manufacturing supply chains alberta's oil

MANUFACTURINGSUPPLY CHAINSIN ALBERTA’S OIL SANDS

OCTOBER – 2014

About CME

Canadian Manufacturers & Exporters (CME), established in 1872 by an Act of Parliament, is

Canada’s largest trade and industry association and is the voice of manufacturing and global business in Canada. With offices in every province across Canada and partnerships globally, CME directly represents more than 10,000 leading companies in every sector and every region of the country. Its membership network accounts for an estimated 82 per cent of Canadian manufacturing production and 90 per cent of goods and services exports. Its membership is primarily small and mid-sized companies, however it also includes global multinationals involved in manufacturing, supplying, and investing in Alberta’s oil sands.

For more than a decade, CME has been actively helping its members do business in the oil sands. In 2000, CME founded the National Buyer-Seller Forum (now National Supply Chain Forum) as a mechanism to connect manufacturers from across Canada with oil sands investors and owners. CME also provides direct match-making services for our members to access the oil sands and other natural resource projects across Canada.

CME is also the Chair of the Canadian Manufacturing Coalition, which represents over 50 sectoral manufacturing associations which join together to speak collectively about the critical importance of the future of manufacturing in Canada.

More information is available at www.cme-mec.ca.

Foreword

Canadian Manufacturers & Exporters is pleased to present our second annual report on the impact of the

ongoing development of Alberta’s oil sands on Canada’s manufacturing sector.

The death of Canada’s manufacturing sector has been greatly exaggerated. So too has the negative impact of the development of Alberta’s oil sands on the sector. While Canada’s manufacturing sector has gone through significant challenges over the past decade, many of which still continue, it will nevertheless produce record-breaking output in 2014. The sector was significantly and negatively impacted by the rapid rise of the Canadian dollar, however much of that impact was due to too many companies using the low dollar as a competitive crutch rather than using it as a mechanism to create high value, innovative, world class products and services to sell to the world.

Rather than the oil sands, or any major natural resource development including mining, forestry and energy, being viewed as a negative force, Canada must view these projects as generational opportunities for economic growth. We must leverage and harness their development to maximize economic opportunity today and for future generations.

As this report clearly indicates, manufacturers play a critical role in this development. In 2010, manufacturers sold over $6 billion worth of high tech products and services into the development and operation of Alberta’s oil sands — an increase of 27 per cent from 2009. While this $6 billion represents only a fraction of the total economic output of the manufacturing sector, it is a large and growing portion of sales for many sectors and many companies — especially those manufacturing machinery and equipment, steel and steel products, and construction equipment. And these opportunities are not just limited to Alberta manufacturers; they are being felt right across the country in every province and region.

With hundreds of billions more expected to be invested into the development and extraction of this natural resource, we must begin to focus our attention on how Canadian manufacturers can continue to grow their sales into the oil sands and capture more of these opportunities. In 2010, Canadian companies captured 43.3% of the total manufacturing supply chain opportunities in the oil sands, down from 46.1% the previous year. We need to reverse this trend. Increasing domestic manufacturing content in the oil sands must be part of a national strategy to maximize the value of natural resource development.

As a first step, Canada’s manufacturers must understand the specific opportunities that oil sands development offers them – which this report aims to support – and they need to get more involved. Second, governments, oil sands producers and manufacturers must work much more closely together to improve domestic supply chains and to make them more efficient. This step is critical to the long-run sustainability of oil sands development. Perhaps most importantly, we must all work together to ensure that Canadians fully understand and appreciate the economic importance of natural resource development, and specifically Alberta’s oil sands, to ensure their development continues responsibility and is not unnecessary restricted.

This is CME’s mission. We thank all of our partners who have supported our efforts to date and we look forward to continuing to work with them and many others towards these objectives.

Mathew Wilson

Vice President, National Policy Canadian Manufacturers & Exporters

Executive Summary ________________________________________________________1

Production and Spending in the Oil Sands __________________________________1Impacts of Oil Sands Expenditureson Manufacturing ______________________ 2Recommendations __________________________________________________________ 3

Introduction __________________________________________________________________ 5

Alberta’s Oil Sands and the Canadian Economy ___________________________________________ 6

Current Oil Sands Production and Expenditures in Alberta _________________________________________________ 6

Manufacturing Supply Chains in the Oil Sands ___________________________________________________________10

National Overview ___________________________________________________________11

Industry Breakdown — Capital Investment ___________________________12

Industry Breakdown — MRO Expenditures ___________________________13Provincial Breakdown ______________________________________________________15

Overview ______________________________________________________________15

Newfoundland and Labrador _________________________________________16

Prince Edward Island __________________________________________________19

Nova Scotia __________________________________________________ 22

New Brunswick ____________________________________________ 25

Quebec __________________________________________________ 28

Ontario ________________________________________________________________31

Manitoba ________________________________________________ 34

Saskatchewan _______________________________________________________ 37

Alberta __________________________________________________ 40

British Columbia ______________________________________________________ 43Imports into Oil Sands Supply Chains ____________________________________ 46Domestically-Sourced vs Foreign Goods _________________________________ 49

Looking Ahead: Oil Sands Production and Expenditure Outlook _____________________________________________50

Production Outlook _______________________________________________________ 50

Market Access ________________________________________________________51Oil Sands Expenditure Outlook ___________________________________________ 52

Expenditure Scenarios _______________________________________________ 52

Capital Investment Projections _______________________________________ 52

Maintenance, Repair and Operations Expenditure Projections ______ 53Potential Impact of Future Oil Sands Expenditures on Canadian Manufacturers_______________________________________________ 53

Future Capital Investment ____________________________________________ 54

Future MRO Expenditures ___________________________________________ 55

Benefits of Improving Supply Chain Penetration _____________________ 56

Improved Supply Chain Penetration by Industry _____________________ 56

Recommendations ______________________________________________________58

Conclusion ___________________________________________________________________61

Table of contents

1

CONTENT

Alberta’s energy sector is a major driver of economic activity across Canada. As global demand for energy grows, investment in the province’s oil and gas sector is expected to follow suit. Leading the way is the potential for billions of dollars of capital spending

in the oil sands in the coming decades. Canadian manufacturers have long played a critical role in project development, opera-

tion and completion in the oil sands. They supply a wide range of technologies, goods and services into project supply chains. As investment in the energy industry grows, manufactur-ers have significant potential to expand their business by accessing these supply chains.

In 2013, Canadian Manufacturers & Exporters (CME) conducted a detailed study of the economic opportunities that oil sands development offers to Canadian manufacturers. That study, entitled Oil Sands Manufacturing, was the first to pinpoint the specific nature of oil sands supply chains and to quantify the present, and potential future, value of those supply chains to Canadian manufacturers.

CME has since committed to producing three annual updates of that paper. The intent is to provide new information on manufacturing supply chains in the oil sands while also tracking changes in supply chain penetration over time. This paper is the first of these updates.

Production and Spending in the Oil Sands

It is difficult to overstate the size of the oil sands or the economic potential that resource represents. At about 170 billion barrels, the oil sands contain the third largest crude oil reserves in the world. More remarkable still, the actual volume of oil under northeastern Alberta is actually ten times that amount; the remaining 90% is not considered to be economically recoverable using currently-available technologies.

A tremendous amount of money has been spent unlocking the potential of the oil sands. From 1997 to 2013, total annual expenditures in the oil sands have grown from $3.6 bil-lion to just under $55 billion. In total, a staggering $348 billion has been spent over that 17-year period.

As a result, oil sands output has soared and the industry itself has become one of the primary engines of the Canadian economy. In 2013, total production hit a new record of 1.9 million barrels per day — an 8.2% increase over the previous year. The oil sands account for 58% of all crude oil recovered in Canada, helping make Canada the fifth largest oil-producing country in the world.

Oil sands expenditures, whether they be new capital project investments or ongoing maintenance, repair and operations (MRO) spending, generate significant economic benefits for Canada. They added $20.6 billion to the national economy through direct and indirect impacts, as well as over creating 170,000 jobs and generating $1.0 billion in government revenues, not including income taxes.

As significant as they are, these figures still reflect only a fraction of the overall impact of the oil sands on the Canadian economy. They represent only the economic spinoffs from oil sands expenditures and do not include the economic benefit (or government taxes and royalties). Neither do they reflect the host of business services and downstream activities that rely on the oil industry.

Executive Summary

2

CONTENT

Impacts of Oil Sands Expenditures on Manufacturing

To assess the impact of oil sands expenditures on manufacturing in Canada, CME commissioned two economic simulations using Statistics Canada’s input-output model. One focused on the direct and indirect impact of oil sands capital investment on manufacturing, and the other on the impacts of MRO expenditures. In total, capital and MRO spending in the oil sands generated $6.0 billion in manufacturing output across Canada in 2010 (the most recent year for which data are available). That total represents an increase of more than 27% over the previous year.

While the majority of those impacts were in Alberta, all ten provinces saw an increase in manufacturing output that can be attributed directly or indirectly to oil sands expenditures. About $2.0 billion in manufacturing sales were generated outside Alberta in 2010, up from $1.6 billion the previous year. Ontario manufacturers captured 42% of that total.

Even though manufacturing sales grew significantly in 2010, the news was not all positive. The 27% increase in output was entirely because oil sands spending was higher that year, and not because of better supply chain penetration. Canadian businesses captured 43.3% of the direct and indirect manufacturing supply chain opportunities in 2010, down from 46.1% in 2009. This decline in access to oil sands supply chains cost Canadian companies $634 million in lost sales in 2010. Meanwhile, imports of manufactured goods into the oil sands rose by 51%, reaching $8.3 billion that year.

As oil sands development continues to grow, the opportunities for Canadian manufacturers will do likewise. To gain some sense of the potential impact on manufacturing across Canada, CME constructed three scenarios for oil sands expenditures between 2012 and 2030, based on historic spending levels and future expectations. Those scenarios suggest there could be between $990 billion and $1.8 trillion spent on oil sands development over that period.

Oil Sands Supply Chains across Canada

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts across Canada in 2010:

• $20.6 billion in GDP added to the Canadian economy

• $6.0 billion in manufacturing output

• More than 170,000 jobs

• $1.0 billion in government revenues, not including income taxes

• An estimated $7.2 billion in wages and salaries

3

CONTENT

If Canadian manufacturers are able to at least maintain their present level of supply chain access, oil sands expenditures could generate between $179 billion and $353 billion in total business sales between 2012 and 2030. By 2030, annual sales could be as high as $33.3 billion – equivalent to the present-day value of the entire Canadian machinery-producing sector.

However, we cannot be content with those totals. Based on 2010 numbers, 57% of the manufacturing opportunities from the oil sands are lost to imports. While it is unreasonable to assume that Canadian companies could capture all the manufacturing spinoffs, it is critical that we work to improve our supply chain penetration. If Canadian businesses were able to pick up 25% of the manufacturing business currently held by foreign companies, it would create an additional $59 billion to $117 billion in sales, on top of the figures above.

Recommendations

Achieving a 25% increase in supply chain penetration cannot happen overnight. However, given the potential impact on Canadian manufacturers and the national economy generally, it is clearly a worthwhile policy goal.

There are three general areas where action is needed to allow Canadian companies to sell more manufactured goods into the oil sands: improving communication between manufactur-ers and project owners/developers; improving oil-sands-related manufacturing innovation in Canada; and building the necessary infrastructure for Canadian oil to reach markets, and to ensure the smooth operation and expansion of existing domestic supply chains.

1. Improving Communication between Project Owners, EPCs and Manufacturers

A lack of timely and clear communication between project owners, engineering, procurement and construction firms (EPCs) and manufacturers can create production delays and drive up a range of manufacturing costs. Improving the accuracy of construction timelines, product specifications and project scope would unlock innovation, create new efficiencies and help build the relationships needed to create a vibrant and healthy domestic supply chain into the oil sands. Specific measures that would help to improve communication between manufacturers and project owners/developers include:

• Establishing an oil sands supply chain working group with senior leaders to address major bottlenecks in the supply chain, identify common threats to growth and propose solutions for industry or government. Related work is being undertaken by GO Productivity (a division of Productivity Alberta).

• Having project owners and EPCs create detailed “how-to” guides to help manufacturers better understand what they need to do to participate in oil sands supply chains.

4

CONTENT

• Establishing an oil sands supply chain resource and procurement office to help manufacturers lead about the specific procurement opportunities in the oil sands and to efficiently engage and navigate supply chains.

• Developing common supply chain pre-qualification standards for manufacturers and their specific products in order to clarify and accelerate oil sands procurement.

2. Investing in Oil-Sands-Related Manufacturing Innovation

Technological innovation is pivotal to the success not only of oil sands development generally, but of Canadian manufacturers in accessing the supply chains those investments generate. For Canadian manufacturers to ensure a larger and growing role in the oil sands, they need to be at the forefront of this innovation.

For this reason, CME recommends the creation of an Oil Sands Manufacturing Innovation Centre, located in Ontario. A centre devoted to the development and testing of new products and technologies in the oil sands would be tremendously beneficial to Canadian manufactur-ers looking to sell into that industry. Locating such a centre in Ontario would help eastern Canadian companies improve their access to oil sands supply chains and reinforce the message that the oil sands generate a truly national benefit.

3. Investing in Effective Supporting Infrastructure

Infrastructure is critical for two reasons. First, the transportation capacity to move crude oil and bitumen to market is pivotal to future oil sands investment. Second, infrastructure is needed to ensure that the upstream and downstream supply chains operate as smoothly and efficiently as possible. Public infrastructure boosts productivity. The more productive Canadian businesses are, the more competitive they will be in accessing oil sands supply chains. In particular, work is needed to:

• Improve the speed and perceived credibility of the pipeline approval process; and

• Increase investment in critical infrastructure connecting oil sands sites to existing transportation networks.

These issues are complex. They require governments, project owners, EPCs and manufacturers to work together to overcome the barriers to growth and support domestic supply chain growth and sustainability.

Canadians across the country have a stake in a strong and vibrant oil sands industry. The challenge is to simultaneously secure the long-run competitiveness of that industry, while also working to ensure that Canadian manufacturers are in the best possible position to benefit from the value-added economic opportunities that oil sands investment generates. Unlocking the full potential of the oil sands is critical to creating lasting economic benefit to all regions of Canada.

5

CONTENT

Alberta’s energy sector is a major driver of economic activity across Canada. As global demand for energy grows, expenditures in the province’s oil and gas

sector are expected to follow suit. Leading the way is the potential for billions of dollars of capital spending in the oil sands in the coming decades.

Canadian manufacturers have long played a critical role in project development, operation and completion in the oil sands. They supply a wide range of technologies, goods and services into project supply chains. As investment in the energy industry grows, manufacturers have significant potential to expand their business by accessing these supply chains. Canadian Manufacturers & Exporters (CME) has long worked to connect Canadian manufacturers to these opportunities.

In 2013, CME conducted a detailed study of the economic opportunities that oil sands development offers to Canadian manufacturers. That study, entitled Oil Sands Manufacturing, was the first to pinpoint the specific nature of oil sands supply chains and to quantify the present, and potential future, value of those supply chains to Canadian manufacturers.

However, that study had two unavoidable drawbacks. First, at the time, the necessary data was only available for 2009 – a function of the complexity of the economic models that were used. Second, because it was the first of its kind, that study was unable to provide any information on the evolution of oil sands supply chains; it was limited to offering a snapshot in time.

For this reason, CME has committed to publishing three annual updates on our original 2013 publication. The intent is to build on our initial work by updating existing information on manufacturing supply chains in the oil sands, and tracking how those supply chains have changed. Specifically, these updates allow us to track whether Canadian manufacturers have been able to improve their position in those supply chains, or if more of the value-added opportunities are leaking outside the country. Developing a time series component to our supply chain analysis will generate insight into the types of policy solutions that may be required to increase Canadia supply chain penetration.

Alberta’s oil sands have the potential to generate billions of dollars in new manufacturing output all across Canada. However, this potential is far from guaranteed. It requires better access to foreign markets for Canadian crude oil, and improvements in supply chain efficiency and the business environment generally. On top of that, oil sands development is under siege from multi-million-dollar public relations campaigns and high-profile celebrity criticism. While there is always room to improve the environmental performance of any industry, CME believes that the positive economic story about the oil sands also needs to be told. It is a story of job creation, investment and growth in manufacturing across Canada as a core element of energy development and market access.

Introduction

6

CONTENT

Current Oil Sands Production and Expenditures in Alberta

1. ProductionOil sands expansion in Alberta is taking place at a rapid rate. In spite of growing transportation challenges, skilled labour shortages, increased competition from shale oil production in the US and market access concerns, oil sands production in 2013 rose by 8.2% compared to the previous year, hitting a new record of 1.9 million barrels per day.

Already, the oil sands are the dominant source of crude oil production in Canada. In 2013, oil sands production accounted for 58% of all crude oil recovered in Canada, up from 47% five years earlier. That share is expected to rise considerably in the years ahead as investment in the oil sands continues to bring more production on line.

As a result, Canada has become a major source of global crude oil production. As of 2012, Canada was the world’s fifth-largest producer, behind Saudi Arabia, the US, Russia and China. However, there is considerable room to grow. The oil sands holds the world’s third largest discovered reserves and crude oil production in

Canada is only about one third that of the United States. Increasingly, oil sands production is taking place

through the development of in situ projects. In 2009, the volume of recovered oil from mining activities was slightly higher than from in situ production. Since then, in situ production has grown by 69%, compared to 23% for mining. Presently, in situ projects account for about 56% of all oil sands production in Alberta.

Alberta’s Oil Sands and the Canadian Economy

Mining and In Situ Production

Oil sands production comes in two forms. The first is traditional open-pit mining, used to recover bitumen that lies relatively close to the land surface. All early oil sands development in Alberta consisted of mining projects because bitumen close to the land surface was easier to extract, and because the technology did not exist to economically recover the deeper reserves.

The second form is called in situ production – where bitumen that is too deep to be mined is extracted by horizontal drilling and techniques such as steam-assisted gravity drainage (SAGD). In such a process, companies drill two parallel horizontal wells. Steam is injected into the top well, which heats the bitumen and causes it to drain into the bottom well where it is recovered. It is estimated that only about 20% of the bitumen in Alberta is recoverable through mining. The rest will be extracted though in situ means.

Although statistics can vary considerably from one project to the next, mining is generally less energy intensive and is thus associated with lower per-barrel greenhouse gas emissions compared to in situ projects. At the same time, while they require more energy to produce a barrel of oil, in situ facilities have far less of an impact on the surrounding landscape.

SKSK

Other Albertacrude

Other Albertacrude

20132008

Source: CME calculations using data from CAPP

Oil Sands Are Driving Crude Oil Production Growth in Canada(share of total production by province)

Oil Sands

Oil Sands

All others All others

19.7%

47.1%17.2%

16%

17.5%

58.4%14.7%

9.4%

7

CONTENT

2. ExpendituresA tremendous amount of money has been spent on oil sands development in recent years. According to the Canadian Association of Petroleum Producers (CAPP), from 1997 to 2013, total annual expenditures have grown from $3.6 billion to just under $55 billion. In total, a staggering $348 billion has been spent over that 17-year period.

Oil sands expenditures can be divided into three broad types of activities: in situ projects; mining projects; and oil sands upgraders, which convert bitumen into synthetic crude oil. Of the $348 billion in cumulative spending since 1997, just under half was on mining projects, about one third on in situ development and operations, and the remaining 17% on upgraders.

