Explanation of why the creation of the Gateway pipeline from Alberta to Kitimat BC will raise the price of crude oil for Canadian refineries.
Segment III titled, “Northern Gateway Hearings. The Alberta Federation of Labour says the Enbridge pipeline project will actually eliminate Canadian jobs”
http://www.cbc.ca/asithappens/episode/2012/09/04/the-tuesday-edition-45
It is true that the creation of the northern gateway pipeline will rise the crude oil price for the Canadian refineries. Despite the fact that Enridge alleged that there are thousands of new jobs created from the pipeline project, this economic benefit is deemed as insufficient to outweigh the enormous job losses from the refinery sector (as mentioned by Gil McGowen, president of Alberta Federation of Labour Union).
According to an economist from the CBC radio, the reason behind such detrimental impact to the refinery industry is because even though Canada is being paid with the so-called Asian premium when they agree to take China’s offer. Consequently, the oil supply in Canada becomes more scarce due to large amounts of exports. This, in turn, rises the market price for oil which adversely affects the Canadian consumers, refinery industry, and oil upgraders plants, as oil in home country becomes more expensive. In effect, some oil refining firms choose to exit the market due to negative profits, which results in many job losses within Canada. The amount of job losses exceeds that of the new jobs generated by Enridge, and thus an approximation of $750m hit in the Canadian GDP.
Good job! Has the Northern Gateway pipelines been built? Because they are still discussing about the advantages and disadvantages…
Hi, Vicki,
I think you did an excellent job in the explanation the job losses and higher production cost.
I got some information from your blog said “some firms would leave the market”, thus there would be some cases about monopoly?
Thanks, Cathy. With respect to the oil refinery firms in the market, it is still a perfectly competitive industry. This is because regardless of the crude oil source, the price is determined by the supply/demand and pricing dynamics in the international oil market. In effect, Canadian refiners are “price-takers.” They have minimal influence for the price they paid for crude oil. Even though many firms would choose to exit due to the Pipeline Project, the market is still considerably competitive to some extent. Hope this is helpful for you!