Oh Davey boy the pipes, the pipes are calling

The Wood Buffalo-Saint John oil pipeline project announced yesterday is an interesting one.  The reaction ranged from a game changer, nation building exercise to an expensive bluff to get Keystone approval.

There are two reasons why this is good for the economy – a short term and a long term reason.  In the short term, it will help replace hundreds of millions of dollars worth of lost capital expenditures in this province – an under-reported reason for the weakness of the New Brunswick economy.

Using Statistics Canada data, average annual investment in capital construction in the province (excluding the public sector and housing) between 2006 and 2010 was $1.63 billion.  Between 2011 and the estimate for 2013, capital construction has dropped to an average annual amount of $1.06 billion per year.  That means a loss of $570 million per year.

That translates into an annual loss of roughly $250-$300 million worth of provincial GDP. To put that another way, if we hadn’t lost this capex, NB’s economy would have been performing much better – likely closer to the national average.

Using Stats Can I/O tables, this $570 million is also associated with in the range of 3,500 jobs and 7,000 jobs.  Again, this loss of capex has dampened our employment picture as well.

So what does the TransCanada pipe and oil export terminal investment do for NB?  In the short term, it should support a few thousand needed jobs per year during construction and boost the GDP by at least a few hundred million per year.  This will bring needed revenue to the coffers of government.  If we throw in a billion dollar LNG export terminal and Saint John will boost its construction activity back to the levels of the latter part of last decade.

In the medium and longer term, the economic benefits to New Brunswick are a little more murky.  It will secure a source of oil for the refinery in the long term – good news.  It will generate some jobs at the export terminal.  Former Premier McKenna talked about a bitumen upgrader – which would be a large scale investment and hundreds of jobs.   I heard yesterday it would be relatively easy to twin the oil pipe with a natural gas pipe – and given the dramatically increasing importance of natural gas (whether NBers like it or not) it might make sense to be connected both east-west and north-south into the natural gas pipeline infrastructure.

I said 10 years ago that we should be using those large capex projects as a base to think about how we grow long term, sustainable economic activity. But we were relatively high on the capex and spent little time on the rest.  We shouldn’t make that mistake again.

 

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14 Responses to Oh Davey boy the pipes, the pipes are calling

  1. mikel says:

    “I said 10 years ago that we should be using those large capex projects as a base to think about how we grow long term, sustainable economic activity. But we were relatively high on the capex and spent little time on the rest. We shouldn’t make that mistake again.”

    RRRRIght, I’m SURE the same mistake won’t be made again, I mean, what can go wrong with an Irving investment? I’m not sure about your ‘input tables’, I think a more reliable number would be Transcanada themselves. They claim that the 7000 km keystone pipeline will create 6500 jobs a year over two years. Since in New Brunswick we are looking at about 500 km, or one fifth, that’s about 1300 jobs. And of course its unknown how many of those jobs will be in NB-the pipeline itself may be constructed in Alberta with the parts simply shipped to NB, where the jobs would be simply clearing the land and putting it together.

    And again, its a short term fix-all those people will come back to NB, and two years later have to leave once again. A ‘boom and bust’ economy hardly sounds like a really good long term strategy. Meanwhile, there is virtually NO interest in wind power, even though both wind farms in New Brunswick are expanding, yet there is no plan-or even interest-in trying to build an NB industry to build the systems IN New Brunswick.

    Meanwhile, permanent jobs are even less than wind power provides, and doesn’t even include the costs of pipeline leaks. Meanwhile, as to royalties, I’ll again remind people that Bernard Lord was going to SUE because natural gas royalties of the pipeline passing through the province were incredibly low.

    Thats not to say its a BAD thing-unless you are an environmentalist, but from a PUBLIC POLICY point of view it is horrible. That there is a provincial government whose policies seem to be saying nightly prayers hoping to God that somebody will want to build a pipeline or extract some gas should HORRIFY people. But the province really needs some ‘good news’ for a change, whether that will pacify people to the point where the same mistakes WILL be made again, is another question entirely.

  2. mikel says:

    BTW, I forgot to add that Keystone is expected to take two years (according to transcanada). Which means one eighth of that lenghth in New Brunswick is about three months. So from the ‘jobs’ point of view, it will be just giving people enough weeks to collect EI.

