By Jock Finlayson, ICBA Chief Economist
Energy sits at the heart of Canada’s export economy, even though some federal policymakers and provincial governments appear to be discomfited by that fact.
In recent years, energy has supplied 20-25% of Canada’s total international exports (goods plus services combined), with crude oil, refined petroleum products, and natural gas making up the lion’s share of Canada’s energy-related shipments to other countries. Table 1 shows the shares of various industries in Canada’s export basket as of 2022:
Over time, energy has taken on added importance as Canada’s number one export sector, reflecting higher oil production volumes, rising exports, and still-robust global demand for fossil fuels (which provide over 80% of the world’s primary energy). Based on millions of barrels of oil equivalent (boe), Canadian conventional oil and gas production rose from 4.5 million boe per day in 2015 to 5.4 million/day last year, with most of the additional output exported. With the completion of pipeline expansion projects and the looming start-up of liquified natural gas (LNG) production on the west coast, oil and gas are set to play an even bigger role in Canada’s economy and export portfolio over the rest of the decade.
A 2024 modelling study by S&P Global Commodity Insights predicts a further jump in conventional oil and gas output of between 0.5 and 1.0 million boe/day by 2035, assuming the federal government doesn’t impose draconian caps on activity in the sector as part of its climate policy agenda. Based on that scenario, S&P estimates that production, capital and operating spending in the conventional oil and gas industry will add up to $1.3 trillion to Canada’s gross domestic product by 2035. This forecast is premised on a modest (8%) increase in output and steady declines in the sector’s greenhouse gas emissions-intensity due to efficiency measures, advances in technology, greater use of carbon capture, and other factors.
To illustrate the outsized contribution that energy currently makes to Canada’s overall prosperity, the Coalition for A Better Future recently estimated that without exports of oil, natural gas and other energy goods, Canada’s cumulative trade deficit with the rest of the world – which stood at $130 billion in the decade ending in 2023 – would have ballooned to $1 trillion. Thanks to energy-related production, Canada garners $200-230 billion of additional export receipts each year. This substantial stream of export earnings furnishes the means to pay for imports, supports hundreds of thousands of high-paying jobs across the country, and generates many tens of billions of dollars of extra revenues for Canadian governments.
In Canada’s case, it is worth noting that energy reliably produces the largest trade surplus of any sector, by a wide margin – with the surplus poised to increase over the rest of this decade and possibly beyond as oil and gas output and exports expand. Table 2, taken from the Coalition for A Better Future’s 2024 Scorecard Report, shows the trade surpluses/deficits recorded in broadly defined Canadian industry sectors over the latest 12-month period. Energy posts by far the biggest trade surpluses:
Table 2: Canadian Trade Surpluses/Deficits by Industry
12 month moving average to May 2024 (Cdn $Billions)
Trudeau government ministers and senior officials are keen to talk up (and to subsidize) Canadian non-fossil fuel energy industries, like (carbon-free) electricity, biofuels, and hydrogen (production of which currently is almost non-existent in Canada). However, except for electricity, these segments of the Canadian energy sector are very small in size and export little. And while “clean tech” goods do hold economic promise, today they comprise less than 1% of Canada’s international exports.
When it comes to energy exports, the reality for Canada is that oil, natural gas and related products dominate the picture — and will continue to do so for the foreseeable future.
