Canada. The former turns on car demand in North America and the latter is largely tied to the aerospace industry. Neither motor vehicles nor planes are assured of strong markets until the debt crisis in Europe is resolved and the global economic slowdown loosens its grip.
Quebec should be looking to large aluminum sector investments to spur on its economy, but the price has been faltering lately. This will eventually turn around and billion-dollar capital projects will be green-lighted. In the interim, mega hospital construction, electric power projects and iron ore mining expansions will dominate the scene.
Ontario’s economy is increasingly service oriented. This begins with the financial sector and extends to head offices of legal, accounting, design, advertising and software development firms. It also brings in entertainment, media, tourism and academic activities.
Overall construction in Ontario is currently being dominated by high-rise residential building in Toronto. The demand for condos by foreign investors and domestic seniors wishing to enjoy a downtown lifestyle has remained hard to satisfy.
Atlantic Canada is being led by Newfoundland and Labrador. Money is pouring in from mining at Voisey’s Bay and from drilling rigs in the Grand Banks. More capital investment is slated for offshore oil projects and to generate electricity at Muskrat Falls for transmission to the island and points south.
The awarding of $25 billion in shipbuilding work over the next 30 years to the Irving yard in Halifax will provide a boost to Nova Scotia’s economy.
In the West, it’s mainly about the aforementioned raw materials. B.C. has been shipping forestry product to Japan and China to replace lost business as a result of the American housing market collapse. The Northeast of the province is preparing for a boom in shale gas development that will be accompanied by power facility expansion.
Manitoba and Saskatchewan are important links in the world food supply chain. Manitoba has a diversified economy that serves it well in good times and bad, but it’s Saskatchewan that has made everyone stand up and take notice for the range and extent of its wealth in so many resource areas.
Finally, we come to Alberta, which continues to be the repository of the largest fossil fuel reserves in the world outside the Middle East. Mega projects which were shelved in the recession have been re-started and the good times appeared set to roll again. Now, some portion of that expectation may have been put in doubt due the stalling of TransCanada’s Keystone XL pipeline.
We have returned full circle to the importance of the resource sector for Canada. Also implied is a great need for expansions and improvements at ports and border crossing so that we can get our extracted and processed products to markets. Some of those will continue to be south, but increasingly they will be to the east and west as well.
Canada’s dependence on foreign trade linkages encompasses more than just the U.S. It’s time we started acting like it.Source: CanaData