QEC – Blog 23 April 2013

andrewMore than I thought

The independent Canadian Energy Research Institute (CERI) recently released an economic impact study of the Utica natural gas discovery in Quebec.

In my last blog “Quebec Development penalized” I suggested that Quebec should, temporarily at least, be allowed to keep more of the benefits of resource development.  I suggested a reform of equalization along the lines of the deal that worked so well for the Newfoundland economy.

Stereotypes about Albertans are so strong that Le Devoir and many others assumed incorrectly that I was repeating an old refrain about cutting equalization.  Actually I was saying the opposite which is that we need a positive and incentive based approach.  It turns out this idea might mean even more than I thought for Quebec’s tax revenues.

According to the study by CERI the Utica natural gas discovery has bigger potential impacts on the economy and taxes than previously reported.

They considered two, twenty-five year development scenarios.  One is developing to a production level of 500 million cubic feet of natural gas per day.  This is about equal to the current average daily demand in Quebec.  The other is for 1.5 billion cubic feet per day which would likely involve Quebec exporting natural gas.

The report also estimates break even prices under three different productivity scenarios.  Under the better scenario, break even prices are only $4.14 per mcf, which is lower than the current price of natural gas in Quebec.  If confirmed, this case would mean the Utica discovery is economic today.

Under the 1.5 bcf/day scenario GDP impacts nationally are $112 billion, with over 44,000 peak jobs and $31 billion in new tax revenue.  The vast majority of that impact would be felt in Quebec.

Even under the lower scenario impacts are very significant.  $37 billion in GDP, 14,000 peak jobs and over $10 billion in new tax revenue.

The miracle is that local development of Utica natural gas is cleaner for our shared environment than the sources Quebec currently uses.

Can you imagine – a cleaner environment, bigger economy, more jobs and greater Government revenues?  Under a Newfoundland style equalization deal, Quebec would keep even more of the revenue to develop its economy.  It’s more than I thought.

 

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