THE GENERAL EQUILIBRIUM COSTS AND IMPACTS OF OIL PRICE SHOCKS IN NEWFOUNDLAND AND LABRADOR
Robert Millard, Patrick Withey, Van Lantz, and Thomas Ochuodo, June 2016
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We analyze the economic costs and impacts of a negative oil price shock in the magnitude of the 2014-2015 shock on the provincial economy of Newfoundland and Labrador, which is a region that is reliant on the oil and gas sector. We use a Dynamic Computable General Equilibrium (CGE) model to estimate a drop in oil prices ...by inputting the estimated effect as a direct impact to royalties, which are the land input in the oil and gas sector of the economy. A dynamic CGE model captures impacts across the entire economy (21 sectors) over a horizon of 30 years. We provide sensitivity to account for the magnitude of the shock, as well as the timing of recovery. The range of scenarios allows us to see how a drop in price of oil impacts economic indicators such as household consumption, income, factor input expenditures, and GDP. Our results suggest that a shock in the price of oil will have its most significant impact on GDP in the initial years. Over the first five years, the reduction in GDP due to this shock would be roughly 2.1% of GDP in our most realistic shock scenario, but could be much higher depending on the scenario considered. A sharp drop in GDP over the first five years will be mitigated in the long run as the growth in oil prices rises, however the will be some long run impacts due to the oil price shock.
IMPACT OF THE ENERGY EAST PIPELINE ON THE OIL AND GAS INDUSTRY IN NEWFOUNDLAND AND LABRADOR - DEMONSTRATION OF A NEW SOFT - LINKING MODEL FRAMEWORK
Kathleen Vaillancourt, Yuri Alcocer, and Oliver Bahn, November 2015
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It is expected that, by 2030, Canada will produce a total of 6.4 million bbl/d, with over 90% of this increase coming from bitumen (CAPP, 2014b). However, to achieve the forecasted production levels, producers of Western Canadian oil must find a market that will yield a reasonable price for their product. Eastern Canada and USA regions are one of these potential markets. The objective of this study is ...to develop a soft-linking model framework and demonstrate its potential application with preliminary analysis on the domestic oil supply-demand dynamic in Canada under three economic growth scenarios and the impacts of the TransCanada Energy East pipeline on the oil supply-demand dynamic in Eastern provinces, Newfoundland and Labrador especially. The soft-linking framework combines three complementary modeling techniques: 1) the macroeconomic model NALEM (Newfoundland and Labrador Econometric Model), 2) a forecasting model of the oil production profile and, 3) the optimization LP energy model NATEM (North American TIMES Energy Model).
The results of the optimization Model suggest that the pipeline would be used at its maximum capacity (1100 k bbl/d) starting around 2030 for both international exports and domestic uses in Eastern refineries, representing up to 98% of the crude used in Newfoundland and Labrador. While the oil prices are reaching 128$/bbl by 2050 in this case, blocking the access to WCSB oil in Newfoundland and Labrador brings the offshore oil price up by 10$/bbl in 2035 and 4$/bbl in 2050. The results of the forecasting model show higher production levels between 5% and 14% on average for the 2013-2050 period using these oil prices compared with those of the National Energy Board. The results illustrate well the potential of the model framework to analyse such supply-demand dynamics; this is a first step toward a broader and deeper analysis.