This ratio will change in the coming years. Early oil sands development focused largely on mining activities. Beginning in 2011, however, in situ investments took over the lead. Given that 80% of the recoverable bitumen in the oil sands is accessible only through in situ recovery methods, this difference will only widen further in future.

For its part, spending on upgraders has been smaller than either mining or in situ activity, reflecting the fact that only a fraction of bitumen is upgraded or refined in Alberta – most is transported to other markets in Canada or exported to the US. Moreover, because of the large up-front construction costs, investments in upgraders tend to be volatile from one year to the next, tracking the start-up and completion of specific projects.

0 2 4 6 8 10 12KuwaitMexico

IraqUAEIran

CanadaChina

RussiaUnited StatesSaudi Arabia

Source: US Energy Information Administration

Top 10 Crude Oil Producers — 2012(millions of barrels per day)


Proved Crude Oil Reserves by Country - 2012(billions of barrels)

0 50 100 150 200 250 300Nigeria

LibyaRussia

UAEKuwait

IraqIran

CanadaVenezuela

Saudi Arabia

Source: Canadian Association of Petroleum Producers (CAPP)

Oil Sands Expenditures ($billions)

0199798 99 00 01 02 03 04 05 06 07 08 09 10 11 12 2013

10

20

30

40

50

60

Operating

Capital


Cumulative Oil Sands Spending — 1997 to 2013 ($billions)

Upgraders

Mining

In situ

164.4

124.4

57.3

8

CONTENT

2.1 Capital InvestmentWhether in upgraders, mining or in situ projects, there are two broad types of oil sands expenditures — new capital investment, and spending on maintenance, repair and operations (MRO). Capital investment refers to the spending associated with developing a new mine, extraction site, or upgrader. It can also include the expansion of an existing operation, as well as the purchase of new machinery and equipment for use on that site. Examples of new capital investment include the purchase of trucks, mining machinery, boiler tanks and other modular equipment. It can also include the purchase of materials to link new facilities to existing pipeline or rail transportation networks.

In 2013 alone, capital investment in the oil sands reached a record $30.8 billion, up 13.3% over 2012 levels. Of that total, $19.1 billion was in in situ projects and $8.6 in mining, with the remainder invested in upgraders.

Investment growth in new oil sands capital has been staggering. In situ capital investments in 2013 were 17 times higher than in 1997, while mining investment is nine times higher. Annual upgrader investment rose from just $5.7 million in 1997 to a peak of $6.6 billion in 2007 before falling back to $3.1 billion.

Although the general growth trend is positive, capital investment can be highly volatile from one year to the next. The expected returns on new capital investments can change considerably depending on prevailing economic and policy conditions, the global sociopolitical environment, and the outlook for crude oil prices. Projects that were in the planning stages for years can be delayed or even shelved if economic conditions are not suitable when it comes time to break ground. This volatility is easily evident in recent new capital spending patterns. From 2008 to 2009, new capital spending fell by 38% because of the deterioration in global economic conditions at the time. It took two years to recover the loss.

2.2 MRO ExpendituresMaintenance, repair and operations expenditures are an often-overlooked component of oil sands spending. Frequently, studies focus on initial capital investments but pass over the significant levels of ongoing expenditure required to keep oil sands operations running smoothly. These expenditures cover everything from the cost of scheduled or preventative maintenance to the purchase and installation of replacement components for machinery and equipment. Given the specialized nature of oil sands extraction, products included in MRO expenses are often raw steel or pre-fabricated components that are assembled or even built on-site.

In general, MRO spending is less volatile than capital investment as it is critical to maintaining existing production activity and less susceptible to fluctuations in economic conditions and the overall investment climate. Capital investments can be deferred if the investment climate is not attractive. MRO expenditures are less flexible.

This characteristic of MRO activity is reflected in recent spending trends in the oil sands. Unlike capital investment, which saw significant declines in 2003 and 2009, MRO spending has grown far more consistently. From $1.7 billion in 1997, MRO expenditures reached $24.1 billion in 2013. Only twice in that period was there a year-over-year decline, and in both cases the decrease was modest. There has not been a drop in MRO spending in more than 10 years.

Unlike capital investment, upgraders are an important component of oil sands MRO expenditures. Once upgrader projects are completed, the ongoing costs of those facilities can be considerable. As a result, even though there was only $3.1 billion in new capital spending on upgraders in 2013, MRO spending totalled a record $6.2 billion. Meanwhile, MRO costs for in situ operations reached $8.7 billion in 2013, while mining operations were $9.1 billion.


Oil Sands Capital Investment by Type ($billions)

05

101520253035

UpgradersMiningIn Situ

199798 99 00 01 02 03 04 05 06 07 08 09 10 11 12 2013

0

5

10

15

20

25

0199798 99 00 01 02 03 04 05 06 07 08 09 10 11 12 2013

0

UpgradersMiningIn Situ


Oil Sands Operating Expenditures by Type ($billions)

9

CONTENT

3. Economic ContributionThe oil sands make a significant contribution to the Canadian economy. However, the exact value of that contribution is frequently underestimated for two reasons. First, most available data are limited to the economic contribution of the extraction process itself. Critics of the oil sands have argued that the direct economic impact of the industry is actually quite small — about 2% of national GDP. While accurate, this figure is also true in only the most limited sense possible; the direct economic contribution from taking the bitumen out of the ground. It does not account for any of the impacts on refining, transportation, business and engineering services, petrochemicals production, research and development or any other upstream or downstream activity that either serves the oil sands or relies on the industry for business or feedstock.

In essence, to say that the oil sands accounts for 2% of the Canadian economy is like saying that agriculture accounts for just 1% of total economic output across Canada. While technically true, no one would argue that agriculture’s impact on Canadians’ lives is limited to one cent out of every dollar our economy generates.

There is no doubt that Alberta captures the lion’s share of the benefits, but the economic impact of the oil sands extends well beyond provincial boundaries. In particular, oil sands activity is one of the largest job-creating industries in Canada. Every job in the oil sands creates between 5.3 and 8.0 additional jobs elsewhere in the country. That is the third highest jobs multiplier in Canada out of 235 industry categories. According to estimates from the Government of Alberta, the oil sands affect the jobs of 112,000 Canadians outside of Alberta — a figure expected to grow to over 500,000 over the next 25 years. 1

On top of that, crude oil exports are critical to maintain-ing Canada’s overall trade balance. Crude oil is Canada’s single most important export product, accounting for 17% of all goods exports in 2013.2 Last year, Canada posted an overall trade deficit of $3.1 billion dollars. Excluding our crude oil trade surplus, that deficit is closer to $58.3 billion.

The oil sands, and Alberta’s energy sector in general, is also a significant contributor to federal government coffers. Although only the provincial government collects royalty revenues, the federal government benefits from corporate and personal income taxes, GST revenues, EI and CPP premiums and a range of other taxes on the high incomes, wealth and economic activity generated in the oil sands. Alberta’s wealth also triggers billions of dollars in federal equalization payments to other provinces, including $3.2 billion to Ontario in 2013-2014. Without the oil sands, it is likely that the Ontario government would not receive any money from that transfer program.

Moreover, many of these numbers are still limited to the impact of extraction activity itself. They do not, for example, account for the opportunities created in downstream indus-tries like refining, transportation, petrochemicals and plastics production. As shown in the figure below, these industries can create as many or more jobs as oil sands extraction itself.

These figures also do not account for the economic impact of the billions of dollars being spent on oil sands development. Capital investment and MRO expenditures are themselves tremendous drivers of economic activity in Canada. As stated above, $348 billion has been spent on oil sands development since 1997. Hundreds of billions more will be spent over the next 10–20 years. The potential impact of these expenditures on the Canadian economy— and the manufacturing sector in particular — is tremendous and is the focus of the remainder of this paper.

0 3 6 9 12 15

Direct, Indirectand Induced

Direct andIndirect Jobs

Automobile and motor vehicle manufacturingInsurance carriers

Meat product manufacturingDiamond mining

Crude oil and other pipeline transportationLessors of real estate

Pay and specialty televisionAnimal food manufacturing

Basic chemical manufacturingConventional oil and gas extraction

Non-ferrous metal production/processingDairy product manufacturing

Non-conventional oil extractionGrain and oilseed milling

Petroleum re�neries

Source: Statistics Canada 2010 Input-Output Multiplier TablesNon-Conventional Oil Extraction is a Leading Creator of Jobs in Canada(Total jobs created per job in a given industry)

-60

-20

20

60

100

Balance excluding crude oil

Trade Balance

Source: CME calculations using Statistics Canada data

Crude Oil Dramatically Improves Canada's Trade Balance(Trade surplus/de�cit, in $billions)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

1 Source: Alberta government: http://oilsands.alberta.ca/economicinvestment.html 2 Specific figures for oil sands crude are not available.

10

CONTENT

The Canadian manufacturing sector has been a constant fixture in supporting the growth and development of the oil sands since the early 1950s – supplying technologies, machinery, and equipment in support of extraction and upgrading operations. In 2013, CME began tracking these relationships by analyzing the existing economic linkages between domestic manufacturers and oil sands development. This was a critical first step in improving our understanding of how the impacts of the oil sands reverberate across Canada, and in providing a sense of what opportunities future oil sands investment hold for Canadian manufacturers.

The second step is to track changes in these relation-ships over time to see how oil sands supply chains in

Canada are evolving. It is clearly in Canada’s best econom-ic interests to capture as much of the supply chain benefits as possible. By tracking changes in supply chain relation-ships, we gain a better understanding of the challenges we face in tapping into oil sands opportunities and what, if any, policy intervention may be needed.

For this reason, CME once again commissioned two eco-nomic simulations from Statistics Canada using its input-output (I/O) model: a $1-billion shock to capital spending in the oil sands; and an identical shock to operational spend-ing. Our objective was twofold: to obtain more up-to-date information on existing oil sands supply chain relationships in Canada; and to learn how those relationships have changes since our last report.

Manufacturing Supply Chains in the Oil Sands

About Input-Output Modelling

Input-output models are an invaluable tool in assessing the economic impact of one particular industry on the economy as a whole. These models use known information about inter-industry relationships to track all the changes in the output of supplier industries that would be needed to support an increase in output in any one industry.

As such, these models can be used either to explore in detail existing buyer-supplier relationships in their entirety, or to estimate the impact of a change in activity in any one industry. A common way to conduct input-output (I/O) analysis is to “shock” the existing model by supposing an increase (or decrease) in output in a specific industry and then observing the direct and indirect impacts in other sectors. This was the approach used in CME’s analysis.

Because I/O models use knowledge about existing economic relationships, they can provide an accurate and highly detailed picture about the impacts that one industry can have throughout the Canadian economy. However, they do have important limitations:

1. All relationships are linear. This means that if a $10 shock has an impact of $11 elsewhere in the economy, then a $100 shock will have a $110 impact. This is unlikely to hold true in the real economy because it does not account for economies of scale, changes in production technologies and so on.

2. Demand shocks in the model are assumed to have no effect on prices.

3. The model is static — it does not account for the time that might be required for the economic impact of the shock to be fully realized.

4. There are no capacity constraints. The model assumes that the rest of the economy always has the labour, goods and services immediately available to meet existing needs.

Finally, because of the complexity in tracking all the linkages across the economy, it takes several years to finalize an I/O model. As such, the most recent year for which data are available is 2010.

11

CONTENT

National Overview

Because of their complexity, it takes about 36 months for an I/O model of the Canadian economy to be developed for any given year. As such, our updated simulation reflects spending patterns in 2010. Based on total oil sands spending of $30.5 billion that year, Canadian manufacturers sold $6.0 billion of goods into the resulting supply chains, up 27.3% from 2009 levels.

That $6.0 billion in manufacturing sales is divided in two parts: sales generated by oil sands capital investment, and those triggered by MRO expenditures. In general, capital investment generates larger manufacturing spinoffs because of a greater need for new machinery, equipment and materials. For MRO spending, the manufacturing requirements are lower. In 2010, manufacturing sales from capital investment totalled $4.2 billion, compared to $1.7 billion for MRO activity.

Manufacturing sales on the capital side are also growing faster than for MRO spending, although that difference can largely be explained by higher expenditure levels. Capital investment in the oil sands grew by 53.1% in 2010, compared to 12.7% growth in MRO expenditures.

The increase in manufacturing activity from 2009 to 2010 can be broken up into three contributing factors. The first is growth in oil sands expenditures themselves; if spending increases from one year to the next, it is reasonable to expect that the associated supply chain opportunities will grow as well.

The second factor is changing requirements in the oil sands. As the industry evolves, its need for manufactured products changes as well. Innovative practices, alternative extraction methods, or the emergence of new technologies can all impact the type of manufactured goods needed to support investment.

The final growth driver is supply chain penetration. If Canadian companies displace imports into the oil sands,

then they could drive their total sales higher, even if oil sands investment were to remain constant.

Unfortunately for Canadian manufacturers, the growth in sales in 2010 was because oil sands spending levels were higher than the previous year. On the capital side, manu-facturing sales grew by $1.1 billion in 2010. However, had supply chain penetration remained unchanged from 2009 levels, Canadian manufacturing output would have grown by $1.7 billion. Instead, a growing amount of the manu-factured goods that went into oil sands capital projects came from abroad. In 2009, Canadian companies captured 43.4% of the available supply chain opportunities on the capital side. In 2010, that share fell to 39.4%. This decline in supply chain penetration cost Canadian companies $634 million in lost sales.

The numbers are somewhat better for MRO spending as oil sands companies tend to look more to domestic firms to meet their repair and maintenance needs. MRO supply chain penetration was 52.1% in 2010 – essentially unchanged from the previous year. Higher MRO spending generated a $193-million increase in Canadian manufactur-ing sales, while changes in oil sands requirements added another $24 million to manufacturers’ revenues.

Source: CME calculations based on Statistic Canada’s input-output model

Sales of Manufactured Goods into the Oil Sands ($billions)

0

1

2

3

4

5

20102009

MRO ExpendituresCapital Investment

Oil Sands Supply Chains across Canada

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts across Canada in 2010:

• $20.6 billion in GDP added to the Canadian economy• $6.0 billion in manufacturing output • More than 170,000 jobs• $1.0 billion in government revenues, not including income taxes • An estimated $7.2 billion in wages and salaries

12

CONTENT

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

MRO ExpendituresCapital Investment

Supply Chain Penetration

Change inOil Sands Requirements

Growth inOil Sands Spending


Growth Drivers in National Manufacturing Sales($billions)

0102030405060

MROCapital

20102009

43.4%52.1% 52.1%

39.4%


Canadian Share of Oil Sands Manufacturing Supply Chains (%)

Industry Breakdown — Capital Investment

By far the largest manufacturing beneficiaries of oil sands capital investment are producers of the machinery and equipment needed to run mining and construction operations. Capital investment is focused on putting in place the equipment and facilities needed for long-term operations to proceed. This machinery and equipment accounted for half of the total impact on manufacturing from capital spending in 2010 — $2.1 billion out of $4.2 billion in total benefits to the sector. Other significant beneficiaries included producers of steel tubes, pipes,

tanks and structures, as well as other products made from basic metals.

While sales of mining and construction machinery and equipment grew in 2010, producers also lost significant market share. Total sales of those goods grew by $442 million in 2010, but had those companies been able to maintain their 2009 market share, growth would have al-most twice that amount. By contrast, many Canadian steel producers managed to make gains into oil sands capital investment opportunities. Producers of iron and steel pipes and tubes in particular owed 31% of their increased sales in 2010 to improved supply chain penetration.

Canadian Manufacturing Sales Generated by Oil Sands Capital Investment

Product type

Value of Sales ($000s)

Change: 2009–2010

Value of the change attributable to (in $000s):

2009 2010 $000s %Growth in oil sands

investment

Change in oil sands

requirements

Supply chain penetration

Logging, mining and construction machinery and equipment 1,635.0 2,076.6 441.6 27.0 869.0 11.9 -439.3

Iron and steel pipes and tubes (except castings) 131.4 220.6 89.2 67.9 69.9 -8.1 27.5

Iron and steel basic shapes and ferro-alloy products 144.6 196.8 52.2 36.1 76.9 -7.8 -16.9

Diesel fuel 99.5 173.8 74.3 74.7 52.9 12.8 8.6

Boiler, tanks and heavy gauge metal containers 76.3 127.1 50.8 66.5 40.6 5.1 5.1

Fabricated steel plates and other fabricated structural metal 75.9 116.7 40.8 53.7 40.4 0.0 0.4

Concrete products 53.9 72.5 18.6 34.6 28.6 0.1 -10.1

Gasoline 45.4 68.8 23.4 51.4 24.2 1.6 -2.3

Other ornamental and architectural metal products 43.2 61.1 18.0 41.6 22.9 -2.0 -3.0

Continue

13

CONTENT

Other engine and power transmission equipment 39.3 59.7 20.5 52.2 20.9 -0.3 -0.1

Prefabricated metal building and components 31.7 49.0 17.3 54.4 16.9 -0.1 0.5

Metal valves and pipe fittings 33.2 48.3 15.1 45.4 17.6 3.4 -6.0

Plastic building and construction materials 27.9 47.4 19.4 69.6 14.8 3.2 1.4

Pumps and compressors 15.3 47.0 31.7 206.7 8.1 0.9 22.6

Custom work, other manufacturing production services 37.3 46.1 8.8 23.6 19.8 -7.5 -3.5

Ready-mixed concrete 39.5 42.9 3.4 8.7 21.0 -11.5 -6.1

Asphalt and asphalt products 22.2 40.4 18.2 82.1 11.8 3.7 2.8

Lubricants and other petroleum and coal products 16.2 40.0 23.7 145.9 8.6 11.3 3.8

Coating, engraving, heat treating and similar metal processing services 32.7 38.5 5.8 17.6 17.4 -7.6 -4.0

Forged and stamped metal products 25.6 38.4 12.8 49.8 13.6 -0.6 -0.3

Rolled and drawn steel products including wire 22.6 37.2 14.6 64.8 12.0 -2.9 5.5

Cement 30.8 36.1 5.3 17.0 16.4 -5.7 -5.4

Measuring, medical and controlling devices 19.5 30.9 11.3 58.0 10.4 1.0 0.0

Ferrous metal castings 15.1 26.7 11.6 77.1 8.0 0.1 3.5

Chemical products not elsewhere classified 13.1 23.5 10.4 79.0 7.0 1.6 1.8

Canadian Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Industry Breakdown — MRO Expenditures

On the MRO side, the impact on manufacturing is more evenly distributed across a range of products. Iron and steel pipes and tubes top the list with $271 million in sales in 2010, followed by mining and construction machinery and equipment, at $225 million. Other important manufactured goods that feed into MRO spending include diesel, gasoline and

other petroleum products needed to keep oil sands operations running.

As on the capital investment side, supply chain penetration decreased markedly for mining and construction machinery and equipment producers in 2010. Subtracting out that one industry, Canadian companies actually enjoyed an increase in MRO supply chain penetration in 2010. The increase was especially strong for steel pipe producers where 54% of output growth came from displacing imported steel.

