Politicians vs. our last healthy industry

By Mark Milke
Canwest News Service

Statistics Canada published data on Wednesday showing that the oil and gas industry spent $49.7 billion on capital expenditures in 2007. (Joshua Sawka/Canwest News Service)

In a serendipitous release Wednesday, Statistics Canada published data on how much the oil and gas sector industry spends on extraction, i.e., getting oil and gas out of the ground so we can power our automobiles and heat our homes and offices, among other uses.

The numbers are staggering. In 2007, the industry spent $49.7 billion on capital expenditures. On the operating side, Canada's energy industry cut cheques worth $37.6 billion.

Of particular note is the trend-line. Of almost $50 billion spent on capital investment last year, $32 billion was on conventional exploration; that's down 17 over per cent from the previous year. In contrast, oil and gas companies spent more than $18 billion on "non-conventional" extraction. That would be the oil sands and other difficult-to-reach reserves.

It's the same story on the operating side though less dramatic. Operating expenses were up 0.9 per cent for conventional projects (to $26.8 billion) but up six per cent for non-conventional extraction (to $10.9 billion).

Like most numbers, the statistics are hard to make sexy. But if someone can give them a come-hither look and parade them in front of our federal party leaders, they'd perform a valuable public service. Over the summer and now in the campaign, our political leaders attacked oil and gas companies as much as each other. They are apparently clueless about how valuable energy is to Canada, especially if we're about to enter a recession.

Regrettably, the assault comes from all sides. In the leaders' debates last week, NDP leader Jack Layton argued the energy sector didn't "deserve" the planned reduction in the corporate tax. One of Layton's candidates, the academic Michael Byers from the University of British Columbia, argued Alberta's oil sands should be shut down.

In a television interview in late September, the Green's Elizabeth May argued there was "too much focus on producing oil in one region." May claimed that hurt the rest of the country's economy and then recommended a moratorium on oil sands development. She said that action would "help bring our dollar back to more of its historic relationship with the U.S. dollar and that would help our manufacturing sector." Right.

Back in June, Liberal leader Stephane Dion told the Financial Post that his carbon tax plan would "be very good for Saskatchewan and Alberta" because the heavy tax loads on their energy producers will prompt them "to invest in Canada more." And this past Saturday, Bloc leader Gilles Duceppe, accused the Conservatives of being "sold" to the oil industry. Even Prime Minister Stephen Harper has piled on, with his plan to restrict bitumen exports to countries that live up to some as-yet undefined environmental standard.

This is bizarre. The energy sector is now a critical factor in not just Alberta's economy and to our provincial government revenues but also to British Columbia, Saskatchewan and Newfoundland. One day, energy, its high-paying jobs, and tax revenues might also be significant to Quebecers if natural gas reserves in the St. Lawrence basin, estimated at 24 to 30 million cubic feet, are ever developed.

Critics of the sector, but who love Ottawa largesse and equalization and transfer payments, should think hard about which federal and provincial social programs they would end. Without a booming energy industry, every government will see revenues drop.

But beyond the direct impact, consider some indirect effects. Some in Ontario's automotive sector, including their union leaders such as CAW economist Jim Stanford whom I debated last week, are critical of oil and gas companies and want "excess" profits reined in. They should be careful about what they wish for. If those in the auto belt think times are tough now, wait until the last buyers of their trucks stop showing up to showrooms across the West.

Canada's energy industry spent $87 billion last year on exploration and operations. That cash was spent on everything from Ontario's automobiles to Atlantic salmon to Quebec-furniture.

Given those realities, you'd think with stock indexes in a free fall, the world on the brink of a recession, with the manufacturing and the automobile sectors suffering, and with government tax revenues already set to take a hit from such events, our politicians might avoid trying to kick the slats out from underneath one of Canada's last healthy industries. But you would be wrong.

Mark Milke is the Director of Research for the Frontier Centre: www.fcpp.org.