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What higher crude exports mean for Canada’s economy

January 26, 2022   by Ven Venkatachalam and Lennie Kaplan, Canadian Energy Centre

Fluctuations in the value of Canadian energy exports affect many macroeconomic variables in the Canadian economy, including jobs, GDP, and labour income.

An increase in the production and export of oil and gas products boosts Canada’s economic performance and federal and provincial government revenues. Studies have shown that exports have a positive impact on economic growth.

A significant portion of Canada’s merchandise export trade each year comes from the export of energy products and, in particular, oil and natural gas products. Oil and gas exports as a proportion of all energy exports have grown over the past three decades. Oil and gas exports accounted for 60 per cent of all energy exports in 1988, rising to 79 per cent in 2000, and reaching 82 per cent in 2019. In 2020, for example, Canada exported $63.8 billion worth of crude oil and $8.9 billion in natural gas.

This CEC Fact Sheet explores the impact of a crude oil and natural gas export surge on the Canadian economy. Using Statistics Canada’s National Input/Output model (I/O model), we simulate an increase of $100 million in crude oil and natural gas exports, showing the direct and indirect impacts on employment, GDP, output, and labour income. Strong growth in oil and gas exports since the COVID-19-induced recession demonstrates the benefits of crude oil and natural gas exports to the Canadian economy.

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Export value of Canadian crude oil and natural gas products: Over $1.9 trillion between 1988 and 2019

The cumulative real value of Canada’s crude oil and natural gas product exports was over $1.94 trillion between 1988 and 2019 (see Figure 1).

  • Since 1988, the value of Canada’s crude oil and natural gas product exports has been as low as $14 billion (in 1988) and as high as $123.8 billion (in 2014).
  • After 2014, crude oil and natural gas exports ranged from a low of $64.9 billion in 2016 to a high of $102.1 billion in 2019.
  • Between 1988 and 2019, the real value of Canadian crude oil and natural gas exports increased by nearly 630 per cent.
Source: Statistics Canada, Table 12-10-0121-01.

Export value of Canadian crude oil and natural gas during the COVID-19 era

In 2020 and into early 2021, COVID-19 had a devastating impact on Canadian crude oil and natural gas exports. Over the past few months as the global economy has begun to recover from COVID-19, however, the demand for oil and gas has increased. Alberta saw record crude oil production in the first half of 2021, averaging 3.53 million barrels per day. International crude oil exports from Canada have also increased; between July and September 2021, Canada exported $31.9 billion of oil and gas (see Figure 2).

Source: Statistics Canada, Table 12-10-0121-01.

Simulating the impact of a $100 million increase in crude oil and natural gas exports on the Canadian economy in 2022

The impact of the crude oil and natural gas sector on employment, GDP, output, and labour income in Canada is very relevant to current discussions about the role of crude oil and natural gas in Canada’s future.

The estimates presented in this paper are derived from a custom simulation of the Statistics Canada National Input/Output model (I/O National model). The study estimates how the Canadian economy will benefit from a $100 million surge in oil and gas exports.

Table 1 reports on the changes to the Canadian economy from a $100 million surge in crude oil and natural gas exports. The analysis includes the direct impacts of Canadian crude oil and natural gas exports on jobs, nominal GDP, output, and labour income and the indirect effects of such export activities on other sectors in Canada.

Results

  • Each $100 million increase in crude oil and natural gas exports is estimated to support 289 direct and indirect Canadian jobs in 2022;
  • Each $100 million increase in crude oil and natural gas exports is estimated to add $86 million to nominal GDP in 2022;
  • Each $100 million increase in crude oil and natural gas exports is estimated to generate nearly $153 million in outputs in 2022, consisting primarily of the value of goods and services produced; and
  • Each $100 million increase in crude oil and natural gas exports is estimated to add $40 million to labour income in 2022.
Source: Derived from Statistics Canada (2021), Supply and Use Tables, custom tabulation. Totals may not add due to rounding.

Conclusion

As global demand for crude oil and natural gas picked up after the first wave of COVID-19, Canada’s energy exports increased significantly in 2021 compared to 2020 and will likely continue to grow in 2022.

Given the recent debate about the future role of crude oil and natural gas, it is worth noting that even a marginal increase in crude oil and natural gas exports will have a significant positive impact on Canada’s national economy.

Each $100 million increase in Canadian oil and natural gas exports is estimated to add $86 million to the country’s nominal GDP and create 289 jobs in 2022.

(CEC)


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