14

CONTENT

Canadian Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Iron and steel pipes and tubes (except castings) 197.7 270.7 73.0 36.9 25.1 8.7 39.2

Logging, mining and construction machinery and equipment 237.2 225.4 -11.8 -5.0 30.1 4.9 -46.8

Diesel fuel 188.3 218.8 30.4 16.2 23.9 3.7 2.9

Gasoline 103.5 108.2 4.7 4.5 13.1 -2.9 -5.5

Iron and steel basic shapes and ferro-alloy products 76.1 91.1 15.0 19.7 9.7 10.2 -4.8

Forged and stamped metal products 61.8 69.3 7.5 12.1 7.8 -0.4 0.0

Chemical products not elsewhere classified 38.1 43.9 5.9 15.5 4.8 -0.1 1.2

Lubricants and other petroleum and coal products 36.6 43.2 6.6 18.1 4.6 4.5 -2.6

Heavy fuel oils 39.7 43.2 3.5 8.7 5.0 0.7 -2.3

Printed products 44.0 35.6 -8.3 -19.0 5.6 -10.7 -3.3

Boiler, tanks and heavy gauge metal containers 30.6 33.5 2.9 9.6 3.9 -1.4 0.4

Other basic inorganic chemicals 24.5 28.4 3.9 15.9 3.1 -0.1 0.9

Petrochemicals 13.2 26.9 13.8 104.4 1.7 9.9 2.2

Other engine and power transmission equipment 22.1 25.3 3.2 14.3 2.8 0.4 -0.1

Other basic organic chemicals 17.1 24.3 7.1 41.6 2.2 0.4 4.5

Industrial gases 16.9 21.1 4.2 25.1 2.1 1.7 0.4

Threaded metal fasteners and other turned metal products 17.1 19.7 2.7 15.7 2.2 1.3 -0.8


Metal valves and pipe fittings 19.2 17.4 -1.8 -9.2 2.4 -1.3 -3.0

Jet fuel 15.3 17.0 1.6 10.7 1.9 0.8 -1.1

Transformers 16.1 16.0 -0.1 -0.6 2.0 -0.1 -2.0

Coating, engraving, heat treating and similar metal processing services 16.0 15.7 -0.3 -1.7 2.0 -2.0 -0.3

Custom work, other manufacturing production services 13.1 13.4 0.3 2.6 1.7 -1.3 0.0

Pumps and compressors 5.8 13.1 7.3 125.8 0.7 0.4 6.1

Rolled and drawn steel products including wire 8.2 12.2 4.0 49.1 1.0 0.1 2.9

15

CONTENT

Overview

As might be expected, Alberta businesses supplied the majority of made-in-Canada products that feed into industrial demand in the oil sands. Over the years, the province has built up a significant and growing manufacturing presence built on meeting demand from the fossil fuel sector. Of the $6.0 billion in Canadian manufacturing sales into the oil sands in 2010, a full two thirds came from Alberta. The provincial share was especially high in capital investment where provincial manufacturers captured 70% of the domestic supply chain opportunities — unchanged from 2009 levels. By comparison, Alberta manufacturers accounted for just under 59% for MRO-driven industrial demand in 2010 — a slight increase compared to the previous year.

Although Alberta businesses capture the lion’s share of domestic oil sands spinoffs, the impacts are felt all across the country. Oil sands-related investment triggered $2.0 billion in additional manufacturing output in other provinces in 2010, up from $1.6 billion in 2009 — an increase of nearly 25% in just one year.

Excluding Alberta, Ontario benefits the most from oil sands supply chains. Capital investment generated $519 million in manufacturing activity in Ontario — 41% of the total impact outside Alberta. At $307 million, Saskatchewan manufacturers were next, with 24.3% of total sales from outside Alberta. Quebec was third at 13.7% of 13.7% of domestic, non-Alberta manufacturing output.

For MRO expenditures, the relative benefits to Ontario are even higher. MRO spending generated $329 million in sales for the province’s manufacturers in 2010. That rep-resented nearly 19% of the total national impact and just under 46% of the impact outside Alberta. Quebec was next at $118 million, which represented 16.3% of the total impact excluding Alberta.

Provincial Breakdown

BC 2.9%

AB 70.0%

SK/MB 9.7%

ON 12.3%

QC 4.1%Atlantic 1.0%


Provincial Share of Manufactured Goods Salesinto New Capital Investments

BC 3.6%

AB 58.5%

SK/MB 10.2%

ON 18.9%

QC 6.8%

Atlantic 2.0%


Provincial Share of Manufactured Goods Salesinto MRO Expenditures

20102009

BCSKMBONQCAtlanticSource: CME calculations based on Statistic Canada’s input-output model

Share of Capital Investment Impacts Outside Alberta

3.5% 3.4%

14.2%13.7%

39.4% 41.0%

23.9% 24.3%

7.7% 8.0%11.3% 9.6%

20102009


Share of MRO Expenditures Impacts Outside Alberta

4.3% 4.9%

17.2%16.3%

39.9% 45.5%

10.2% 8.3%

4.6% 4.1%9.1% 8.7%

BCSKMBONQCAtlantic

16

CONTENT

Newfoundland and Labrador

Oil sands expenditures directly and indirectly generated $12.0 million in business for Newfoundland and Labrador manufacturers in 2010, nearly a 30% increase over 2009 levels. Sales relating to new capital investment totalled $8.9 million, while those relating to MRO expenditures were valued at $3.1 million.

The industries in Newfoundland and Labrador most affected by oil sands expenditures are largely the same, whether they be on the capital or the MRO side. Mining and construction machinery and equipment production domi-nates the list, with total sales reaching $7.6 million in 2010. The vast majority of those sales were triggered by oil sands capital investment. Comparatively speaking, the impact of oil sands expenditures on other sectors was relatively modest. Production of beverages, forged and stamped metal products, and refined petroleum products such as

diesel fuel and industrial lubricants account for most of the remaining impacts.

The 30% increase in manufacturing sales in 2010 is entirely because of higher expenditures in the oil sands that year. Supply chain penetration declined in 2010, primarily on the capital investment side. Had provincial businesses been able to maintain their 2009 share of manufacturing supply chains, output would have increased by $3.8 million (to $13.1 million) instead of by $2.7 million. This lower degree of supply chain penetration was concentrated in mining and construction machinery and equipment, as well as diesel fuel and most types of basic and fabricated steel products. Notable exceptions where supply chain access improved include forged and stamped metal products, plastic building and construction material, and industrial lubricants.

Oil Sands Supply Chains in Newfoundland and Labrador

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in Newfoundland and Labrador in 2010:

• $38.1 million in GDP to the provincial economy• $12.0 million in manufacturing output • 242 direct and indirect jobs• $846,000 in provincial and municipal government revenues, not including income taxes • An estimated $10.3 million in wages and salaries

0

2

4

6

8

10

MRO ExpenditureCapital Investment

2010

2009


Newfoundland and Labrador Salesof Manufactured Goods into the Oil Sands

(in $millions)

-2

0

2

4

MRO Expenditure

Capital Investment


Change inoil sands requirements

Growth inoil sands spending


Growth Drivers in Manufacturing Sales(in $millions)

17

CONTENT

Newfoundland and Labrador Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 4,782.0 6,877.0 2,095.0 43.8 2,541.6 34.9 -481.5

Diesel fuel 253.7 292.5 38.8 15.3 134.8 32.6 -128.7


Beverages other than water and soft drinks 163.5 240.1 76.6 46.8 86.9 -11.3 1.0


Fabricated metal products, not elsewhere classified 133.8 139.7 5.9 4.4 71.1 -8.6 -56.6

Plastic building and construction materials 6.8 116.6 109.8 1,621.8 3.6 0.8 105.5


Heavy fuel oils 59.2 102.8 43.6 73.7 31.5 6.5 5.7

Iron and steel basic shapes and ferro-alloy products 159.4 71.9 -87.5 -54.9 84.7 -8.6 -163.6

Chemical products not elsewhere classified 27.0 67.6 40.7 150.7 14.3 3.2 23.1

Jet fuel 37.9 65.6 27.7 73.3 20.1 7.7 -0.1

Gasoline 48.4 60.4 12.0 24.9 25.7 1.7 -15.3

Fabricated steel plates and other fabricated structural metal 92.8 57.5 -35.3 -38.0 49.3 0.0 -84.6


Newsprint 45.2 39.4 -5.8 -12.9 24.0 0.4 -30.3

Printed products 20.5 34.7 14.2 69.2 10.9 -3.6 6.9

Other ornamental and architectural metal products 16.7 28.7 12.0 71.6 8.9 -0.8 3.9

Coating, engraving, heat treating and similar metal processing services 14.2 23.7 9.4 66.1 7.6 -3.3 5.2

Light fuel oils 8.2 12.4 4.3 52.2 4.3 0.4 -0.5

Cement 33.9 11.4 -22.4 -66.2 18.0 -6.3 -34.2

Navigational and guidance instruments 0.7 11.0 10.3 1,447.1 0.4 0.2 9.7

Non-metallic mineral products, not elsewhere classified 0.0 9.9 9.9 n/a 0.0 0.0 9.9

Aircraft parts and equipment 3.9 9.7 5.7 144.6 2.1 1.3 2.3

Paperboard containers 4.9 8.2 3.3 66.3 2.6 -0.5 1.1

18

CONTENT

Newfoundland and Labrador Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expentitures

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 734.0 771.9 37.9 5.2 93.0 15.1 -70.2

Beverages other than water or soft drinks 369.9 374.3 4.4 1.2 46.9 -37.6 -4.9


Diesel fuel 441.2 344.7 -96.4 -21.9 55.9 8.6 -160.9



Jet fuel 102.0 124.9 22.9 22.4 12.9 5.1 4.8

Chemical products not elsewhere classified 51.9 90.9 38.9 75.0 6.6 -0.2 32.5

Heavy fuel oils 64.9 86.0 21.1 32.5 8.2 1.1 11.8

Gasoline 85.0 78.3 -6.7 -7.9 10.8 -2.4 -15.1


Newsprint 95.6 55.7 -39.9 -41.7 12.1 -5.0 -47.0


Fabricated metal products, not elsewhere classified 57.9 40.5 -17.5 -30.2 7.3 -6.8 -18.0

Fabricated steel plates and other fabricated structural metal 57.0 34.4 -22.5 -39.5 7.2 -9.9 -19.8

Iron and steel basic shapes and ferro-alloy products 59.3 25.3 -33.9 -57.2 7.5 7.9 -49.4

Aircraft parts and equipment 8.7 17.3 8.6 98.9 1.1 3.1 4.4

Light fuel oils 14.6 16.1 1.5 10.1 1.8 -0.6 0.2

Cement 66.5 15.7 -50.8 -76.3 8.4 36.5 -95.7

Navigational and guidance instruments 1.4 14.0 12.7 939.4 0.2 0.2 12.3


Non-metallic mineral products, not elsewhere classified 0.0 13.7 13.7 n/a 0.0 0.0 13.7


Fluid milk and processed milk products (except frozen) 9.2 9.4 0.2 2.0 1.2 -0.6 -0.4

Prepared and packaged seafood products 43.0 9.3 -33.7 -78.3 5.5 -1.9 -37.3

19

CONTENT

Canada’s smallest province was also the least impacted by oil sands activity in 2010. In total, PEI manufacturers sold $473,180 in goods to support oil sands growth and operations in 2010, a 13.8% increase over 2009 levels. Of that total, $183,632 was triggered by oil sands capital investment while $289,547 came from MRO expenditures. PEI is one of only two provinces (Nova Scotia being the other) where the impact of MRO expenditures is greater than for capital investments.

The direct and indirect impacts on the capital side in PEI were spread across a range of manufacturing activities. The largest impacts were in the production of paperboard containers, frozen foods and fabricated metals. The ripple effects of oil sands development were also felt as far down the supply chain as animal feed production.

In terms of MRO spending, the impacts were more heavily concentrated in a single sector – the production of rail car parts. Other manufacturing businesses affected by MRO spending include those producing food and beverages, and ammonia and chemical fertilizer.

Growth in oil-sands-related manufacturing in PEI in 2010 was not the result of better supply chain penetration, but rather of higher oil sands spending. Had PEI manufacturers been able to maintain their 2009 share, their sales would have been $528,366 in 2010 instead of $473,180. Changes in oil sands requirements also had a slightly positive effect on manufacturing spinoffs in PEI. On an industry-specific level, food and rail parts producers improved their supply chain access, while those manufacturing forged and stamped metal products, as well as fabricated steel plates and structural metals, saw their access to supply chains deteriorate.

Prince Edward Island

Oil Sands Supply Chains in Prince Edward Island

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in PEI in 2010:

• $1.9 million in GDP to the provincial economy• $473,180 in manufacturing output • 30 direct and indirect jobs• $127,000 in provincial and municipal government revenues, not including income taxes • The payment of just under $1.0 million in wages and salaries

0

100

200

300



PEI Sales of Manufactured Goods into the Oil Sands(in $thousands)

2010

2009

-40

0

40

80


Growth Drivers in Manufacturing Sales(in $thousands)

MRO Expenditure

Capital Investment




20

CONTENT

PEI Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Paperboard containers 15.5 22.1 6.5 42.0 8.3 -1.6 -0.2

Preserved fruit and vegetables and frozen foods 4.9 13.9 9.0 183.5 2.6 0.2 6.1

Fabricated steel plates and other fabricated structural metal 18.6 13.1 -5.5 -29.4 9.9 0.0 -15.4

Other animal feed 5.0 13.0 8.1 161.4 2.7 -0.6 6.0

Engineered wood members and trusses 0.5 12.9 12.4 2,440.0 0.3 0.4 11.7

Boiler, tanks and heavy gauge metal containers 4.8 12.5 7.7 159.1 2.6 0.3 4.8

Freight and utility trailers 12.7 11.4 -1.3 -10.5 6.8 1.2 -9.3

Bottled water, soft drinks and ice 6.4 11.3 4.9 75.7 3.4 0.8 0.6

Ammonia and chemical fertilizer 8.7 9.6 0.9 10.0 4.6 -1.2 -2.6


Other miscellaneous general-purpose machinery 5.3 5.5 0.2 3.2 2.8 -0.2 -2.4

Forged and stamped metal products 14.6 4.9 -9.6 -66.1 7.7 -0.3 -17.1

Pharmaceutical and medicinal products 2.9 4.1 1.1 38.4 1.6 0.0 -0.4

Parts for railroad rolling stocks 2.2 3.7 1.5 67.5 1.2 1.3 -1.0

Cheese and cheese products 3.3 3.6 0.2 7.5 1.8 0.0 -1.5

Motor vehicle bodies and special purpose motor vehicles 1.7 3.3 1.5 86.9 0.9 -0.3 0.9

Other dairy products 1.9 3.1 1.2 65.8 1.0 0.1 0.2

Prepared and packaged seafood products 3.4 2.8 -0.6 -16.7 1.8 0.0 -2.4

Agricultural, lawn and garden machinery and equipment 2.1 2.5 0.3 15.5 1.1 -0.6 -0.2

Fresh and frozen beef and veal 1.5 2.4 0.9 56.8 0.8 0.2 -0.1


Fluid milk and processed milk products (except frozen) 0.9 1.9 1.0 109.7 0.5 0.0 0.5

Signs 2.0 1.8 -0.3 -13.1 1.1 0.3 -1.6

Custom work, other manufacturing production services 0.2 1.7 1.5 866.6 0.1 0.0 1.5

Aircraft parts and equipment 0.9 1.5 0.7 79.3 0.5 0.3 -0.1

21

CONTENT

PEI Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Parts for railroad rolling stocks 75.1 97.9 22.8 30.3 9.5 -3.0 16.3

Ammonia and chemical fertilizer 29.2 24.0 -5.2 -17.9 3.7 -3.1 -5.8


Preserved fruit and vegetables and frozen foods 10.6 21.3 10.7 100.8 1.3 -0.3 9.6


Other animal feed 9.3 17.5 8.2 88.3 1.2 -1.0 8.0

Pharmaceutical and medicinal products 8.9 8.5 -0.4 -4.4 1.1 -0.3 -1.3

Forged and stamped metal products 35.5 8.2 -27.3 -76.8 4.5 -0.2 -31.6

Fabricated steel plates and other fabricated structural metal 7.8 7.9 0.1 1.0 1.0 -1.4 0.5


Other miscellaneous general-purpose machinery 2.8 5.7 2.9 105.3 0.4 -0.5 3.1


Cheese and cheese products 6.3 5.2 -1.1 -17.2 0.8 -0.3 -1.6

Other dairy products 3.7 4.7 1.0 25.8 0.5 -0.1 0.6

Prepared and packaged seafood products 7.6 4.4 -3.2 -42.0 1.0 -0.3 -3.8

Boiler, tanks and heavy gauge metal containers 2.6 4.1 1.5 56.9 0.3 -0.1 1.3

Fresh and frozen beef and veal 3.2 3.7 0.5 14.3 0.4 0.3 -0.2


Fluid milk and processed milk products (except frozen) 1.8 2.9 1.1 58.5 0.2 -0.1 0.9

Signs 3.5 2.4 -1.1 -32.2 0.4 0.4 -1.9

Cookies, crackers and baked sweet goods 2.0 1.7 -0.3 -14.3 0.3 -0.1 -0.5

Engineered wood members and trusses 0.2 1.6 1.5 956.3 0.0 0.0 1.4

Other miscellaneous food products 1.9 1.2 -0.7 -36.5 0.2 0.0 -0.9

Custom work, other manufacturing production services 0.2 1.1 1.0 576.7 0.0 0.0 1.0

Fruit and vegetable juices (including frozen concentrated) 0.8 1.1 0.4 46.1 0.1 0.1 0.1

22

CONTENT

Nova Scotia manufacturers directly and indirectly sold $19.5 million in goods into Alberta’s oil sands in 2010, an increase of 43.0% over 2009 levels, and by far the fastest rate of growth of any province. That $19.5-million total was relatively evenly divided between capital- and MRO-induced manufacturing activity. Capital investments generated $9.3 million in impacts, while MRO spending resulted in $10.1 million in manufacturing sales in Nova Scotia.

The impact of oil sands capital investment was distributed across a range of industries but concentrated most in diesel fuel production ($1.5 million) and other petroleum products. The province also sold tires, iron and steel pipes, measuring devices and a range of paper and plastic products. The impacts on the MRO side are

somewhat more balanced, but are spread across essentially the same set of industries.

Nova Scotia is the only province to have significantly improved its access to oil sands supply chains in 2010. While some specific sectors, like those producing iron and steel pipes and tubes, saw their supply chain penetration deteriorate, most others were able to make gains. Those gains were strongest in refined petroleum products and tires.

The bad news for Nova Scotia is that the improved supply chain penetration on the petroleum side will be fleeting. The province shut down its only refinery in Dartmouth in 2013, meaning that any supply chain improvement from 2010-2013 will disappear once the impact of that closure is reflected in the model.

