This piece, by ICBA Chief Economist Jock Finlayson, was first published by the Fraser Institute on July 12, 2024.
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 percent 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 our energy-related shipments to other countries. Canada’s energy export basket also includes coal, uranium, and electricity.
In the last two decades, energy has become Canada’s leading export sector, mainly owing to higher oil production volumes, rising hydrocarbon exports, and still-robust global demand for fossil fuels (which provide 80 percent of the world’s primary energy). Measured in 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 destined for the United States. With the completion of pipeline expansion projects and the looming start-up of liquefied 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 in the coming years.
A May 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 production in the sector as part of its shambolic climate policy agenda. Based on that scenario, S&P estimates that production, capital and operating spending in Canada’s 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 percent) increase in output and further 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 contribution that energy makes to Canada’s 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 production, Canada garners up to $200 billion of additional export receipts each year—and the figure is set to rise significantly in the next decade. This outsized stream of export earnings furnishes the means to pay for imports, supports hundreds of thousands of high-paying jobs, and generates tens of billions of dollars of extra revenues for Canadian governments.
In Canada’s case, it is also worth noting that energy reliably produces the largest trade surplus of any sector, by a wide margin. And, as noted above, that surplus will increase in size over the rest of this decade and possibly beyond, mainly due to oil and gas output and exports climbing from current levels.
Averaged over the period 2022-23, Canada’s two-way trade in energy goods yielded a net annual surplus of almost $150 billion. This dwarfs the surpluses posted in other natural resource-based sectors such as metal ores, non-metallic minerals, agri-food, and forest products. Large trade surpluses in energy—and, to a lesser extent, in other natural resource industries—offset chronic Canadian trade deficits in consumer goods, machinery and equipment, electronic products, and other high-tech goods. Canada also runs a trade deficit of $35-40 billion in motor vehicles and parts.
Trudeau government ministers are fond of talking up (and subsidizing) Canadian non-fossil fuel energy industries, like (carbon-free) electricity, biofuels, hydrogen (production of which currently is almost non-existent in Canada) and the “clean tech” sector. However, except for electricity, these segments of the Canadian energy sector are very small in size and export little. And while the “clean tech” industry does hold considerable promise over the medium term, today it accounts for less than one percent of Canada’s international exports.
When it comes to energy exports, the reality for Canada is that oil, natural gas, and other fossil fuel products dominate the picture—and will continue to do so for the foreseeable future.
