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Get ready for a cut in government services

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VANCOUVER — Imagine you are in an airplane flying across the northern part of western Canada, across the north Pacific and over the north eastern part of Russia. From the air, the two landscapes look remarkably similar: trees (if we do not go too far north) rocks, hills, rivers and relatively few signs of human habitation. If the plane were to go down, we certainly hope the emergency locator would be working.

And yet, these two similar looking areas are very different. In Canada, these expanses generate resources such as wood, minerals and energy. This supports not only functioning companies, but also provides jobs and income for people and tax revenues to allow government to provide services such as health care. Other countries are often envious of our rich resource base.

Northeastern Russia most likely has just as many resources in its trees, rocks and rivers. Yet that part of the world has usually been thought of as a frozen, barren wasteland suitable only for labour camps. What is the difference?

The difference is infrastructure: the means of transportation, communication and power generation that enable a nation to benefit from the resources that would otherwise not be accessible. Such investment has been made in Canada and thus we have all benefitted. Until recently, very little investment has made northeastern Russia and the country and its citizens have been the poorer for it.

But now the positions may be beginning to reverse. Russia is seeking to invest more in its own infrastructure and resources and is also receiving investment funds from other countries that would like to share in the benefits of this resource development.

Meanwhile, in Canada, we are moving in the other direction. Increasingly loud and strident voices are being raised by those who seek to oppose, delay and even completely stop any infrastructure that would allow us to continue to use our resources to maintain our Canadian standard of living.

Nowhere is this more evident than in the opposition to the proposed pipelines now desperately needed if Canada is not to see its oil industry shrivel with shrinkage, starting as soon as the next two to three years.

This point has been thoroughly documented in the recently released study by the Canada West Foundation, Pipe or Perish: Saving an Oil industry at Risk. The basic premise is that Canadian oil will not be produced if it cannot reach customers. With our existing infrastructure, the only major customer our oil can reach is the Midwest United States which takes advantage of its monopsony (single buyer) position by paying well below world prices.

To make matters worse, the United States is becoming less and less interested in Canadian oil both because it is increasing its domestic energy production and because it is becoming more energy efficient and thus reducing its demand for oil even as its economy grows.

There is increasing potential demand for western Canadian oil. China and the rest of Asia will have a growing demand for oil for the foreseeable future under almost any set of assumptions. Even eastern Canada would like to be using cheaper western Canadian oil rather than the expensive imports on which they now rely. But western Canada does not have the infrastructure to reach these customers without new pipelines.

Rail has been suggested as a means to move oil and it will work as an interim alternative. It is, however, significantly more expensive and more energy intensive than using pipelines. It also handles lower volumes.

So, we need to start facing and settling outstanding safety, environmental and aboriginal issues and doing so in a timely manner. We need to assure actual and potential customers that Canada will have the means to be able to help them meet their energy needs and soon.

Otherwise they will find alternative suppliers, investment in Canadian oil development and production will soon cease, and our production levels will start to fall as early as 2016. Canada would lose 7.6 million person years of future employment and Canadians from Newfoundland to Vancouver Island would start losing their jobs. Tax revenue would be $280 billion less, impacting government services. And northwestern Canada, like the old northeastern Russia, would become unproductive.

 

B.C. business columnist Roslyn Kunin is a consulting economist and speaker. www.rkunin.com.

 

—Troy Media

 

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