Nova Scotia

Oil Sands Supply Chains in Nova Scotia

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in Nova Scotia in 2010:

• $43.2 million in GDP to the provincial economy• $19.5 million in manufacturing output • 495 direct and indirect jobs• $1.8 million in provincial and municipal government revenues, not including income taxes • An estimated $18.7 million in wages and salaries

0

2

4

6

8

10

12

MRO ExpenditureCapital InvestmentSource: CME calculations based on Statistic Canada’s input-output model

Nova Scotia Sales of ManufacturedGoods into the Oil Sands

(in $millions)

2010

2009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5



MRO Expenditure

Capital Investment

Supply chainpenetration



23

CONTENT

Nova Scotia Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Diesel fuel 848.8 1,447.6 598.8 70.5 451.1 109.1 38.6

Tires 342.2 881.4 539.2 157.6 181.9 20.5 336.9

Gasoline 322.6 809.3 486.6 150.8 171.5 11.1 304.0

Iron and steel pipes and tubes (except castings) 694.6 682.9 -11.7 -1.7 369.2 -43.0 -337.9

Measuring, medical and controlling devices 455.2 566.0 110.7 24.3 241.9 22.5 -153.7

Other converted paper products 283.9 474.5 190.6 67.1 150.9 -7.3 47.0


Paper (except newsprint) 226.1 388.0 161.9 71.6 120.2 18.1 23.5

Heavy fuel oils 92.0 387.3 295.3 321.2 48.9 10.0 236.4

Other ornamental and architectural metal products 184.6 333.9 149.3 80.9 98.1 -8.7 59.8


Prefabricated metal building and components 131.9 223.0 91.2 69.1 70.1 -0.3 21.4

Jet fuel 94.5 207.4 113.0 119.6 50.2 19.3 43.5

Paperboard 94.7 192.7 97.9 103.4 50.3 10.3 37.3



Other engine and power transmission equipment 9.1 78.0 68.9 759.4 4.8 -0.1 64.2

Plastic products, not elsewhere classified 29.0 70.0 41.0 141.5 15.4 17.0 8.6

Plastic films and non-rigid sheets 82.5 64.4 -18.1 -22.0 43.9 12.3 -74.3

Wood pulp 22.6 60.1 37.5 165.5 12.0 -2.7 28.1

Wood chips 29.9 59.7 29.8 99.6 15.9 0.5 13.4

Logging, mining and construction machinery and equipment 28.2 59.1 30.9 109.4 15.0 0.2 15.7

Beverages other than water or soft drinks 42.3 55.8 13.6 32.1 22.5 -2.9 -6.0

Light fuel oils 14.7 53.2 38.5 261.7 7.8 0.7 30.0

Cement 24.4 52.6 28.2 115.6 13.0 -4.5 19.7

24

CONTENT

Nova Scotia Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Diesel fuel 1,668.0 1,870.0 202.0 12.1 211.4 32.4 -41.9

Tires 703.9 1,252.3 548.4 77.9 89.2 -16.9 476.1

Gasoline 673.0 1,178.0 505.0 75.0 85.3 -19.1 438.7

Iron and steel pipes and tubes (except castings) 1,077.1 901.2 -176.0 -16.3 136.5 47.4 -359.9

Paper (except newsprint) 448.0 503.3 55.3 12.4 56.8 -27.0 25.6

Heavy fuel oils 144.1 493.6 349.5 242.5 18.3 2.5 328.7


Jet fuel 296.5 413.8 117.3 39.6 37.6 14.9 64.8




Paperboard 120.9 169.4 48.5 40.2 15.3 4.9 28.3

Measuring, medical and controlling devices 132.1 113.1 -18.9 -14.3 16.7 -2.2 -33.4

Other electronic components 3.0 109.3 106.3 3,519.5 0.4 0.2 105.8

Other beverages 93.2 86.6 -6.6 -7.1 11.8 -9.5 -9.0


Light fuel oils 30.0 76.4 46.4 155.0 3.8 -1.2 43.8

Printed products 83.1 73.8 -9.3 -11.2 10.5 -20.1 0.3

Cement 46.2 70.9 24.7 53.3 5.9 25.4 -6.6

Other electrical equipment and components 67.8 69.9 2.1 3.1 8.6 0.9 -7.3

Wood chips 52.8 69.0 16.3 30.8 6.7 3.2 6.3

Wood pulp 37.0 66.7 29.7 80.3 4.7 -8.1 33.1

Aircraft and aircraft engines 61.7 65.6 3.9 6.3 7.8 2.5 -6.4

Non-metallic mineral products, not elsewhere classified 21.1 60.0 38.8 183.8 2.7 -3.3 39.5

Plastic products, not elsewhere classified 45.6 54.8 9.2 20.3 5.8 1.1 2.3

25

CONTENT

Thanks in large part to the presence of Canada’s largest oil refinery in Saint John, New Brunswick captured more oil sands supply chain benefits than the other three Atlantic Provinces combined. In 2010, $47.0 million in manufacturing activity was the direct or indirect result of oil sands investment — an increase of just under 26% over 2009 levels. Of that total, $25.2 million came from capital investments and the remaining $21.8 from MRO spending.

On the capital investment side, by far the largest impact was in diesel fuel production, which generated $10.5 million more in revenues than it would have in the absence of oil sands capital investment. Other affected goods included logging, mining and construction machinery and equipment, specialized metal products, asphalt and paper.

In terms of MRO spending, the impact on diesel fuel production in New Brunswick is even more pronounced,

reaching $13.3 million in 2010. Comparatively speaking, most other industry impacts are small. The largest of these include forged and stamped metal products, paper and a range of other refined petroleum products.

For the most part, the increase in oil-sands-related manufacturing in New Brunswick was the result of higher oil sands expenditures and not greater supply chain penetration. Supply chain access dropped markedly on the capital side, while the province’s manufacturers successfully made some inroads into MRO oil sands opportunities. Had manufacturers maintained their 2009 levels of supply chain access, they would have generated $60 million in sales instead of $47 million.

The overall decrease in supply chain access was driven by a steep drop in penetration for manufacturers of machinery and equipment. Most other sectors actually saw their supply chain penetration improve in 2010.

New Brunswick

Oil Sands Supply Chains in New Brunswick

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in New Brunswick in 2010:

• $65.1 million in GDP to the provincial economy• $47.0 million in manufacturing output • 741 direct and indirect jobs• $2.2 million in provincial and municipal government revenues, not including income taxes • An estimated $27.5 million in wages and salaries

0

5

10

15

20

25

30


New Brunswick Sales of ManufacturedGoods into the Oil Sands

(in $millions) 2010

2009

-10

-5

0

5

10

15



MRO Expenditure

Capital Investment




26

CONTENT

New Brunswick Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Diesel fuel 5,262.4 10,475.2 5,212.8 99.1 2,796.9 676.2 1,739.7

Logging, mining and construction machinery and equipment 8,665.7 3,252.4 -5,413.3 -62.5 4,605.8 63.2 -10,082.4

Other ornamental and architectural metal products 859.5 1,989.5 1,130.0 131.5 456.8 -40.5 713.6

Asphalt and asphalt products 475.6 1,146.2 670.5 141.0 252.8 78.7 339.1

Paper (except newsprint) 307.4 906.9 599.5 195.0 163.4 24.7 411.5

Ferrous metal castings 246.9 878.7 631.8 255.9 131.2 1.4 499.1

Forged and stamped metal products 501.9 684.0 182.1 36.3 266.8 -11.1 -73.6

Gasoline 342.1 567.3 225.2 65.8 181.8 11.8 31.6


Iron and steel basic shapes and ferro-alloy products 240.4 355.4 115.0 47.8 127.8 -13.0 0.2

Jet fuel 173.4 336.3 162.9 93.9 92.2 35.4 35.3

Plastic building and construction materials 177.2 289.7 112.5 63.5 94.2 20.1 -1.8

Industrial and commercial fans and blowers, and air purification equipment 154.8 270.1 115.2 74.4 82.3 -11.4 44.3

Heavy fuel oils 147.2 264.0 116.8 79.3 78.2 16.0 22.5

Prefabricated wood buildings and components 114.6 247.4 132.8 115.9 60.9 -8.7 80.6

Fabricated metal products, not elsewhere classified 6.9 220.6 213.7 3,094.6 3.7 -0.4 210.5

Refined precious metals, precious metals alloys and gold as store of value 103.0 218.2 115.2 111.9 54.7 48.2 12.3

Light fuel oils 125.3 183.5 58.2 46.4 66.6 5.9 -14.3

Wood pulp 46.7 163.5 116.8 249.9 24.8 -5.5 97.4

Signs 38.3 161.1 122.8 320.6 20.4 5.2 97.2

Heating and cooling equipment (except household refrigerators and freezers) 88.5 144.2 55.7 63.0 47.0 -2.8 11.5

Other transportation equipment and related parts 0.3 136.4 136.0 38,927.2 0.2 0.1 135.8

Bottled water, soft drinks and ice 89.4 130.3 41.0 45.9 47.5 11.6 -18.1

Beverages other than water or soft drinks 56.1 110.3 54.1 96.4 29.8 -3.9 28.2

Measuring, medical and controlling devices 46.2 110.1 63.9 138.1 24.6 2.3 37.0

27

CONTENT

New Brunswick Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Diesel fuel 9,909.2 13,312.2 3,403.0 34.3 1,256.2 192.6 1,954.2

Forged and stamped metal products 1,186.7 1,267.8 81.1 6.8 150.4 -7.0 -62.3

Paper (except newsprint) 600.1 1,115.0 514.9 85.8 76.1 -36.2 475.0

Gasoline 664.4 838.3 173.9 26.2 84.2 -18.8 108.5

Jet fuel 389.1 531.1 142.0 36.5 49.3 19.5 73.2


Logging, mining and construction machinery and equipment 1,259.4 387.3 -872.1 -69.2 159.7 26.0 -1,057.7

Heavy fuel oils 267.1 382.4 115.3 43.1 33.9 4.6 76.8

Light fuel oils 272.8 278.8 6.0 2.2 34.6 -10.7 -17.9

Signs 68.2 216.7 148.5 217.7 8.6 7.2 132.7

Bottled water, soft drinks and ice 213.3 209.8 -3.4 -1.6 27.0 13.6 -44.1

Wood pulp 85.6 200.3 114.6 133.9 10.9 -18.7 122.5

Other transportation equipment and related parts 0.6 171.7 171.0 26,784.4 0.1 0.1 170.8

Beverages other than water or soft drinks 110.5 168.8 58.3 52.7 14.0 -11.2 55.5

Plastic building and construction materials 116.5 132.9 16.4 14.1 14.8 7.3 -5.7

Ferrous metal castings 65.0 131.9 66.9 103.0 8.2 -6.0 64.7

Refined precious metals, precious metals alloys and gold as store of value 64.0 129.8 65.8 102.7 8.1 21.4 36.3

Iron and steel basic shapes and ferro-alloy products 90.3 119.1 28.9 32.0 11.4 12.1 5.4

Petrochemicals 68.6 104.3 35.7 52.0 8.7 51.5 -24.6

Wood chips 69.1 102.5 33.4 48.4 8.8 4.2 20.4

Asphalt and asphalt products 85.2 101.5 16.3 19.1 10.8 -14.1 19.6

Lubricants and other petroleum and coal products 117.2 80.8 -36.4 -31.0 14.9 14.5 -65.8

Other ornamental and architectural metal products 81.8 80.4 -1.4 -1.7 10.4 -24.6 12.9


Fabricated metal products, not elsewhere classified 8.4 63.8 55.4 658.0 1.1 -1.0 55.3

28

CONTENT

Quebec is the fourth-largest supplier of domestic manufactured goods into Alberta’s oil sands. In 2010, Quebec manufacturers sold a total of $291 million into the oil sands, an increase of 18.5% over 2009 levels. Of that total, $173.4 million came from capital investment effects, while $117.8 came from MRO expenditures.

The impact of oil sands capital spending was spread broadly across a wide range of Quebec industries related to construction materials, metal products and fuels. Leading the way was diesel fuel production at just under $18 million. Mining and construction machinery and equipment followed closely behind at $15.7 million. For the most part, however, the manufacturing impacts were concentrated in areas related to construction activity — basic iron and steel products, concrete, prefabricated buildings, and plastic building and construction materials.

The distribution of MRO impacts was somewhat different. While diesel fuel continued to lead the way,

manufacturers of forged and stamped metal products, transformers and printed products saw notable direct and indirect benefits. Chemical producers, basic steel product manufacturers, and petroleum refineries also gained.

Quebec’s 18.5% growth in oil-sands-related manufacturing was well below the growth in oil sands expenditures in 2010, meaning that the province lost ground in terms of supply chain penetration. The loss occurred in both capital and MRO spending, but was particularly acute on the capital investment side. Quebec manufacturers would have realized an additional $40 million in direct and indirect benefits had supply chains access not deteriorated. In particular, manufacturers of basic steel shapes and fabricated steel products lost market share in 2010. Offsetting that to some degree were improvements in supply chain access for concrete and electronics manufacturers.

Quebec

Oil Sands Supply Chains in Quebec

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in Quebec in 2010:

• $469.5 million in GDP to the provincial economy• $291 million in manufacturing output • 5,280 direct and indirect jobs• $23.2 million in provincial and municipal government revenues, not including income taxes • An estimated $200 million in wages and salaries

0

50

100

150

200



Quebec Sales of ManufacturedGoods into the Oil Sands

(in $millions)

2010

2009

-40

-20

0

20

40

60

80



MRO Expenditure

Capital Investment




29

CONTENT

Quebec Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Diesel fuel 11,656 17,957 6,302 54.1 6,195 1,498 -1,391

Logging, mining and construction machinery and equipment 13,813 15,720 1,907 13.8 7,341 101 -5,535

Iron and steel basic shapes and ferro-alloy products 22,115 11,980 -10,135 -45.8 11,754 -1,195 -20,694

Concrete products 1,454 9,709 8,255 567.9 773 3 7,480

Prefabricated metal building and components 7,628 9,642 2,014 26.4 4,054 -20 -2,020

Plastic building and construction materials 5,112 7,728 2,615 51.2 2,717 581 -683

Refined non-ferrous metals and alloys (except aluminum and precious metals) 3,056 6,392 3,336 109.2 1,624 470 1,242

Forged and stamped metal products 3,863 6,352 2,489 64.4 2,053 -86 522

Communication and energy wire and cable 3,478 5,130 1,652 47.5 1,848 159 -356

Other ornamental and architectural metal products 2,136 4,959 2,823 132.2 1,135 -101 1,788

Aluminum and aluminum-alloy semi-finished products 2,309 4,147 1,838 79.6 1,227 59 552

Light fuel oils 2,381 3,319 938 39.4 1,265 112 -440

Transformers 2,109 3,311 1,201 56.9 1,121 24 56

Metal valves and pipe fittings 839 3,066 2,227 265.5 446 86 1,696

Ferrous metal castings 1,064 2,385 1,321 124.2 565 6 749

Printed products 1,736 2,347 611 35.2 923 -309 -3

Fabricated steel plates and other fabricated structural metal 5,449 2,095 -3,354 -61.6 2,896 2 -6,252

Coating, engraving, heat treating and similar metal processing services 1,515 2,086 571 37.7 805 -352 117

Bauxite, aluminum oxide and primary aluminum products 1,259 2,023 764 60.7 669 217 -122

Chemical products not elsewhere classified 909 1,999 1,090 120.0 483 108 499

Custom work, other manufacturing production services 1,410 1,955 545 38.7 749 -285 81

Gasoline 1,386 1,872 485 35.0 737 48 -299

Cement 438 1,732 1,295 295.7 233 -81 1,143

Industrial and commercial fans and blowers, and air purification equipment 698 1,567 869 124.5 371 -51 549

Rolled and drawn steel products including wire 1,297 1,488 192 14.8 689 -165 -332

30

CONTENT

Quebec Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Diesel fuel 19,736 20,337 601 3.0 2,502 384 -2,285

Forged and stamped metal products 8,066 11,003 2,937 36.4 1,023 -48 1,962

Transformers 6,526 7,333 807 12.4 827 -58 37

Iron and steel basic shapes and ferro-alloy products 10,181 6,684 -3,497 -34.3 1,291 1,360 -6,147

Printed products 4,999 4,676 -323 -6.5 634 -1,211 255

Light fuel oils 4,619 4,297 -322 -7.0 586 -181 -727

Chemical products not elsewhere classified 2,281 3,462 1,181 51.8 289 -7 899

Plastic building and construction materials 3,079 3,459 380 12.4 390 193 -203

Refined non-ferrous metals and alloys (except aluminum and precious metals) 1,695 3,027 1,332 78.6 215 514 603

Gasoline 2,575 2,555 -19 -0.7 326 -73 -273

Other basic inorganic chemicals 3,368 2,517 -851 -25.3 427 -12 -1,266

Logging, mining and construction machinery and equipment 2,221 2,008 -213 -9.6 282 46 -541

Aluminum and aluminum-alloy semi-finished products 1,442 1,935 493 34.2 183 -2 312

Other electronic components 102 1,761 1,660 1,631.5 13 6 1,641

Other transportation equipment and related parts 1,071 1,540 469 43.8 136 192 141

Threaded metal fasteners and other turned metal products 1,139 1,339 201 17.6 144 85 -29

Paper (except newsprint) 1,249 1,186 -64 -5.1 158 -75 -147

Metal valves and pipe fittings 487 1,148 661 135.7 62 -32 631

Plastic products, not elsewhere classified 1,293 1,100 -193 -15.0 164 32 -389

Bottled water, soft drinks and ice 962 1,087 126 13.1 122 61 -58

Paperboard 661 1,002 341 51.6 84 27 230

Coating, engraving, heat treating and similar metal processing services 758 992 235 31.0 96 -97 235

Paints, coatings and adhesive products 1,148 928 -221 -19.2 146 11 -377

Motor vehicle electrical and electronic equipment 1,570 867 -703 -44.8 199 122 -1,024

Petrochemicals 700 863 163 23.3 89 526 -452

31

CONTENT

Ontario is the largest source of manufactured goods feeding into the oil sands outside of Alberta. In 2010, Ontario manufacturers sold $848 million into oil sands development and operations, up by 34% over 2009 levels. Of that total, $519 million was triggered by capital investment while $329 came from ongoing MRO activities.

Oil sands capital investment generated $49 million in output for producers of mining and construction machinery and equipment in 2010, but the largest beneficiaries were steel and other metals producers. Manufacturers of basic steel shapes, pipes, rolled steel, boilers and other products gained more than $250 million in additional business through oil sands capital investment.

The same was largely true for MRO spending. About $150 million in output for Ontario steel producers came

from ongoing oil sands expenditures. Chemical and industrial lubricant producers were also among those to benefit from oil sands MRO spending.

Ontario’s 34% growth in manufacturing activity from oil sands development was the result of higher oil sands expenditures and not better supply chain penetration. The good news for Ontario is that overall, supply chain access remained roughly constant compared to 2009. A modest deterioration in capital investment supply chains was nearly offset by a corresponding increase in MRO linkages. More specifically, Ontario steel producers made notable gains into oil sands supply chains in 2010, while producers of industrial lubricants, as well as mining and construction machinery and equipment, saw their position in supply chains weaken.

