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.