Canada's Free Trade Deal: Employment and Oil Productivity

The Canadian economy is the eighth largest in the world according to the IMF. As of 2008, its nominal GDP was $1.274 trillion, with growth of 2.7%. It is part of the G8 and other 'rich clubs' such as the OECD. Although 2008 showed a contraction, Canada appears set for growth momentum in 2009 -2011.

Unlike most developed economies, Canada has moved from agriculture straight to services, which now account for nearly 67.9% of GDP. This industry is very diverse and includes the retail sector, financial services, real estate, education, health, high-tech, entertainment and tourism. All these sectors are developing at a rapid rate with retail and health leading growth. The service industry employs 75% of the 17.9 million working Canadians.

Canada enjoys a substantial trade surplus with the US, which absorbs nearly 80% of Canadian exports each year. Canada is the US's largest foreign supplier of energy, including oil, gas, uranium, and electric power. Canada's sound fiscal management has been another major factor contributing to the country's economic superiority. Prudent management has given Canada a balanced budget throughout the entire last decade.

The Canadian Government has moved confidently with unprecedented efforts to accelerate the job-creating investments contained in Canada's Economic Action Plan that is paying dividends, with 80% of this fiscal year's (2009-2010) Economic Action Plan initiatives already being successfully implemented.

Building on its commitment to job creation, Canada announced it has signed a free trade agreement with Jordan, its first with an Arab country. The agreement, signed Sunday in Jordan's capital, Amman, will give the Mideast country preferential trade conditions, including full exemption from customs duties for Jordanian goods.

In return, Jordan will reduce customs duties on Canadian products over a transitional period of four years. Forestry, manufacturing, agriculture and agri food are expected to benefit from immediate duty-free access.

The deal is expected to be ratified by both parliaments later this year. Bilateral trade stood at about $80 million in 2008, according to the Canadian Embassy in Amman, which announced the new agreement.

Prime Minister Stephen Harper has provided Canadians with an update today on the government’s progress in implementing Economic Action Plan initiatives to stimulate the economy, create jobs and support those who are hardest hit by the global recession.

The Canadian dollar continues to creep higher against the U.S. dollar, drawing support from steady global equities on lingering investor optimism recent efforts to jumpstart the economy may be working.

Today, at 7:48 a.m. (1148 GMT), the Canadian dollar was at C$1.1526 to the U.S. dollar, or 86.76 U.S. cents, up from Monday's finish at C$1.1567 to the U.S. dollar, or 86.45 U.S. cents.

As Oil prices CLc1, a key Canadian export that often influences the direction of the currency, was relatively flat. Oil was up slightly around $71.67 a barrel, paring gains made earlier in the session.

In just 72 days, the Canadian government has eighty percent of the largest economic recovery program in Canadian history underway. In most regions of Canada, families and businesses are paying less tax, unemployed workers are receiving enhanced benefits and training, and major job-creating projects are breaking ground. Canada continues doing everything it can to deliver timely, targeted and affordable support to the Canadian workers, families and businesses that need it most.

The Prime Minister summarized the Economic Action Plan measures already being implemented. These include:

- permanently reducing the tax burden on Canadians

- providing tax relief and improved access to financing for Canadian households and businesses

- assisting unemployed workers through extended EI benefits and improved skills training

- supporting home ownership and creating jobs through housing construction

- creating jobs through a massive injection of infrastructure spending

- supporting the industries and communities hardest hit by the global recession

- investing in the jobs of tomorrow through new supports for research and technology

The report highlights that Canada continues to be in the strongest financial position of any G-7 country, even with these historic investments. Experts such as the International Monetary Fund judge the Economic Action Plan to be a "timely, appropriately sized, diversified and well structured" response to the global recession.

Specific Economic Action Plan initiatives will continue to roll out over the two-year time frame spelled out in the plan. Canadians, like others around the world, are grappling with the impact of a major global recession.

The origins of this global crisis are not hard to trace. The collapse of the sub-prime mortgage market and inflated real estate bubble in the United States triggered a synchronized global recession from which no country is immune.

Canada is dealing with the impact of the global recession through:

The high cost and reduced availability of financing caused by the global financial market crisis. Short term declines in demand for Canadian exports caused by the slowdown in the U.S. and other key economies. Reduced profits and incomes due to the sharp drop in commodity prices.

click to enlarge

Even though this crisis started outside our borders and is hitting harder in other countries, the jobs and retirement savings of Canadians are nonetheless facing a threat. There are reasons for Canadians to be confident about our ability to weather the storm and come out stronger than ever.

The crisis did not start in Canada. In fact Canada entered the global recession later and is faring better than many other countries. Canada unemployment rates barely touched 8.4% well below the U.S. at about 10% and particularly significant given Canada’s relatively conservative financial stimulus approach. While Canada's GDP contracted, it was barely half the contraction experienced in the U.S. and Europe, and only one-quarter as bad as the contraction in Japan.

There are several reasons for this comparative strength. Today Canada is widely recognized as having the soundest banking system in the world. In contrast to our major trading partners, no Canadian bank is in need of a bailout or at risk of nationalization.

Thanks to prudent lending practices, Canadians avoided heavy involvement in the sub-prime mortgage market that is now causing hardship in many other countries. Canada has achieved roughly the same level of home ownership as the United States – without issuing mortgages to millions of people who can’t afford them.