Ontario

Oil Sands Supply Chains in Ontario

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in Ontario in 2010:

• $1.92 billion in GDP to the provincial economy• $848 million in manufacturing output • 20,666 direct and indirect jobs• $89.8 million in provincial and municipal government revenues, not including income taxes • An estimated $874 million in wages and salaries

0

100

200

300

400

500

600



Ontario Sales of ManufacturedGoods into the Oil Sands

(in $millions)

2010

2009

-100

-50

0

50

100

150

200

250



MRO Expenditure

Capital Investment




32

CONTENT

Ontario Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Iron and steel basic shapes and ferro-alloy products 53,358 81,739 28,381 53.2 28,359 -2,884 2,906

Iron and steel pipes and tubes (except castings) 16,743 56,903 40,160 239.9 8,899 -1,037 32,298

Logging, mining and construction machinery and equipment 90,846 49,110 -41,736 -45.9 48,284 663 -90,683

Rolled and drawn steel products including wire 16,922 31,868 14,945 88.3 8,994 -2,159 8,111

Boiler, tanks and heavy gauge metal containers 3,969 29,750 25,781 649.6 2,110 264 23,408

Other ornamental and architectural metal products 6,384 16,674 10,290 161.2 3,393 -301 7,198

Measuring, medical and controlling devices 8,493 14,326 5,833 68.7 4,514 420 899

Plastic building and construction materials 8,043 13,313 5,270 65.5 4,275 914 81

Lubricants and other petroleum and coal products 7,931 12,367 4,436 55.9 4,216 5,503 -5,283

Chemical products not elsewhere classified 5,840 9,041 3,201 54.8 3,104 696 -599

Refined non-ferrous metals and alloys (except aluminum and precious metals) 3,048 8,721 5,673 186.1 1,620 469 3,584

Ferrous metal castings 2,801 8,172 5,370 191.7 1,489 16 3,865

Forged and stamped metal products 5,499 8,143 2,644 48.1 2,923 -122 -157

Diesel fuel 5,332 7,920 2,588 48.5 2,834 685 -931

Custom work, other manufacturing production services 4,741 7,413 2,673 56.4 2,520 -959 1,112

Rubber and plastic hoses and belts 5,158 7,334 2,176 42.2 2,741 445 -1,010

Metal valves and pipe fittings 7,232 7,217 -15 -0.2 3,844 740 -4,599

Communication and energy wire and cable 3,529 6,617 3,088 87.5 1,876 161 1,051

Fabricated steel plates and other fabricated structural metal 5,614 6,307 693 12.3 2,984 2 -2,293

Asphalt and asphalt products 2,326 5,481 3,155 135.6 1,236 385 1,534

Printed products 3,939 5,234 1,295 32.9 2,094 -701 -98

Fabricated metal products, not elsewhere classified 3,736 4,948 1,213 32.5 1,986 -240 -533

Paints, coatings and adhesive products 2,955 4,683 1,728 58.5 1,570 -197 354

Bauxite, aluminum oxide and primary aluminum products 1,725 4,386 2,661 154.3 917 298 1,447

Gasoline 2,584 4,249 1,665 64.5 1,373 89 204

33

CONTENT

Ontario Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Iron and steel pipes and tubes (except castings) 24,844 69,272 44,428 178.8 3,149 1,092 40,187

Iron and steel basic shapes and ferro-alloy products 28,291 39,936 11,646 41.2 3,586 3,778 4,281

Chemical products not elsewhere classified 16,366 16,285 -81 -0.5 2,075 -50 -2,106

Forged and stamped metal products 12,415 13,846 1,431 11.5 1,574 -73 -70

Lubricants and other petroleum and coal products 16,444 12,637 -3,806 -23.1 2,085 2,040 -7,931

Rolled and drawn steel products including wire 6,386 10,545 4,158 65.1 810 79 3,269

Printed products 10,159 9,184 -975 -9.6 1,288 -2,462 199

Boiler, tanks and heavy gauge metal containers 1,866 8,090 6,225 333.7 236 -84 6,072

Threaded metal fasteners and other turned metal products 6,064 6,382 318 5.2 769 453 -904


Plastic building and construction materials 4,921 5,752 831 16.9 624 309 -101

Other basic inorganic chemicals 4,131 5,648 1,517 36.7 524 -15 1,009

Diesel fuel 5,895 5,526 -369 -6.3 747 115 -1,231

Transformers 5,050 5,135 85 1.7 640 -45 -510

Gasoline 4,126 5,103 977 23.7 523 -117 571

Motor vehicle metal stamping 2,897 4,898 2,001 69.1 367 106 1,528

Industrial gases 2,132 3,504 1,372 64.4 270 213 888

Refined non-ferrous metals and alloys (except aluminum and precious metals) 1,549 3,437 1,888 121.8 196 470 1,221

Custom work, other manufacturing production services 2,460 3,309 850 34.6 312 -245 783

Motor vehicle steering and suspension components (except springs) 2,922 3,176 254 8.7 370 436 -552

Paints, coatings and adhesive products 2,584 3,123 538 20.8 328 25 186

Other electronic components 1,247 3,051 1,803 144.6 158 72 1,574

Measuring, medical and controlling devices 2,532 3,017 485 19.1 321 -43 206

Petrochemicals 2,394 2,989 595 24.9 303 1,799 -1,507

Metal valves and pipe fittings 4,221 2,771 -1,451 -34.4 535 -276 -1,710

34

CONTENT

Manitoba manufacturers sold $131 million into the oil sands in 2010 — an increase of 27.6% compared to the previous year. Most of this total – just under $102 million — came from activity generated by capital investment supply chains, while MRO supply chains made up $29.4 million. The gap between capital- and MRO-triggered manufacturing in Manitoba widened considerably in 2010. Production to support capital investment grew by 39.2%, while production for MRO activities fell slightly.

Machinery and equipment producers in Manitoba are the primary beneficiaries of oil sands capital investment. Those manufacturers gained over $63 million in additional sales in 2010, led by mining and construction machinery and equipment. Iron and steel producers also benefited significantly.

On the MRO side, the story is largely the same. Machinery and equipment producers accounted for close to 40% of all direct and indirect effects from MRO spending in 2010. Leading the way were manufacturers of mining and construction machinery and equipment, along with electrical and electronic components for motor vehicles. Producers of large metal containers and chemicals also gained from MRO spending in the oil sands.

While oil-sands-generated manufacturing in Manitoba grew by 27.6% in 2010, this increase was entirely the result of higher oil sands investment. Supply chain penetration in the province fell for both capital- and MRO-induced industrial demand. Not holding onto their 2009 market share cost Manitoba manufacturers over $14 million in lost sales in 2010.

Manitoba

Oil Sands Supply Chains in Manitoba

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in Manitoba in 2010:

• $175 million in GDP to the provincial economy• $131 million in manufacturing output • 2,213 direct and indirect jobs• $8.1 million in provincial and municipal government revenues, not including income taxes • An estimated $82.9 million in wages and salaries

0

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60

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Manitoba Sales of Manufactured Goodsinto the Oil Sands

(in $millions)

2010

2009

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0

10

20

30

40



MRO Expenditure

Capital Investment




35

CONTENT

Manitoba Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 38,596.5 56,292.5 17,696.0 45.8 20,513.8 281.7 -3,099.6

Boiler, tanks and heavy gauge metal containers 4,485.5 9,779.8 5,294.3 118.0 2,384.0 298.4 2,611.9

Iron and steel basic shapes and ferro-alloy products 5,668.4 6,808.2 1,139.7 20.1 3,012.7 -306.4 -1,566.6

Agricultural, lawn and garden machinery and equipment 3,678.2 5,088.6 1,410.5 38.3 1,954.9 -1,006.4 461.9

Concrete products 1,958.5 4,596.2 2,637.6 134.7 1,041.0 3.7 1,593.0

Ferrous metal castings 1,203.0 2,384.7 1,181.7 98.2 639.4 7.0 535.3

Plastic building and construction materials 202.7 1,399.6 1,197.0 590.7 107.7 23.0 1,066.2

Prefabricated metal building and components 1,568.2 1,148.5 -419.7 -26.8 833.5 -4.1 -1,249.2

Paints, coatings and adhesive products 529.0 901.2 372.2 70.4 281.2 -35.3 126.4

Heating and cooling equipment (except household refrigerators and freezers) 760.2 664.6 -95.6 -12.6 404.0 -24.0 -475.6


Other basic inorganic chemicals 398.9 556.2 157.3 39.4 212.0 102.0 -156.7

Other basic organic chemicals 315.2 539.0 223.7 71.0 167.5 86.8 -30.6



Industrial and commercial fans and blowers, and air purification equipment 393.3 443.4 50.1 12.7 209.0 -28.9 -130.1

Transformers 432.4 413.0 -19.5 -4.5 229.8 4.9 -254.2

Refined non-ferrous metals and alloys (except aluminum and precious metals) 99.3 364.0 264.7 266.7 52.8 15.3 196.7

Fabricated steel plates and other fabricated structural metal 311.3 328.3 16.9 5.4 165.5 0.1 -148.7

Motor vehicle plastic parts 200.6 314.4 113.8 56.8 106.6 12.4 -5.1

Printed products 544.6 304.0 -240.6 -44.2 289.4 -96.8 -433.1

Plastic films and non-rigid sheets 92.9 289.6 196.7 211.7 49.4 13.9 133.4

Custom work, other manufacturing production services 254.2 284.4 30.2 11.9 135.1 -51.4 -53.5

Pumps and compressors 257.6 283.1 25.5 9.9 136.9 15.0 -126.4

Motor vehicle electrical and electronic equipment 148.7 266.0 117.3 78.9 79.1 5.1 33.2

36

CONTENT

Manitoba Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 5,620.0 6,051.4 431.4 7.7 712.4 115.8 -396.9

Motor vehicle electrical and electronic equipment 2,787.2 3,069.5 282.3 10.1 353.3 216.7 -287.7

Boiler, tanks and heavy gauge metal containers 1,823.7 2,565.0 741.4 40.7 231.2 -81.6 591.8

Other basic inorganic chemicals 2,909.9 2,276.5 -633.4 -21.8 368.9 -10.8 -991.5

Iron and steel basic shapes and ferro-alloy products 2,203.0 1,976.6 -226.4 -10.3 279.3 294.2 -799.9

Other basic organic chemicals 1,662.9 1,719.6 56.7 3.4 210.8 43.3 -197.5

Transformers 1,299.0 838.3 -460.7 -35.5 164.7 -11.5 -613.9

Agricultural, lawn and garden machinery and equipment 664.2 670.5 6.3 0.9 84.2 -107.2 29.3

Parts for railroad rolling stocks 802.9 654.7 -148.2 -18.5 101.8 -32.5 -217.5


Paints, coatings and adhesive products 379.9 557.3 177.4 46.7 48.2 3.7 125.5

Printed products 1,431.4 516.9 -914.5 -63.9 181.4 -346.9 -749.0


Fresh and frozen pork 432.2 399.6 -32.7 -7.6 54.8 -8.6 -78.9



Ferrous metal castings 321.4 361.4 40.0 12.4 40.7 -29.8 29.1

Motor vehicle plastic parts 330.1 348.9 18.8 5.7 41.8 5.3 -28.4



Other animal feed 281.5 245.0 -36.5 -13.0 35.7 -29.2 -42.9

Springs and wire products 331.6 224.7 -106.8 -32.2 42.0 5.1 -153.9

Heating and cooling equipment (except household refrigerators and freezers) 293.3 217.3 -76.0 -25.9 37.2 18.0 -131.1

Refined non-ferrous metals and alloys (except aluminum and precious metals) 85.5 162.6 77.1 90.1 10.8 25.9 40.3

Motor vehicle transmission and power train parts 13.3 161.7 148.4 1,117.9 1.7 1.4 145.3

37

CONTENT

Saskatchewan is the third-largest source of manufactured goods feeding into the oil sands. In 2010, the province’s manufacturers sold $456 million in goods into oil sands expansion and operations — up 17.6% over 2009 levels. The majority of that total — $307 million — was on the capital spending side. The remaining $149 million came from MRO spending. As in Manitoba, the gap between capital- and MRO-induced impacts widened considerably in 2010.

Direct and indirect demand from oil sands capital spending had the greatest impact on machinery and equipment manufacturers in Saskatchewan. Sales of those goods accounted for nearly half the total industrial impact stemming from capital projects. Much of the remainder — about $124 million — came from the manufacture of steel products and other metalworking operations.

For MRO-triggered economic activity, the impact is even stronger for manufacturers of steel products. Just over $91 million of the total $149 million in MRO impacts was captured by steel producers and metalworking operations. Producers of machinery and equipment, refined petroleum products and chemicals also benefited from MRO spending in Alberta.

Saskatchewan’s ability to penetrate oil sands supply chains fell markedly in 2010. Had the province’s manufac-turers retained the same degree of supply chain penetration as in 2009, sales would have been $529 million instead of $456 million — a loss of $72 million in market opportunities. The bulk of this lost supply chain activity was in steel and petroleum products. By contrast, Saskatchewan was the only province to see a significant improvement in accessing supply chains for mining and construction machinery and equipment.

Saskatchewan

Oil Sands Supply Chains in Saskatchewan

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in Saskatchewan in 2010:

• $358 million in GDP to the provincial economy• $456 million in manufacturing output • 2,575 direct and indirect jobs• $16.1 million in provincial and municipal government revenues, not including income taxes • An estimated $104 million in wages and salaries

0

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Saskatchewan Sales of Manufactured Goodsinto the Oil Sands

(in $millions)

2010

2009

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100

150



MRO Expenditure

Capital Investment




38

CONTENT

Saskatchewan Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 74,723 131,923 57,200 76.5 39,715 545 16,940


Iron and steel pipes and tubes (except castings) 45,018 42,756 -2,261 -5.0 23,927 -2,788 -23,400

Diesel fuel 11,201 12,369 1,168 10.4 5,953 1,439 -6,224

Agricultural, lawn and garden machinery and equipment 11,461 11,553 91 0.8 6,092 -3,136 -2,864

Boiler, tanks and heavy gauge metal containers 3,953 6,099 2,145 54.3 2,101 263 -219

Gasoline 4,018 4,482 463 11.5 2,136 138 -1,810

Coating, engraving, heat treating and similar metal processing services 3,268 3,316 47 1.5 1,737 -759 -931

Lubricants and other petroleum and coal products 1,900 3,116 1,216 64.0 1,010 1,319 -1,113

Asphalt and asphalt products 1,380 2,979 1,599 115.9 733 228 638

Concrete products 481 2,607 2,126 442.2 256 1 1,870

Forged and stamped metal products 1,870 2,506 636 34.0 994 -41 -316

Custom work, other manufacturing production services 2,068 1,519 -549 -26.6 1,099 -418 -1,230

Other basic organic chemicals 74 1,403 1,329 1,790.7 39 20 1,269

Fabricated steel plates and other fabricated structural metal 1,497 1,284 -213 -14.2 796 1 -1,009

Other ornamental and architectural metal products 186 1,066 880 472.1 99 -9 790

Freight and utility trailers 636 695 60 9.4 338 60 -338

Prefabricated metal building and components 855 692 -163 -19.0 454 -2 -615

Light fuel oils 77 676 600 780.4 41 4 555

Turbines and turbine generator set units 171 652 481 281.1 91 49 341

Other engine and power transmission equipment 2,109 638 -1,472 -69.8 1,121 -14 -2,579

Waste and scrap of iron and steel 0 577 577 n/a 0 0 577

Chemical products not elsewhere classified 360 495 136 37.7 191 43 -98

Communication and energy wire and cable 360 465 106 29.4 191 16 -102

Motor vehicle bodies and special purpose motor vehicles 117 391 274 233.5 62 -22 234

39

CONTENT

Saskatchewan Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Iron and steel pipes and tubes (except castings) 67,679 52,465 -15,214 -22.5 8,580 2,976 -26,769

Iron and steel basic shapes and ferro-alloy products 27,541 32,350 4,810 17.5 3,491 3,678 -2,360

Diesel fuel 20,699 14,921 -5,778 -27.9 2,624 402 -8,804

Logging, mining and construction machinery and equipment 10,884 14,339 3,455 31.7 1,380 224 1,851

Gasoline 9,056 6,940 -2,117 -23.4 1,148 -257 -3,008

Forged and stamped metal products 4,069 4,302 233 5.7 516 -24 -259

Other basic organic chemicals 404 4,010 3,606 893.1 51 11 3,545

Lubricants and other petroleum and coal products 4,747 3,442 -1,305 -27.5 602 589 -2,496

Agricultural, lawn and garden machinery and equipment 2,229 2,065 -164 -7.4 283 -360 -87

Coating, engraving, heat treating and similar metal processing services 2,408 1,764 -645 -26.8 305 -307 -643

Boiler, tanks and heavy gauge metal containers 1,593 1,606 13 0.8 202 -71 -117

Chemical products not elsewhere classified 1,077 946 -131 -12.2 137 -3 -265

Custom work, other manufacturing production services 1,458 819 -639 -43.8 185 -146 -678

Light fuel oils 127 817 690 544.6 16 -5 679

Other basic inorganic chemicals 858 719 -139 -16.2 109 -3 -245

Pesticide and other agricultural chemicals 623 656 34 5.5 79 -73 28

Ammonia and chemical fertilizer 525 461 -65 -12.3 67 -56 -76

Wood pulp 869 454 -415 -47.8 110 -190 -336

Printed products 247 302 55 22.1 31 -60 83

Waste and scrap of iron and steel 0 284 284 n/a 0 0 284

Transformers 267 278 11 4.3 34 -2 -20

Other engine and power transmission equipment 1,188 272 -916 -77.1 151 23 -1,091

Non-metallic mineral products, not elsewhere classified 3 239 236 7,535.0 0 0 236

Grain and oilseed products, not elsewhere classified 208 215 7 3.6 26 0 -19

Processed meat products and animal by-products 130 205 75 58.2 16 5 54

40

CONTENT

Alberta

Not surprisingly, the impact of oil sands activity on manufacturing is far higher in Alberta than anywhere else in Canada. In 2010, the province’s manufacturers generated output valued at just under $4.0 billion, up 28.6% compared to 2009. Of that total, $3.0 billion came from capital spending while $1.0 billion resulted from MRO activities.

Manufacturing activity was heavily concentrated in the production of mining and construction machinery and equipment. At $1.8 billion, that one product category accounted for well over half of all direct and indirect impacts. Diesel fuel and other petroleum products, steel products and concrete accounted for much of the remainder.

Petroleum products play a larger role in MRO spending, largely because of the need for fuel to drive oil sands op-erations. Beyond petroleum and machinery and equipment,

the MRO impacts in Alberta are spread across a wide range of industries.

As in nearly every other province, the growth in manu-facturing activity from the oil sands in 2010 was entirely the result of higher investment levels and not improved penetration of oil sands supply chains. More specifically, Alberta companies lost ground on the capital investment side while penetration of MRO supply chains increased very slightly that year. Manufacturing activity would have been $405 million higher had supply chain penetration not deteriorated in 2010. There were notable drops in market penetration for producers of mining and construction ma-chinery and equipment, as well as of concrete. While diesel fuel and steel pipe/tube producers improved their supply chain position, there was not a clear trend of winners and losers in other industries.