  3. anonymoose says:

    David, you mention a “bitumen upgrader”. Does that mean the Irving refinery needs to refit before they can process the western crude?

  4. Michael Booth says:

    Mr. Campbell: Always find your blogs and TJ reports interesting and thought provoking. One thing New Brunswick is not short of are opinions on the pros and cons of our economy. I live in St. Stephen, the border town and have witnessed the decline here over the past decade or more. The majority of our business district down town is empty and for sale.
    About the only thing remaining is the long line ups at the border crossings of Canadians from near and far going to the US on shopping trips. The Bank of Montreal reported that Canadian retail industry lost 20 billion dollars to cross border shopping in 2012. That’s a huge chunk of change. Had only a small percentage of that been spent in NB I think it would be more of a game changer than the pipeline which I welcome. Price differentials for the same or similar goods between NB and Maine or the US can run from 15 percent to 200 percent. My question is why? Secondly, it is obvious that the price difference is or has created a lop sided unbalanced economy heavily favoring the US while killing the retail industry on our side of the border. We always holler we need more investors in NB. The reality of investment is a reasonable expectation for profit and that does not exist here because of the unbalance in retail pricing. I realize we have higher taxes etc and there may be distribution rights and so on. However it seems that if efforts were made to even things out somewhat, then the conditions for profit would rise as well as our ability to compete on retail pricing. Your comments would be greatly appreciated.

  5. anonymoose says:

    mikel :
    BTW, I forgot to add that Keystone is expected to take two years (according to transcanada). Which means one eighth of that lenghth in New Brunswick is about three months. So from the ‘jobs’ point of view, it will be just giving people enough weeks to collect EI.

    I seriously doubt they’ll have 1 massive crew digging a mile a minute, more like several crews working their own section all at the same time.

  6. @Michael Booth
    I’m not an expert on cross border shopping but there are many issues. The price differential on some products – such as agricultural products – is related to government policy (i.e. milk, cheese, meat). There are scale issues (i.e. small retailors in St. Stephen vs. large players in the U.S.), currency issues, underlying cost dynamics, distribution costs, etc. And, as shown with book prices, there is the fact that some multinationals just think they can charge more in Canada for the same product.

    One of the biggest issues is the currency. In the 1970s, the US and CDN dollars were roughly at par. But for more than 30 years, Canada had between a 10 cent and a 40 cent ‘advantage’ from the lower value of the Canadian dollar.

  7. mikel says:

    Number of crews insn’t the issue, in fact it would probably take longer if they DID only have one crew. But yes, they will have several, so again, that’s my basic math which people are free to disagree with, but I think that great big giant bridge to PEI took, what, three years? A pipeline is easier to build than a road-cut a path, weld or bolt a bunch of pipes together. In fact somebody mentioned that since a lot of building is going on in Quebec as well, its possibly Quebec crews will do a lot of the work at least up north because they have more people with the skills, and just a reminder-Quebec workers are free to work in NB, but the reverse is not true. The government, as is painfully obvious, is really only interested in crowing about this, even though they really did nothing but basically promise that they wouln’t keystone the thing.

    As for St.Stephen, much of that is economies of scale. St. Stephen is a small town, and small towns even far away from the US have identical problems because not only can they not compete with the US, they can’t beat WalMart, Canadian Tire, etc. From a retail perspective, the reality is mentioned by David, plus the fact that WHOLESALE prices are often set at a national level, meaning that for a US book company, they KNOW people in Toronto aren’t going to drive two hours for a book or magazine, and certainly aren’t going to waste time printing a different copy for cross border locations.

    But for retail, thats the problem with Canada. In Vermont, you have municipalities allowed to set their own taxes. In NB, there were several ‘dying’ towns that tried to get community forestry models going, but the provincial government won’t even let municipalities access the land that surrounds them! So retail pricing is the least of the worries. To parrot David, IF people in St.Stephen had decent jobs and income, people wouldn’t care about driving out of town to buy a turkey. Again, thats why you have programs in Norway which are designed to ensure the oil industry services the economy and where full employment is the norm-unlike here where the economy is meant to service the large industries.