Canada has one of the lowest debt-to-GDP ratios of any country in the G-7, which means it is in a strong position to take short-term economic action. In contrast to other public pension plans, Canada's public pension plan is solvent.

Despite Canada's relative strength and stability, the country is not immune to the impact of the global recession. This is why the Government has introduced Canada’s Economic Action Plan. The plan is successfully designed to ensure a quick recovery and long-term economic growth. It is also a plan to ensure that Canada plays a leading role in the coordinated international effort to produce an economic recovery abroad.

Summary and Conclusions

It is easy to smell the pleasant aroma of that tasty “Canadian Bacon” not to mention America, India and China’s growing addiction to the Canadian Athabasca Oil Sands production hosted in the McMurray Formation, consist of a mixture of crude bitumen (a semi-solid form of crude oil), silica sand, clay minerals, and water.

The Athabasca deposit is the largest reservoir of crude bitumen in the world and the largest of three major oil sands deposits in Alberta, along with the nearby Peace River and Cold Lake deposits. Together, these oil sand deposits lie under 141,000 square kilometres (54,000 sq mi) of sparsely populated boreal forest and muskeg (peat bogs) and contain about 1.7 trillion barrels (270×10⁹ m³) of bitumen in-place, comparable in magnitude to the world's total proven reserves of conventional petroleum.

With modern unconventional oil production technology, at least 10% of these deposits, or about 170 billion barrels (27×10⁹ m³) were considered to be economically recoverable at 2006 prices, making Canada's total oil reserves are the second largest in the world, after Saudi Arabia’s. The Athabasca deposit is the only large oil sands reservoir in the world which is suitable for large-scale surface mining, although most of it can only be produced using more recently developed in-situ technology.

The Canadian Association of Petroleum Producers revised its 2009-2020 crude oil forecasts to account for project cancellations and cutbacks during the economic crisis. The revised forecast predicted that Canadian oil sands production would continue to grow, but at a slower rate than previously predicted. There would be minimal changes to 2009-2012 production, but by 2020 production could be 300,000 barrels per day (48,000 m³/d) less than is prior predictions. Canadian oil sands production would grew from 1.2 million barrels per day (190,000 m³/d) in 2008 to 3.3 million barrels per day (520,000 m³/d) in 2020, and that total Canadian oil production would grow from 2.7 million barrels per day (430,000 m³/d) to 4.1 million barrels per day (650,000 m³/d) in 2020. Even accounting for project cancellations, this would place Canada among the four or five largest oil-producing countries in the world by 2020.

Sizable energy investments include London based BP (BP) and Calgary based Husky Energy (HSE) announced a 50/50 joint venture to produce and refine bitumen from the Athabasca oil sands. BP would contribute its Toledo, Ohio refinery to the joint venture, while Husky would contribute its Sunrise oil sands project. Sunrise was planned to start producing 60,000 barrels per day (9,500 m³/d) of bitumen in 2012 and may reach 200,000 bpd (30,000 m³/d) by 2015-2020. BP would modify its Toledo refinery to process 170,000 bpd (27,000 m³/d) of bitumen directly to refined products. The joint venture would solve problems for both companies, since Husky was short of refining capacity, and BP had no presence in the oil sands. It was a change of strategy for BP, since the company historically has downplayed the importance of oil sands.

ConocoPhillips (COP) has announced its intention to increase its oil sands production from 60,000 barrels per day (9,500 m³/d) to 1 million barrels per day (160,000 m³/d) over the next 20 years, which would make it the largest private sector oil sands producer in the world. ConocoPhillips currently holds the largest position in the Canadian oil sands with over 1 million acres (4000 km²) under lease. Other major oil sands producers planning to increase their production include Royal Dutch Shell (RDS.A) (to 770,000 bbl/d (122,000 m³/d); Syncrude Canada (COSWF.PK)) (to 550,000 bbl/d (87,000 m³/d); Suncor Energy (SU) (to 500,000 bbl/d (79,000 m³/d) and Canadian Natural Resources Ltd (CNQ) (to 500,000 bbl/d (79,000 m³/d). If all these plans come to fruition, these five companies will be producing over 3.3 million bbl/d (500,000 m³/d) of oil from oil sands by 2028.

CanaData is forecasting real GDP to improve falling 1.5% in 2009 after a +0.5% change in 2008. In 2010, modest recovery will carry the GDP figure to +2.0% and then improvement will take firmer hold in 2011, at +3.5%.

If Canada continues its plans to decrease overall economic reliance on the US, looking more towards emerging markets such as Middle East, China, India, Brazil etc. going forward consider Canadian's growing healthcare and energy sectors as solid investments!

Disclosure: The author held no significant interests in the companies listed.

Comments

[cyberclark:]

Excellent article. On the plus side the Trans Canada second pipeline Keystone is under way. That will allow shipping twice the amount of crude south as is the present. COS.UN (Canadian Version of COSWF.PK) is one of the greatest undervalued stocks on the market along with SU (Suncor). Both will skyrocket on the short term.

On the negative side, The Conservatives are building on programs set up and maintained by the Liberals over time. The Conservatives managed to burn through the Liberal sizable surplus in the first months of being in office. Now, they are positioned to sell off a broad catalogue of crown assets at fire sale prices. In there world there should be no crown assets.

Jul 01 12:51 PM

[lefty37:]

Free trade with Jordan? Canada drops ALL duties and Jordan reduces theirs over 4 years?
Am I missing something? or is something wrong here.
They are sounding more like us every day.

Jul 02 05:55 AM