Oil Sands Supply Chains in Alberta

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in Alberta in 2010:

• $16.8 billion in GDP to the provincial economy• $3.98 billion in manufacturing output • 130,152 direct and indirect jobs• $696 million in provincial and municipal government revenues, not including income taxes • An estimated $6.45 billion in wages and salaries

0

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Alberta Sales of Manufactured Goodsinto the Oil Sands

(in $millions)

2010

2009

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500

1000

1500



MRO Expenditure

Capital Investment




41

CONTENT

Alberta Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 1,362,695 1,784,021 421,326 30.9 724,265 9,946 -312,884

Diesel fuel 63,653 121,413 57,760 90.7 33,831 8,179 15,751

Iron and steel pipes and tubes (except castings) 67,005 118,291 51,286 76.5 35,613 -4,150 19,823

Fabricated steel plates and other fabricated structural metal 62,044 102,766 40,722 65.6 32,976 22 7,724

Boiler, tanks and heavy gauge metal containers 62,999 76,219 13,220 21.0 33,484 4,191 -24,455

Gasoline 36,117 55,756 19,640 54.4 19,196 1,241 -797

Other engine and power transmission equipment 32,134 53,295 21,161 65.9 17,079 -208 4,291

Concrete products 43,146 50,680 7,534 17.5 22,932 82 -15,479

Ready-mixed concrete 39,195 42,303 3,108 7.9 20,832 -11,386 -6,339

Pumps and compressors 11,779 41,343 29,564 251.0 6,260 686 22,618

Metal valves and pipe fittings 24,911 37,120 12,209 49.0 13,240 2,550 -3,581

Other ornamental and architectural metal products 30,124 35,076 4,952 16.4 16,011 -1,419 -9,640

Custom work, other manufacturing production services 27,484 33,161 5,676 20.7 14,608 -5,560 -3,371

Prefabricated metal building and components 18,590 32,125 13,535 72.8 9,881 -49 3,703

Cement 28,165 29,308 1,143 4.1 14,969 -5,211 -8,615

Iron and steel basic shapes and ferro-alloy products 17,701 29,093 11,392 64.4 9,408 -957 2,941

Coating, engraving, heat treating and similar metal processing services 24,084 28,925 4,840 20.1 12,801 -5,589 -2,371

Asphalt and asphalt products 17,025 28,056 11,030 64.8 9,049 2,817 -836

Lubricants and other petroleum and coal products 5,828 23,492 17,665 303.1 3,097 4,043 10,524

Plastic building and construction materials 11,692 19,896 8,203 70.2 6,214 1,329 660

Forged and stamped metal products 10,697 14,857 4,160 38.9 5,685 -237 -1,289

Measuring, medical and controlling devices 9,676 13,658 3,982 41.2 5,143 478 -1,639

Petrochemicals 5,210 12,836 7,626 146.4 2,769 2,323 2,534

Material handling equipment 7,358 12,514 5,157 70.1 3,911 -436 1,682

Ferrous metal castings 8,839 11,172 2,334 26.4 4,698 51 -2,416

42

CONTENT

Alberta Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 196,346 192,208 -4,138 -2.1 24,890 4,046 -33,074

Diesel fuel 128,538 160,838 32,300 25.1 16,294 2,499 13,507


Gasoline 85,205 90,017 4,812 5.6 10,801 -2,415 -3,574

Heavy fuel oils 38,601 41,214 2,613 6.8 4,893 658 -2,938

Forged and stamped metal products 28,895 28,298 -597 -2.1 3,663 -171 -4,090


Petrochemicals 10,000 22,955 12,955 129.5 1,268 7,513 4,174

Other engine and power transmission equipment 18,094 22,508 4,414 24.4 2,294 356 1,764

Chemical products not elsewhere classified 17,465 21,802 4,336 24.8 2,214 -53 2,176

Boiler, tanks and heavy gauge metal containers 24,851 19,750 -5,101 -20.5 3,150 -1,113 -7,138

Printed products 24,472 17,982 -6,490 -26.5 3,102 -5,930 -3,662

Industrial gases 13,113 16,505 3,392 25.9 1,662 1,312 417

Other basic organic chemicals 13,667 16,312 2,645 19.4 1,733 356 556

Other basic inorganic chemicals 9,711 14,154 4,443 45.8 1,231 -36 3,248

Jet fuel 12,624 13,880 1,256 10.0 1,600 634 -978

Metal valves and pipe fittings 14,379 13,194 -1,184 -8.2 1,823 -939 -2,068

Threaded metal fasteners and other turned metal products 9,730 11,892 2,162 22.2 1,233 727 202

Pumps and compressors 4,390 11,390 7,000 159.4 557 307 6,136

Coating, engraving, heat treating and similar metal processing services 10,653 10,782 129 1.2 1,350 -1,359 137

Iron and steel basic shapes and ferro-alloy products 6,987 9,706 2,719 38.9 886 933 900

Non-metallic mineral products, not elsewhere classified 6,594 8,149 1,556 23.6 836 -1,034 1,754

Fabricated steel plates and other fabricated structural metal 7,696 7,628 -68 -0.9 976 -1,342 298

Custom work, other manufacturing production services 7,664 7,552 -112 -1.5 972 -765 -318

Plastic building and construction materials 5,955 7,001 1,046 17.6 755 374 -83

43

CONTENT

BC manufacturers sold $185 million in goods into the oil sands in 2010 – an increase of 11.4% over 2009 levels. About two thirds of this output — just under $122 million — came from activity generated by capital investment supply chains, while MRO supply chains made up $63.2 million.

As in Alberta and a number of other provinces, by far the largest impacts were felt by producers of logging, mining and construction machinery and equipment. At $29.3 million, that industry accounted for just over one quarter of all direct and indirect manufacturing sales in 2010. Metal products, concrete, and building and construction materials were among the other BC industries most impacted by oil sands capital investment.

Metal products and machinery and equipment also figure prominently on the MRO side in BC. However, the province’s manufacturers also delivered millions of dollars

in sales of paper and paper products, chemicals and fuels to keep oil sands operations running.

Although BC saw 11.4% growth in manufacturing output from oil sands expenditures in 2010, that increase was entirely the result of higher oil sands investment levels and not greater supply chain penetration. Supply chain penetra-tion fell considerably for capital-triggered output, while the decline was relatively small for MRO-generated manufac-turing activity. Had BC manufacturers maintained their 2009 levels of supply chain access, they would have generated $230 million in sales instead of $185 million. As in many other provinces, the decline in supply chain access was largely concentrated in mining and construction machinery and equipment production. Nearly $37 million in revenues was lost in that one sub-sector alone. Makers of metal products helped to soften the blow as they saw a general improvement in supply chain penetration in 2010.

British Columbia

Oil Sands Supply Chains in British Columbia

The direct and indirect impacts of capital investment and MRO expenditures in the oil sands generated the following economic impacts in BC in 2010:

• $717 million in GDP to the provincial economy• $185 million in manufacturing output • 7,556 direct and indirect jobs• $32.4 million in provincial and municipal government revenues, not including income taxes • An estimated $298 million in wages and salaries

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British Columbia Sales of Manufactured Goodsinto the Oil Sands

(in $millions)

2010

2009

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20

40

60

80



MRO Expenditure

Capital Investment




44

CONTENT

British Columbia Manufacturing Sales Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements



Forged and stamped metal products 2,631 5,211 2,580 98.0 1,399 -58 1,240

Aluminum and aluminum-alloy semi-finished products 2,335 4,330 1,996 85.5 1,241 60 695

Concrete products 3,942 4,085 143 3.6 2,095 7 -1,960

Boiler, tanks and heavy gauge metal containers 347 3,965 3,617 1,041.0 185 23 3,410

Plastic building and construction materials 2,299 3,836 1,537 66.9 1,222 261 54

Fabricated steel plates and other fabricated structural metal 826 3,764 2,938 355.7 439 0 2,499

Cement 1,110 3,695 2,585 232.8 590 -205 2,200

Other engine and power transmission equipment 3,659 2,837 -822 -22.5 1,945 -24 -2,742

Prefabricated metal building and components 1,390 2,653 1,262 90.8 739 -4 527

Rolled and drawn steel products including wire 3,965 2,608 -1,357 -34.2 2,108 -506 -2,959

Bauxite, aluminum oxide and primary aluminum products 2,125 2,601 476 22.4 1,129 367 -1,020

Softwood lumber 1,571 2,506 935 59.5 835 133 -33

Fabricated metal products, not elsewhere classified 898 2,477 1,578 175.7 478 -58 1,159

Diesel fuel 1,274 1,906 632 49.6 677 164 -208

Paints, coatings and adhesive products 1,164 1,740 576 49.5 619 -78 35

Ferrous metal castings 901 1,723 822 91.2 479 5 337

Printed products 1,045 1,566 521 49.9 555 -186 151

Custom work, other manufacturing production services 1,182 1,564 382 32.3 628 -239 -7

Paperboard containers 1,308 1,509 202 15.4 695 -132 -361

Measuring, medical and controlling devices 479 1,435 957 199.8 254 24 679

Non-metallic mineral products, not elsewhere classified 1,107 1,334 227 20.5 588 -101 -260

Freight and utility trailers 355 1,256 901 253.5 189 34 678

Material handling equipment 660 1,215 555 84.1 351 -39 243

Paper (except newsprint) 970 1,157 187 19.3 516 78 -406

45

CONTENT

British Columbia Manufacturing Sales Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 196,346 192,208 -4,138 -2.1 24,890 4,046 -33,074

Diesel fuel 128,538 160,838 32,300 25.1 16,294 2,499 13,507


Gasoline 85,205 90,017 4,812 5.6 10,801 -2,415 -3,574

Heavy fuel oils 38,601 41,214 2,613 6.8 4,893 658 -2,938

Forged and stamped metal products 28,895 28,298 -597 -2.1 3,663 -171 -4,090


Petrochemicals 10,000 22,955 12,955 129.5 1,268 7,513 4,174

Other engine and power transmission equipment 18,094 22,508 4,414 24.4 2,294 356 1,764

Chemical products not elsewhere classified 17,465 21,802 4,336 24.8 2,214 -53 2,176

Boiler, tanks and heavy gauge metal containers 24,851 19,750 -5,101 -20.5 3,150 -1,113 -7,138

Printed products 24,472 17,982 -6,490 -26.5 3,102 -5,930 -3,662

Industrial gases 13,113 16,505 3,392 25.9 1,662 1,312 417

Other basic organic chemicals 13,667 16,312 2,645 19.4 1,733 356 556

Other basic inorganic chemicals 9,711 14,154 4,443 45.8 1,231 -36 3,248

Jet fuel 12,624 13,880 1,256 10.0 1,600 634 -978

Metal valves and pipe fittings 14,379 13,194 -1,184 -8.2 1,823 -939 -2,068

Threaded metal fasteners and other turned metal products 9,730 11,892 2,162 22.2 1,233 727 202

Pumps and compressors 4,390 11,390 7,000 159.4 557 307 6,136

Coating, engraving, heat treating and similar metal processing services 10,653 10,782 129 1.2 1,350 -1,359 137

Iron and steel basic shapes and ferro-alloy products 6,987 9,706 2,719 38.9 886 933 900

Non-metallic mineral products, not elsewhere classified 6,594 8,149 1,556 23.6 836 -1,034 1,754

Fabricated steel plates and other fabricated structural metal 7,696 7,628 -68 -0.9 976 -1,342 298

Custom work, other manufacturing production services 7,664 7,552 -112 -1.5 972 -765 -318

Plastic building and construction materials 5,955 7,001 1,046 17.6 755 374 -83

46

CONTENT

The supply chains that feed into Alberta’s oil sands are not domestic but global. Doubtless, many Canadian manufacturers are interested in capturing as much of the spinoff impact as possible. However, imports are a natural, and necessary, component of any industrial operation. Access to attractively-priced imports and materials is critical to preserving or enhancing our economic competitiveness, as well as stimulating investment and growth.

For this reason, oil sands project owners and engineering, procurement and construction companies (EPCs) import a variety of manufactured and structural components when they consider it advantageous to do so. This is no different from manufacturers themselves importing a variety of sub-components or intermediate goods in order to produce their own final products at a competitive price. While project owners might prefer to source their goods from Canadian suppliers, imports are critical in cases where domestic firms lack the capacity or expertise to produce certain types of specialized products, or are unable to meet specific project timelines or cost requirements.

As noted above, the majority of the direct and indirect impact of oil sands expenditures on manufacturing leaks out of the Canadian economy. In total, the value of im-ported manufactured goods that fed into those investments reached $8.3 billion in 2010, compared to $6.0 billion for domestically-produced goods. On top of that, imports grew much faster than domestic manufacturing sales — by 51.0% compared to 30.9%.

Of that $8.3 billion in manufactured imports, the clear majority came from oil sands capital investment, which triggered just under $6.6 billion in imports that year. MRO spending required $1.8 billion in imported manufactured goods.

Logging, mining and construction machinery and equipment was by far the largest category of imported manufactured goods in support of oil sands development, accounting for $4.5 billion out of the total $8.3 billion in manufactured imports in 2010. The vast majority of those imports ($4.1 billion) were in support of oil sands capital investment. Measuring devices, iron and steel products, and vehicle parts were among the other leading imported goods. The types of goods imported were largely the same on the capital and the MRO sides of oil sands expenditures.

Since Canadian manufacturers lost ground in accessing oil sands supply chains in 2010, it is hardly surprising to note that market penetration improved for foreign companies. In total, improved supply chain penetration added $465 million in new sales for foreign businesses that year. Almost all of that total came from oil sands capital investment and was driven by a tremendous increase in imported mining and construction machinery and equipment. Subtracting out the effect of that one industry, foreign penetration of oil sands supply chains was essentially unchanged from 2009 levels.

Imports into Oil Sands Supply Chains

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Imports of Manufactured Goodsinto the Oil Sands

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2009

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MRO Expenditure

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47

CONTENT

Imports of Manufactured Goods Generated by Oil Sands Capital Investment

Product type


Change: 2009–2010



investment

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 2,368,440 4,099,387 1,730,947 73.1 1,258,812 17,286 454,848

Measuring, medical and controlling devices 280,673 451,628 170,955 60.9 149,176 13,870 7,909


Iron and steel pipes and tubes (except castings) 151,439 185,763 34,324 22.7 80,489 -9,380 -36,785

Medium and heavy-duty trucks and chassis 102,101 170,762 68,660 67.2 54,266 5,618 8,776

Metal valves and pipe fittings 95,919 169,720 73,801 76.9 50,980 9,820 13,001

Pumps and compressors 76,731 102,208 25,477 33.2 40,782 4,470 -19,776

Other engine and power transmission equipment 66,168 100,673 34,505 52.1 35,168 -428 -235

Rolled and drawn steel products including wire 66,278 81,510 15,232 23.0 35,226 -8,458 -11,537

Material handling equipment 47,186 74,667 27,481 58.2 25,079 -2,795 5,197

Other miscellaneous general-purpose machinery 40,293 54,625 14,332 35.6 21,416 -1,880 -5,204

Industrial and commercial fans and blowers, and air purification equipment 35,917 47,165 11,248 31.3 19,090 -2,637 -5,204

Concrete products 21,386 42,952 21,566 100.8 11,367 41 10,159

Agricultural, lawn and garden machinery and equipment 36,491 40,181 3,691 10.1 19,395 -9,984 -5,720

Turbines and turbine generator set units 16,730 34,045 17,315 103.5 8,892 4,783 3,641

Computers and computer peripheral equipment 22,040 33,835 11,795 53.5 11,714 270 -189

Other communications equipment 10,810 21,031 10,221 94.6 5,745 2,675 1,801

Aluminum and aluminum-alloy semi-finished products 13,052 19,561 6,509 49.9 6,937 333 -761

Plastic resins 10,402 19,068 8,666 83.3 5,529 1,849 1,287

Gasoline 8,428 16,526 8,098 96.1 4,479 290 3,329

Switchgear, switchboard, relays and industrial control apparatus 10,739 16,375 5,636 52.5 5,708 -104 33

Other basic organic chemicals 8,918 15,881 6,963 78.1 4,740 2,456 -233

Tires 10,055 15,589 5,534 55.0 5,344 602 -412

Boiler, tanks and heavy gauge metal containers 10,889 15,375 4,485 41.2 5,788 724 -2,027

Light-duty trucks, vans and sport utility vehicles 9,398 15,245 5,848 62.2 4,995 192 660

48

CONTENT

Imports of Manufacturing Goods Generated by Oil Sands MRO Expenditures

Product type


Change: 2009–2010



expenditures

Change in oil sands

requirements


Logging, mining and construction machinery and equipment 343,223 442,122 98,899 28.8 43,510 7,073 48,317

Iron and steel pipes and tubes (except castings) 229,263 231,550 2,287 1.0 29,063 10,080 -36,856

Measuring, medical and controlling devices 82,078 90,938 8,860 10.8 10,405 -1,392 -153

Iron and steel basic shapes and ferro-alloy products 63,695 87,464 23,769 37.3 8,074 8,507 7,188

Metal valves and pipe fittings 56,104 61,884 5,781 10.3 7,112 -3,662 2,331

Other engine and power transmission equipment 37,401 43,112 5,711 15.3 4,741 737 233

Other basic inorganic chemicals 38,123 41,906 3,783 9.9 4,833 -141 -909

Motor vehicle gasoline engines and their parts 34,522 41,253 6,731 19.5 4,376 3,088 -733

Other basic organic chemicals 37,357 38,740 1,383 3.7 4,736 973 -4,326

Pumps and compressors 29,553 29,538 -15 -0.1 3,746 2,066 -5,827

Other electrical equipment and components 25,183 28,340 3,157 12.5 3,192 328 -363

Motor vehicle electrical and electronic equipment 21,790 28,238 6,448 29.6 2,762 1,694 1,992

Gasoline 18,898 25,821 6,923 36.6 2,396 -536 5,063

Chemical products not elsewhere classified 23,940 25,697 1,757 7.3 3,035 -73 -1,205

Motor vehicle steering and suspension components (except springs) 17,332 25,567 8,235 47.5 2,197 2,584 3,454

Tires 21,745 22,871 1,126 5.2 2,757 -522 -1,109

Other miscellaneous general-purpose machinery 26,765 22,766 -3,999 -14.9 3,393 -4,912 -2,480

Transformers 16,880 20,834 3,954 23.4 2,140 -150 1,964

Rolled and drawn steel products including wire 20,014 19,967 -47 -0.2 2,537 248 -2,831

Motor vehicle transmission and power train parts 15,293 19,796 4,503 29.4 1,939 1,631 933

Threaded metal fasteners and other turned metal products 13,487 17,249 3,762 27.9 1,710 1,008 1,045

Jet fuel 13,188 16,770 3,583 27.2 1,672 662 1,249

Heavy fuel oils 12,408 16,556 4,148 33.4 1,573 211 2,363

Ball and roller bearings 14,245 15,519 1,274 8.9 1,806 309 -841


49

CONTENT

From the perspective of Canadian manufacturers, one of the most useful components of an analysis of oil sands supply chains is to look for areas where foreign market share is high and where there are opportunities for domestic producers to displace those imports. It bears repeating that imports will always be a critical component of oil sands supply chains simply because domestic manufacturers may lack the capacity or degree of specialization needed to meet project owners’ needs. Nevertheless, knowing where those opportunities are is the first step towards adapting the Canadian manufacturing environment to meeting those needs and retaining a greater share of the overall economic benefit of oil sands development in Canada.

The figure below shows the top 25 manufactured goods that are used in oil sands capital and MRO projects and what share of those goods comes from domestic versus foreign sources. Clear from the figure is that the degree of

foreign penetration depends heavily on the product in ques-tion. Some products like diesel fuel, gasoline and fabricated steel plates are sourced almost exclusively from Canadian companies, whether because of domestic expertise or transportation-related challenges. Meanwhile, measuring and controlling devices, pumps and compressors, and heavy-duty truck parts are completely or largely imported.

The size of the market opportunity for Canadian manufacturers also depends on how much those specific products are needed by oil sands project owners. Oil sands expenditures generate more demand for mining and construction machinery and equipment than for any other manufactured good – by a considerable margin. About 48% of the direct and indirect manufacturing impacts of capital and MRO spending are in that one product category — offering a total market opportunity of $4.5 billion. As such, those products offer Canadian manufacturers the most room for gowth.