  8. mikel says:

    Just wanted to mention though that I think thats in interesting idea about cross border shopping. The LONG TERM effect of ‘buying close to home’ probably would have much more of an effect on the economy than the pipeline.

  9. Michael Booth says:

    Mr. Campbell:
    I realize a lot of factors come into play when one compares the retail price differences between the US and Canada. I believe some of the contributing factors can be addressed and hopefully corrected. It is absurd for Canadians just to ignore this enormous loss to our economy and let it go on and on. It is not just border towns that are loosing retail dollars and business. At our border crossing we have people from all over the Maritimes lined up to cross the border. Each person can now claim $800.00 exemptions. Can you steer me to an agency, government or private, that is studying this subject with an intent to suggest changes that would improve the position of the Canadian retailer? Thanks.

  10. Pete says:

    “Using Stats Can I/O tables, this $570 million is also associated with in the range of 3,500 jobs and 7,000 jobs. Again, this loss of capex has dampened our employment picture as well.”

    Wow – capex represents 100% labor costs ? Please stop playing with #’s as usual..

  11. mikel says:

    Mr. Booth, just to take some heat off Mr. Campbell, I think the NGO’s are addressing those issues with the 100 kilometer diet and things like that. Not sure if people saw, but Simms just closed down in Saint John, they made paint brushes for decades and I had no idea they were even local. They lost ‘contracts’ with Kent and Rona, not sure what THAT means, but their products aren’t being carried. Meanwhile, one commentor at the CBC site noted that the cheap chinese brushes have increased in price at those stores so the only ‘loser’ is Simms and of course the public.

    However, there are several NGO’s and small ‘protest groups’ and Council of canadians and people like that who generally oppose NAFTA and other free trade programs like the two VERY large ones currently being negotiated which will have an even further detrimental impact on Canada’s economy. The ‘buy local’ stuff is usually done by small groups and environmental groups, and people like the Canadian Centre for Policy Alternatives, and like I”ve said before, there is minimal presence of any of these groups in New Brunswick.

    But again, because of ‘economies of scale’ you really aren’t going to ‘address those problems’, in part because they are policies of the FEDERAL government, and good luck getting changes in that. If you saw the CBC today they have articles on music festivals in Maine which NBers are heading over for. This is the main impetus of the OECD and other think tanks-that retailers are going to have to find better ways to sell their products. In fact I suspect MORE people are going to Saint John shopping than Maine. Small town retailers have a tough row to hoe ANYWHERE. Heck even in BIG cities most new enterprises are restaurants. But again I reference St.Jacobs, this is a little hick suburb outside of Waterloo which gets more tourists than Kitchener, Waterloo or Cambridge. They have a HUGE farmers market, so huge in fact that locals rarely go in summer. But the main street of St.Jacobs is swamped on saturday mornings, even though the stores themselves are nothing particularly special-its just been MARKETED in such a way that its a ‘destination’.

  12. mikel says:

    And to the above commenter-7000 jobs times 40,000 a year is about HALF the number listed, so by no means does it represent ALL the investment. But thats an important question, all kinds of ‘theoretical numbers’ can be thrown around, in fact I wouldn’t be surprised to hear the government start to downplay the jobs numbers in about a month or so, and then after that start downplaying the royalty structure-that of course assumes there is a media that even MENTIONS those issues, which is not a certainty.

  13. Michael Booth says:

    @mikel I believe that if Canada had a better balance with US prices that allowed Canadians to shop at home, they would, and thus our economy would recover much of the 20 billion it lost in sales in 2012. Even a small amount of 20 billion would be a game changer in NB. The economics benefits would be far greater and far more wide spread than the pipeline. Remember, Enbridge built a pipeline through NB and how much money did it put in your pocket? Zero

  14. Michael Booth says:

    @mikel
    Hi, the pipeline will bring some benefit to NB during the building phase however if we were able to level out the price differences for retail products with the US, Canadians would shop at home and the benefits would be much greater and more wide spread that a dozen pipelines and that is the argument I am trying to sell to Gallant. I enjoy your comments on here, very insightful. I can be reached at Michael_Booth76@yahoo.ca

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