Domestically-Sourced vs Foreign Goods

0 20 40 60 80 100

DomesticImported

Heavy fuel oilsAgricultural, lawn and garden machinery and equipment

Plastic building and construction materialsOther ornamental and architectural metal products

Other miscellaneous general-purpose machineryOther basic organic chemicals

Other basic inorganic chemicalsMaterial handling equipment

Chemical products not elsewhere classi�edLubricants and other petroleum and coal products

Forged and stamped metal productsConcrete products

Fabricated steel plates and other fabricated structural metalRolled and drawn steel products including wire

Medium and heavy-duty trucks and chassisBoiler, tanks and heavy gauge metal containers

Pumps and compressorsGasoline

Other engine and power transmission equipmentMetal valves and pipe �ttings

Diesel fuelMeasuring, medical and controlling devices

Iron and steel basic shapes and ferro-alloy productsIron and steel pipes and tubes (except castings)

Logging, mining and construction machinery and equipment $4,541.51$417.31$301.24$542.57$15.72$231.60$143.79$42.35$131.75$19.73$170.80$101.48$5.63$43.21$5.59$26.89$40.33$82.79$52.21$54.62$77.39$15.31$11.80$48.33$20.39

Supply Chain Opportunities for Canadian ManufacturersMarket Share of Top Manufactured Goods Required in the Oil Sands — 2010

Valu

e of

Impo

rts

(in $

mill

ions

)

(per cent)Source: CME calculations based on Statistic Canada’s input-output model

50

CONTENT

Production Outlook

Looking ahead, the recent strong growth in oil sands production is expected to continue. According to its 2014 Crude Oil Production forecast, CAPP projects that oil sands output could increase by close to 150% from 2014 to 2030 - from about 1.9 million barrels a day to 4.8 million barrels. By then, the oil sands will account for more than three quarters of all Canadian crude oil recovery.

Most of this growth is expected to come in in situ operations. By the mid-2020s, production from oil sands mining is projected to level off, while in situ recovery continues to grow rapidly. By 2030, in situ production will account for two thirds of all oil sands activity in Alberta.

It is worth noting, however, that growth expectations in the oil sands have been dialed back somewhat compared to previous years’ forecasts. Last year, for example, CAPP expected production in 2030 to reach 5.2 million barrels per day, compared to the most recent figure of 4.9 million barrels. The difference between the two forecasts reflects uncertainty regarding project timing – sparked by growing concerns about cost competitiveness and capital availability. It also bears mentioning that CAPP’s forecasts do not reflect the potential impact that market access concerns and US supply expansion could have on the economic case for pursuing additional oil sands development projects in Alberta.

Nevertheless, as global demand for energy continues to grow — especially in emerging markets — investment in the oil sands is expected to expand well into the future, driving additional growth in output capacity. According to the US Energy Information Administration’s International Energy Outlook 2013, worldwide consumption of petroleum and other liquid fuels is projected to rise from 90 million barrels per day (bpd) in 2013 to 104 million barrels by 2030.

This demand growth is expected to come almost exclusively in China and other developing countries in Asia. Petroleum consumption in that part of the world is projected to rise by 49% from 2013 to 2030, compared to just 2% growth in the OECD. China alone is expected to account for two fifths of all growth in global petroleum demand over that period.

Looking Ahead: Oil Sands Production and Expenditure Outlook

1000

2000

3000

4000

5000

All other provincesAlberta - ConventionalAlberta - Oil Sands

0

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2017

2016

2015

2014

2012

2011

2010

2009

2008

2007

2006

2005

2013

2018

Source: CAPP 2014 Crude Oil Production Forecast

Crude Oil Production Forecast(000 bpd)

0

1

2

3

4

5

6

2030202520202015Source: CAPP 2013 and 2014 Crude Oil Production Forecasts

Slight Long-term Downgradein Projected Oil Sands Production

(Output forecast, in million bpd)

2014 Forecast

2013 Forecast

-10

0

10

20

30

40

502020-2030

2010-2020

2005-2010

South/CentralAmerica

OECD Europe

USOther AsiaChinaWorld


Asia is Driving Global Petroleum Demand (% growth, actual and projected)

51

CONTENT

A critical caveat to this production outlook is that it supposes that all necessary transportation infrastructure will be built to get bitumen and synthetic crude oil to market. This is far from guaranteed.

The need for new pipelines and other infrastructure comes not just from the potential constraints in existing pipeline networks, but also from an analysis of future global energy supply and demand trends. According to the US Energy Information Administration (EIA), Asia – and China in particular – is expected to drive global petroleum demand growth in the years ahead. Meanwhile, the United States, which accounts for 99% of Canada’s crude oil exports, is expected to see overall petroleum demand increase by just 1.5% from 2013 to 2030. In fact, oil consumption in the US is projected to plateau in 2019 and begin to decline thereafter; from 2020 to 2030, the EIA forecasts US oil consumption to fall by 3.7%. By 2030, the US will consume as much oil as it will in 2014.

Even more concerning from a Canadian perspective is the fact that oil production in the US has increased dramatically in recent years — a trend expected to continue for at least the next seven years. From 2013 to 2020, US oil production is forecast to rise by 13.9%, before tapering off thereafter. As a result, net import requirements in the US today are nearly half what they were in the mid-2000s and are expected to drop further until leveling off around 2020.

As with our own analysis of future oil sands expenditures (see below), it is important to note that projections like these are always subject to change. New discoveries or technologies, price changes, demand fluctuations, economic growth, and development of alternative energy

sources are just a few of the factors that can dramatically affect global energy supply and consumption patterns. What we do know is that based on current information, the US will not be a major long-term growth market for Canadian crude oil.

The challenge for Canada is that the areas where demand growth is robust are presently inaccessible. Asian demand for oil is strong today, but while projects like the Northern Gateway, Kinder Morgan, Keystone XL and Energy East pipelines all hold promise to get Canadian oil to tidewater, all are years away from completion, if they get built at all.

The biggest danger in this situation is complacency. It would be a grave mistake to assume that countries like China are content to wait for five or ten years for Canada go through its approval and consultation processes — not to mention potential appeals to any final decision — to build a pipeline to tidewater. China may have large and growing energy demand, but they are taking steps to fill that demand from elsewhere. Already, China is securing oil supplies through long-term contracts with Russia, and is increasing its connections with central Asia and Africa as well.

Failure to act in a timely manner will cost the Canadian economy hundreds of billions of dollars in foregone income and economic growth. Not only will future investment opportunities and the resulting jobs and growth be lost, but existing operations will be affected as well. For as long as US oil production grows and Canadian heavy crude and bitumen is effectively trapped on North American soil, it will sell at a discount. Businesses, governments and, ultimately, individual Canadians will end up paying the price.

Market Access

5

10

15

20

25Consumption

Production

0

5

10

15

20

25

Import Demand

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2039

2038

2037

2036

2035

2034

2033

2032

2031

2020

2019

2017

2016

2015

2014

2012

2011

2010

2009

2008

2007

2006

2005

2013

2018

2040

Source: US EIA International Energy Outlook 2014

US Import Demand for Crude Oil Will Be Half What It Was in the Mid-2000s(million bpd)

52

CONTENT

Provided Canada can gain access to market outside the US, oil sands expenditures should grow considerably into the future. In its 2009 Oil Sands Manufacturing paper, CME developed three scenarios for oil sands spending in mining and in situ development through to 2030. These scenarios were based on an understanding of past expenditure growth while also factoring in a number of political, economic and technological factors that could influence future investment decisions.

Expenditure Scenarios

Low-growth scenario The low-growth scenario assumes that economic growth in the US and worldwide remains sluggish relative to pre-recession levels. Politically, environmental policy comes to dominate any discussion on oil sands development, severely limiting increases in production or expansion of vital pipeline capacity to connect the oil sands to export markets. The resulting gridlock, combined with production expansion in the US, drives a larger wedge between bitumen and North American benchmark crude oil prices. A reduction in government policies aimed at supporting oil sands growth also add to the challenge. As the competitive disadvantage grows, the potential return on oil sands investments becomes much less attractive. As a result, both new capital and MRO expenditures slow considerably. High-growth scenario By contrast, the high-growth scenario represents a best-case environment for oil sands development. Strong growth in North America is complemented by healthy demand for commodities to fuel economic expansion in Asia. New export pipelines to the east and west coasts, as well as south to Texas refineries, open up new markets for oil sands producers, providing them with the capacity and market access needed to drive future expansion. The resulting decrease in crude oil price differentials increases the expected return on investment for new capital projects. This scenario envisions both capital and MRO expenditures continuing to grow at about the same rates as we have seen in the recent past.

Baseline scenario The baseline scenario is essentially a status-quo option representing a middle ground between the high- and low-growth scenarios. The global economy and world energy demand grow moderately. In Canada, policy-makers balance out environmental and economic considerations when setting policies that affect oil sands investment. Additional pipeline capacity gradually comes online, but new projects are delayed by lengthy government reviews and regulatory processes. Rail transportation continues to act as a pressure valve for getting oil sands crude to market.

It is important to emphasise that these three scenarios are not intended to predict where oil sands expenditures will be heading in the years ahead. Such predictions are seldom accurate as a host of unforeseeable factors inevitably come into play, dramatically affecting final outcomes. Rather, the low- and high-growth scenarios should be interpreted as the upper and lower bounds of oil sands expenditure growth based on what we know today and expect for tomorrow. The baseline scenario represents what in our view is the most likely outcome, based on currently-available information.

Capital Investment Projections

In the low-growth scenario, new capital investment essentially remains at or below current levels. In 2013, actual capital spending in the oil sands (mining and in situ only) was $30.1 billion. This figure is projected to remain roughly constant through 2030 — an amount well below the expected rate of inflation over that period. Nevertheless, even under this pessimistic scenario, there is still an annual injection of between $27 billion and $30 billion into oil sands capital projects over the next 17 years. In total, the lower bound scenario anticipates cumulative capital investment of $486 billion over the forecast period.

The baseline scenario envisions many of the anticipated oil sands projects moving ahead as planned, and business conditions remaining roughly the same as they have been in recent years. In this case, capital investment would grow moderately through the projection period, reaching about

Oil Sands Expenditure Outlook

53

CONTENT

$46 billion by 2030. This scenario would result in cumulative new capital investment of $637 billion dollars through to 2030 – equivalent to about $33 billion in new investments every year over the next 17 years.

As stated above, the high-growth scenario represents the most optimistic outcome from the perspective of oil sands development. In this case, investment continues to grow in line with recent past trends, resulting in a total of $905 billion in new capital spending over the projection period. Average new capital investment would be about $47 billion per year, reaching a peak of over $80 billion by 2030.

Maintenance, Repair and Operations Expenditure Projections

MRO expenditures in the oil sands have risen dramatically since operations began in earnest in the mid-late 1990s. That growth is expected to continue into the future, regardless of scenario.

It is worth re-stating that MRO spending is potentially more important in the long run to Canadian manufacturers because it represents a more reliable and sustainable type of expenditure. At the same time, however, new capital investment is needed in order to create the need for additional MRO spending requirements. Once that capital is in place, MRO expenditures become almost a “locked-in” spending item that manufacturers can count on well into the future.

Because capital investment is essentially flat and transportation infrastructure is largely not developed, the lower-bound scenario presents a similarly modest outlook for future MRO expenditures. Annual spending is expected to remain essentially unchanged from 2012 levels, averaging $21 billion a year over the projection period. In

total, that means cumulative MRO expenditures of $404 billion through to 2030.

In the baseline scenario, MRO expenditures increase gradually over the time horizon, reaching about $46 billion by 2030. Cumulative spending is $579 billion – equivalent to an average of $30 billion every year.

Finally, in the high-growth scenario, MRO costs follow the same trajectory as new capital investment, rising to almost $90 billion per year by 2030. In total, this scenario envisions $890 billion in total expenditures over the projection period, or an average of $47 billion in new MRO spending every year.

Potential Impact of Future Oil Sands Expenditures on Canadian Manufacturers

The three scenarios described above can be applied to what we know about current oil sands supply chains to project the potential economic opportunity for Canadian manufacturers and the size of that opportunity for specific industries. However, these projections should not be treated as concrete expectations. As with any other industry, supply chains in the oil sands are constantly evolving as new technologies, extraction and construction techniques, building practices and a host of other factors will affect the type and amount of manufactured goods required to meet project developers’ needs. As such, the farther forward I/O models project, the less reliable the result.

This means that even though I/O models are the best tool available for projecting future oil sands supply chain benefits, the figures presented below should be considered to be illustrative only. The actual impact on Canadian manufacturers could be higher or lower, depending on how supply chains evolve over time.

0

20

40

60

80

100

Lower BoundBaselineUpper Bound

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2017

2016

2015

2014

2012

2013

2018


Projected New Capital Investment — 2012 to 2030(in $billions)

0

20

40

60

80

100

Lower BoundBaselineUpper Bound

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2017

2016

2015

2014

2012

2013

2018


Projected MRO Expenditures — 2012 to 2030(in $billions)

54

CONTENT

Another limitation of using I/O models to project forward is that we lose the ability to track changes in provincial shares over time. As such, while we can point to potential impacts by industry, there is no way of assessing where in Canada that economic activity would be taking place. Changes in market share by province will be influenced by such factors as local production capacity and workforce availability, competitiveness, access to transportation linkages and so on.

Future Capital Investment

In 2011, capital investment in the oil sands reached $22.7 billion, up 32% from $17.2 billion in 2010. Based on 2010 supply chains, we should expect that the total impact on Canadian manufacturers will rise to $5.6 billion that year. Any amount greater than that will represent an improvement in supply chain penetration. A lesser amount will demonstrate further deterioration.

Looking farther ahead, depending on the scenario, CME projected that cumulative new capital investment in the oil sands could range from $486 billion to $905

billion between 2012 and 2030. Assuming that oil sands capital requirements remain unchanged over that period, and that Canadian manufacturers maintain their existing levels of supply chain penetration, the direct and indirect spinoffs from these investments translate into cumulative sales of between $120 billion and $224 billion between 2012 and 2030. The detailed breakdown of those business opportunities for the top 25 manufactured goods made by Canadian producers is shown in the table, below.

050

100150200250

Cumulative impact:2012–2030 upper bound

Cumulative impact: 2012–2030 baseline

Cumulative impact:2012–2030 lower bound


Potential Impact of Future Capital Investmenton Manufacturing Output in Canada (in $billions)

Note: Assumes 2010 supply chain penetration remains constant

$120.4 b $157.8 b $224.4 b

Canadian Manufacturing Sales Projections for New Capital Investment ($000s)

Cumulative impact: 2012–2030

2010 Actual 2011 Lower bound Baseline Upper bound

Logging, mining and construction machinery and equipment 2,076.6 2,739.9 57,581.6 76,928.5 109,354.4Iron and steel pipes and tubes (except castings) 220.6 291.1 6,117.8 8,173.3 11,618.4Iron and steel basic shapes and ferro-alloy products 196.8 259.6 5,456.5 7,289.8 10,362.5Diesel fuel 173.8 229.3 4,818.8 6,437.9 9,151.5Boiler, tanks and heavy gauge metal containers 127.1 167.7 3,524.0 4,708.0 6,692.4Fabricated steel plates and other fabricated structural metal 116.7 154.0 3,236.7 4,324.3 6,147.0Concrete products 72.5 95.7 2,010.6 2,686.2 3,818.4Gasoline 68.8 90.8 1,908.3 2,549.4 3,624.0Other ornamental and architectural metal products 61.1 80.7 1,695.4 2,265.1 3,219.8Other engine and power transmission equipment 59.7 78.8 1,656.5 2,213.0 3,145.8Prefabricated metal building and components 49.0 64.6 1,358.5 1,815.0 2,580.0Metal valves and pipe fittings 48.3 63.7 1,338.7 1,788.5 2,542.3Plastic building and construction materials 47.4 62.5 1,313.6 1,754.9 2,494.7Pumps and compressors 47.0 62.0 1,302.5 1,740.1 2,473.6Custom work, other manufacturing production services 46.1 60.8 1,277.3 1,706.4 2,425.7Ready-mixed concrete 42.9 56.6 1,188.9 1,588.4 2,257.9Asphalt and asphalt products 40.4 53.4 1,121.5 1,498.3 2,129.9Lubricants and other petroleum and coal products 40.0 52.7 1,108.2 1,480.5 2,104.5Coating, engraving, heat treating and similar metal processing services 38.5 50.7 1,066.3 1,424.6 2,025.1Forged and stamped metal products 38.4 50.6 1,063.9 1,421.4 2,020.5Rolled and drawn steel products including wire 37.2 49.1 1,032.3 1,379.1 1,960.4Cement 36.1 47.6 1,000.7 1,337.0 1,900.5Measuring, medical and controlling devices 30.9 40.7 856.3 1,144.0 1,626.2Ferrous metal castings 26.7 35.3 741.1 990.1 1,407.4Chemical products not elsewhere classified 23.5 31.0 651.6 870.5 1,237.4

55

CONTENT

Future MRO Expenditures

Similarly, MRO expenditures in the oil sands rose to $18.2 billion in 2011, up nearly 37% from 2010 levels. Based on 2010 supply chains, the total impact on Canadian manufacturers should rise from $1.7 billion in 2010 to $2.6 billion the following year. As with capital investment, a total exceeding $2.6 billion in 2011 would represent an improvement in supply chain penetration, while a lesser amount would represent a decrease.

CME’s long-term projections suggest that cumulative MRO oil sands expenditures could range from $404 billion to $890 billion from 2012 through 2030. Subject to the same caveats listed above for capital investment, the direct and indirect spinoffs from those expenditures would generate cumulative manufacturing output in Canada of at

least $58.5 billion and as much as $129 billion. The detailed potential impact on Canadian manufacturers is shown in the table below.

Canadian Manufacturing Sales Projections for MRO Expenditures ($000s)


2010 Actual 2011 Lower bound Baseline Upper bound

Iron and steel pipes and tubes (except castings) 270.7 370.9 8,239.7 11,808.9 18,600.6

Logging, mining and construction machinery and equipment 225.4 308.7 6,859.5 9,830.8 15,484.8

Diesel fuel 218.8 299.7 6,657.8 9,541.7 15,029.4

Gasoline 108.2 148.2 3,292.2 4,718.3 7,431.9

Iron and steel basic shapes and ferro-alloy products 91.1 124.8 2,773.5 3,974.9 6,261.0

Forged and stamped metal products 69.3 94.9 2,108.5 3,021.9 4,759.8

Chemical products not elsewhere classified 43.9 60.2 1,337.2 1,916.5 3,018.7

Lubricants and other petroleum and coal products 43.2 59.2 1,316.1 1,886.3 2,971.1

Heavy fuel oils 43.2 59.1 1,313.4 1,882.4 2,965.0

Printed products 35.6 48.8 1,084.7 1,554.6 2,448.7

Boiler, tanks and heavy gauge metal containers 33.5 45.9 1,019.6 1,461.3 2,301.8

Other basic inorganic chemicals 28.4 38.9 864.4 1,238.8 1,951.3

Petrochemicals 26.9 36.9 819.3 1,174.1 1,849.4

Other engine and power transmission equipment 25.3 34.6 769.4 1,102.7 1,736.9

Other basic organic chemicals 24.3 33.2 738.3 1,058.2 1,666.8

Industrial gases 21.1 28.9 642.3 920.6 1,450.0

Threaded metal fasteners and other turned metal products 19.7 27.0 600.5 860.6 1,355.5

Plastic building and construction materials 18.9 25.9 574.8 823.8 1,297.5

Metal valves and pipe fittings 17.4 23.9 530.9 760.8 1,198.4

Jet fuel 17.0 23.3 517.2 741.2 1,167.6

Transformers 16.0 22.0 488.2 699.7 1,102.1

Coating, engraving, heat treating and similar metal processing services 15.7 21.6 479.3 686.9 1,081.9

Custom work, other manufacturing production services 13.4 18.4 409.1 586.3 923.5

Pumps and compressors 13.1 17.9 397.6 569.9 897.6

Rolled and drawn steel products including wire 12.2 16.7 371.2 531.9 837.9

0.0

75.0

150.0


Potential Impact of Future MRO Expenditures onManufacturing Output in Canada (in $billions)

Note: Assumes 2010 supply chain penetration remains constant

$58.5 b $83.9 b $129.0 b

Cumulative impact:2012–2030 upper bound

Cumulative impact: 2012–2030 baseline

Cumulative impact:2012–2030 lower bound

56

CONTENT

Benefits of Improving Supply Chain Penetration

As outlined above, the projected growth in oil sands expenditures (capital plus MRO) could generate between $179 billion ($120 billion in capital investment impacts plus $59 billion in MRO impacts) and $353 billion ($224 billion plus $129 billion) in total manufacturing output in Canada from 2012 to 2030. However, these economic impacts are based on Canadian manufacturers maintaining the level of access to oil sands supply chains they had in 2010. As noted earlier, Canadian businesses captured just 43.3% of the total direct and indirect manufacturing impacts from oil sands investments that year, down from 46.1% in 2009.

The oil sands offer a significant growth opportunity for Canadian manufacturers. Improving access to oil sands supply chains could result in billions of dollars of additional revenues and business opportunities, over and above the amounts outlined in the tables above.

To illustrate the potential benefits of increasing supply chain penetration, CME developed a scenario which assumed that Canadian manufacturers were able to capture an additional 25% of the supply chains currently held by foreign companies. We then revisited our investment growth

scenarios to see how much additional economic activity would be generated within Canada as a result.

The impact was considerable. Even using the most conservative investment projections, improving supply chain access by 25% would add nearly $59 billion in additional manufacturing sales in Canada from 2012–2030, over and above the $179 billion mentioned above. For the high-growth scenario, the impact could be as much as $117 billion in new manufacturing output. To put that latter number in perspective, it exceeds all manufacturing sales from Alberta and BC combined in 2013.

Improved Supply Chain Penetration by Industry

The same supply chain scenario can be used to show which domestic industries might benefit most from improved supply chain access. It should be stressed that these results are only illustrative. In some cases, project owners import specific products that cannot easily be substituted with goods produced in Canada. There are also capacity constraint issues to consider, as well as price considerations. The goal, however, is to demonstrate where the largest potential gains might be if Canadian manufacturers were able to improve their overall access to oil sands supply chains.

On the capital side, Canadian manufacturers of mining and construction machinery and equipment would gain the most from improved access to oil sands supply chains. This is not a surprising result given the importance of that one sub-sector to oil sands capital investment. However, the impact would be considerable. In 2011 alone, a 25% improvement in supply chain access would add $1.4 billion in sales. Looking ahead to 2030, the cumulative impact could range from $28.6 billion to $54.0 billion.

Other manufacturers that would benefit from better supply chain access include those producing measuring and controlling devices and other specialized instruments, iron and steel products, and heavy-duty motor vehicle parts.

The story is similar for MRO supply chains. Producers of mining and construction machinery and equipment would add $151 million in output in 2011 if they could capture 25% of the supply chain currently held abroad. From 2012–2030, the cumulative benefit ranges from $3.4 billion to $7.6 billion. Producers of iron and steel pipes and tubes could gain as much as $4.0 billion in additional activity over that period, and those making specialized instruments would gain up to $1.6 billion.

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Capital

Upper boundBaseline scenarioLower bound


Additional Manufacturing Impact ofa 25% Increase in Supply Chain Penetration

(in $billions)

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Impact of Improving Supply Chain Access by 25% - Capital Investment (in $000s)


2011 Lower bound Baseline Upper bound

Logging, mining and construction machinery and equipment 1,352.2 28,609.2 37,966.8 53,970.0Measuring, medical and controlling devices 149.0 3,151.9 4,182.8 5,945.9Iron and steel basic shapes and ferro-alloy products 70.5 1,491.9 1,979.9 2,814.5Iron and steel pipes and tubes (except castings) 61.3 1,296.4 1,720.5 2,445.6Medium and heavy-duty trucks and chassis 56.3 1,191.7 1,581.5 2,248.1Metal valves and pipe fittings 56.0 1,184.5 1,571.9 2,234.4Pumps and compressors 33.7 713.3 946.6 1,345.6Other engine and power transmission equipment 33.2 702.6 932.4 1,325.4Rolled and drawn steel products including wire 26.9 568.9 754.9 1,073.1Material handling equipment 24.6 521.1 691.5 983.0Other miscellaneous general-purpose machinery 18.0 381.2 505.9 719.2Industrial and commercial fans and blowers, and air purification equipment 15.6 329.2 436.8 621.0Concrete products 14.2 299.8 397.8 565.5Agricultural, lawn and garden machinery and equipment 13.3 280.4 372.1 529.0Other communications equipment 6.9 146.8 194.8 276.9Aluminum and aluminum-alloy semi-finished products 6.5 136.5 181.2 257.5Plastic resins 6.3 133.1 176.6 251.0Gasoline 5.5 115.3 153.1 217.6Switchgear, switchboard, relays and industrial control apparatus 5.4 114.3 151.7 215.6Other basic organic chemicals 5.2 110.8 147.1 209.1Boiler, tanks and heavy gauge metal containers 5.1 107.3 142.4 202.4Other ornamental and architectural metal products 4.9 103.2 137.0 194.8Chemical products not elsewhere classified 4.8 102.1 135.5 192.6Fabricated metal products, not elsewhere classified 4.8 100.8 133.7 190.1Medical, dental and personal safety supplies, instruments and equipment 4.6 98.2 130.3 185.2

Impact of Improving Supply Chain Access by 25% - MRO Expenditures (in $000s)


2011 Lower bound Baseline Upper bound

Logging, mining and construction machinery and equipment 151.4 3,363.8 4,820.9 7,410.4Iron and steel pipes and tubes (except castings) 79.3 1,761.7 2,524.8 3,881.0Measuring, medical and controlling devices 31.1 691.9 991.6 1,524.2Iron and steel basic shapes and ferro-alloy products 30.0 665.5 953.7 1,466.0Metal valves and pipe fittings 21.2 470.8 674.8 1,037.2Other engine and power transmission equipment 14.8 328.0 470.1 722.6Other basic inorganic chemicals 14.4 318.8 456.9 702.4Motor vehicle gasoline engines and their parts 14.1 313.9 449.8 691.4Other basic organic chemicals 13.3 294.7 422.4 649.3Pumps and compressors 10.1 224.7 322.1 495.1Other electrical equipment and components 9.7 215.6 309.0 475.0Motor vehicle electrical and electronic equipment 9.7 214.8 307.9 473.3Gasoline 8.8 196.5 281.6 432.8Chemical products not elsewhere classified 8.8 195.5 280.2 430.7Motor vehicle steering and suspension components (except springs) 8.8 194.5 278.8 428.5Tires 7.8 174.0 249.4 383.3Other miscellaneous general-purpose machinery 7.8 173.2 248.2 381.6Transformers 7.1 158.5 227.2 349.2Rolled and drawn steel products including wire 6.8 151.9 217.7 334.7Motor vehicle transmission and power train parts 6.8 150.6 215.9 331.8Threaded metal fasteners and other turned metal products 5.9 131.2 188.1 289.1Jet fuel 5.7 127.6 182.9 281.1Heavy fuel oils 5.7 126.0 180.5 277.5Ball and roller bearings 5.3 118.1 169.2 260.1Lubricants and other petroleum and coal products 4.9 107.9 154.6 237.7

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Efficient and sustainable manufacturing supply chains are critical to the success of Alberta’s oil sands. Project owners face numerous challenges in developing oil sands ventures, not least of which is that they operate in a high-cost environment in Alberta and are facing growing competition in North American energy markets from soaring US shale oil production. On top of that, market access is a huge concern as most of western Canada’s oil is effectively landlocked, meaning that Alberta heavy crude and bitumen is selling at a discount compared to North American benchmark prices. This discount lowers the expected return on investment in oil sands projects and further exacerbates development challenges.

In response, project developers and EPC contractors are focusing their efforts on lowering costs and improving their record when it comes to delivering projects on time and on budget. This focus is driven not only by macro and infra-structure concerns, but also the fact that the industry itself is relatively young. Many major industries navigate complex supply chains, but in most cases, those have been devel-oped over decades of expansion and growth. In the case of the oil sands, investments have risen rapidly in a relatively short time, leaving little time for the controlled and man-aged development of efficient supply chain relationships.

Indeed, the evidence from this study points to just how volatile oil sands supply chains can be. In 2009, Canadian manufacturers accounted for 41% of all sales of mining and construction machinery and equipment into the oil sands. One year later, that share had fallen to 34%. Supply chains in the oil sands are still far from settled.

For their part, manufacturers in Canada who supply goods into the oil sands face considerable challenges as well. The most significant of these is to deliver goods on time and on budget when product specifications and expectations are constantly evolving as projects develop.

In our 2013 report on oil sands supply chains, CME offered a series of recommendations for how to improve the relationship between project owners, EPCs and manufacturers, as well as what steps the federal and provincial governments could take to improve the overall business climate in which those companies operate. For the most part, little has changed.

There has been some progress in a few areas, but last year’s recommendations still largely stand as a template for future action. While there are a number of policy issues that would help manufacturing competitiveness generally

– addressing skilled labour shortages, providing support for investment in productivity-enhancing machinery and equipment and so on – there are also several that relate specifically to oil sands supply chain development.

1. Improved Communication between Project Owners, EPCs and Manufacturers

As identified in our 2013 report, the key issue in the relationship between project owners, EPCs and manufacturers is communication. Oil sands development projects are complex, the industry is relatively young and there are a host of problems that help drive costs higher than necessary. These include unrealistic construction timelines, project delays, unclear project scope, and changing product specifications. A lack of timely communication between suppliers and procurers about these, and other, issues drives up a range of manufacturing costs — labour (including overtime), materials and design — and results in production delays as well.

CME research points to the need for effective com-munication to ensure that each party in the supply chain understands the others’ business realities. Closer cooperation will unlock innovation, create efficiency and build the relationships and mutual trust needed to create a vibrant and healthy domestic supply chain into an efficient and well-run oil sands industry. To that end, CME recommends:

• Establishing an oil sands supply chain working group. Senior leaders representing project owners, EPCs and manufacturers need to meet on a regular basis to address major bottlenecks in the supply chain, identify common threats to growth and propose solutions for industry or government. Each has a role to play in improving cooperation and communication, as well as building effective and efficient supply chains. Related work is being undertaken by GO Productivity (a division of Productivity Alberta) for a Project Alignment & Delivery project to discover, measure, and address critical execution and productivity challenges in large energy and construction projects in the Alberta market to improve

Recommendations:Towards Enhancing and Developing Sustainable Oil Sands Supply Chains in Canada

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the long-term success and sustainability of the industry. This is a positive step and could be applied to the procurement process generally.

• Creating detailed “how-to” guides for manufacturers. Project owners and EPCs need to create such guides to help manufacturers better understand the expected steps and actions they need to take to participate in oil sands supply chains.

• Establishing an oil sands supply chain resource and procurement office. Creating such an office will help manufacturers lead about the specific procurement opportunities in the oil sands and to efficiently engage and navigate supply chains. Considering the national scope of those supply chains and the importance of business-to-business linkages in their development and nurture, there is a natural role for CME to play in this area, with assistance from industry and government.

• Developing common supply chain pre-qualification standards. A standardized and centralized process for pre-qualifying manufacturers and their specific products and services would greatly clarify and accelerate oil sands procurement.

2. Investing in Oil-Sands-Related Manufacturing Innovation

Technological innovation is pivotal to the success not only of oil sands development generally, but of Canadian manufacturers in accessing the supply chains those investments generate. The oil sands industry owes much of its present size to innovations like steam-assisted gravity drainage (SAGD), which opened up access to the 97% of bitumen too deep to mine. Continued innovation is critical to reducing development costs, lowering the environmental footprint of the industry, and unlocking the potential of the 90% of known reserves that are currently uneconomic to extract.

For Canadian manufacturers to ensure a larger and growing role in the oil sands, they need to be at the forefront of this innovation. Governments in other jurisdictions are playing an active role in promoting the development of new products, ideas and practices that improve domestic manufacturing productivity and innovation. Canada needs to do the same to ensure that our businesses are able to capture a greater share of the 57% of manufacturing spinoff benefits that currently go to foreign businesses. As such, CME recommends:

• The creation of an Oil Sands Manufacturing Innovation Centre in Ontario. National innovation centres in the United States are designed to solve specific problems or develop new products for a specific industry or purpose. They are instrumental in spurring innovative commercialization. A similar centre devoted to the development and testing of new products and technologies in the oil sands would be tremendously beneficial to Canadian manufacturers looking to sell into that industry. Locating such a centre in Ontario would help eastern Canadian companies improve their access to oil sands supply chains.

3. Investing in Effective Supporting Infrastructure

Investment in oil sands development requires the transportation capacity to move crude oil or refined petroleum to market. Without this capacity, there would be little point in expanding production since there would be no way for the oil to reach its destination.

In particular, there is an urgent need to expand our ca-pacity to export crude oil to non-US markets. Canada’s export pipeline capacity is rapidly filling up, accelerated by new US production which is competing for space on existing lines. To alleviate this pressure, several pipelines have been proposed that would deliver oil sands crude to tidewater – Keystone XL, Northern Gateway, Energy East and the Kinder Morgan expansion. However, public resistance has placed all four projects in doubt. Even if they are approved, all are years away from opera-tion. Moreover, it is not a case of choosing one or two of these options; all four major pipelines are urgently

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needed. In the meantime, the Canadian economy is los-ing billions of dollars in foregone oil revenues every year.

A number of smaller pipeline projects are helping to ease the pressure in the short term, as is the rapidly-growing use of rail to transport crude oil. However, these are stopgap measures. Without continued investment in new pipeline infrastructure, the oil sands will not be developed to its full potential and, consequently, the full economic opportunity for Canada will not be realized.

The need for infrastructure is not limited, however, to pipeline capacity. Investment is needed to ensure that upstream and downstream supply chains operate as smoothly and efficiently as possible. This is especially important given the cost and competitiveness pressures facing both oil sands project developers and Canadian manufacturers; public infrastructure investment has been shown to have a direct and positive impact on business productivity. The more productive are Canadian businesses, the better able they will be to thrive in a competitive global economy.

As such, CME recommends:

• Improving the speed and perceived credibility of the pipeline approval process. Pipelines are urgently needed, but the consultation and approval processes are growing more onerous and can take years to complete before ground is ever broken. On top of that, recent changes to the National Energy Board approval process have created confusion and undermined the credibility of NEB determinations. A fast, transparent, impartial and, above all, respected approval process is urgently needed.

• Increasing investment in critical infrastructure connecting oil sands sites to existing transportation networks. Improving transportation linkages will save Canadian businesses time and money and lead to greater overall productivity. The ongoing project to twin highway 63 is a significant step in the right direction. Additional work is needed to ensure that Canada’s rail and road networks are able to accommodate shipments of modularized equipment and other large manufactured goods, and to get those products to end users as quickly and efficiently as possible.

It is worth noting that there have been some important policy improvements in recent years that could assist the development of stronger Canadian oil sands supply chains. Infrastructure investments, the Canada Jobs Grant, immigration reforms and efforts to implement a one-project, one-process regulatory system are all steps in the right direction. However, there have been backwards steps as well. Notably, cuts to the Scientific Research & Experimental Development Tax Credit (SR&ED) have had a negative effect on business R&D spending – the opposite of what Canada needs to attract investment and growth.

These issues are complex and require governments, project owners, EPCs and manufacturers to work together to overcome barriers to growth and support the sustainable development of domestic supply chains. Without collective action, Canada will miss out on the economic opportunity offered by oil sands development in Alberta. For this reason, CME will be working with these groups to refine our recommendations into specific action items. The end goal is to increase supply chain penetration for Canadian manufacturers in the oil sands while simultaneously making oil sands investment more attractive and economically viable.

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Alberta’s oil sands make a significant contribution to the Canadian economy. In 2010, the direct and indirect impact of oil sands investment added nearly $21 billion to national GDP, created or supported more than 170,000 jobs, and paid an estimated $7.2 billion in wages and salaries. These benefits were

spread across all provinces and territories. It is important to emphasize that these figures relate only to investment; they do not reflect the impact from oil sands production, nor from downstream activities such as petroleum refining, transportation or petrochemical production.

Canadian manufacturers also benefit significantly from oil sands expenditures. In 2010, Canadian manufacturers sold $6.0 billion in value-added goods either directly or indirectly into oil sands projects or their associated supply chains. While this total represented a healthy expansion over the $4.7 billion in sales the previous year, the increase was due entirely to growth in oil sands expenditures and not to improved supply chain penetration.

With oil sands spending expected to soar in the coming years, it is critical that Canadian manufacturers improve their supply chain penetration in order to take advantage of the tremendous opportunities the oil sands offer. We anticipate that cumulative expenditures in the oil sands (capital and MRO spending) will range from $890 billion to $1.8 trillion from 2012 to 2030. A significant portion of that total range will be spent on the purchase of machinery, equipment, steel pipes, valves and boilers, modular equipment and a host of other manufactured goods. In total, there is a potential market opportunity of between $418 billion and $817 billion for Canadian manufacturers.

Because imports play an important role in any complex supply chain operation, Canadian businesses will only see a fraction of that total. However, we owe it to ourselves to make that share as large as possible. Increasing supply chain penetration by 25% could create as much as $117 billion in additional manufacturing output in Canada.

The challenge is that Canadian manufacturers’ access to those supply chains is moving in the wrong direction. In 2010, Canadian businesses produced 43.3% of the manufactured goods used in oil sands investment or related spinoff activity, down from 46.1% in 2009. In that one year alone, Canadian manufacturers missed out on $634 million in output growth because of lost supply chain opportunities. This loss underscores the need for governments and businesses to work together to ensure that Canadian manufacturers are well-positioned to capitalize on future supply chain opportunities.

CME believes that oil sands expenditures will be a major growth driver for Canadian manufacturers in the years ahead. For this reason we are committed to publishing annual updates on oil sands supply chains for at least two more years. Our intent is to better understand the nature and extent of those supply chain opportunities, monitor how well Canadian companies are capitalizing on those opportunities, and to act on our own recommendations for corrective policy action.

Even so, it bears repeating that future oil sands investment and expansion are far from certain. Nor, for that matter, can manufacturers necessarily count on billions of dollars in supply chain opportunities. Mounting public resistance, a lack of pipeline capacity, high production costs and lower oil prices are just some of the factors that could greatly reduce oil sands production and investment down the road.

In short, there are no guarantees. Canadians across the country have a stake in a strong and vibrant oil sands industry. The challenge is to simultaneously secure the long-run competitiveness of that industry, while also working to ensure that Canadian manufacturers are in the best possible position to benefit from the value-added economic opportunities that oil sands expenditures generate. Unlocking the full potential of the oil sands is critical to creating lasting economic benefit to all regions of Canada.

Conclusion

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Thank you to our partners:

Ministry of Economic Development, Employment and Infrastructure Ministère du Développement économique, de l’Emploi et de l’Infrastructure

www.cme-mec.ca

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