How Important is Oil to the Canadian Economy?

Whether you like it or not, oil is a very important part of the Canadian economy. It's been said revenues generated by the oil and gas industry “pay the rent” in our country, not to mention the sector provides hundreds of thousands of direct and indirect jobs from coast-to-coast.

Yet, many Canadians seem unaware of the importance of oil to Canada. Such understanding seems to be lost amid the intense misinformation campaigns by special interest and environmental groups targeting the industry.

The latest falsehood spread by these groups includes the suggestion that the Trans Mountain Pipeline expansion (TMX) doesn’t make economic sense. They argue there is no demand for the additional oil that would be shipped on the expansion project’s second line to the west coast for export, which is false.

The demand for Canadian heavy oil is alive and well in Asia. To add, such narrative does not recognize the fact that heavy oil competes on a different market than lighter crudes.

Once you sift through the misinformation regarding Canada’s world-class energy sector, however, you find the facts. And you don’t have to look too hard to learn about how important the oil and gas industry is to the Canadian economy.

59% of Canadians believe if Canada does leaves its oil in the ground, another country will simply produce theirs

Trade Value of Canadian Oil & Gas Exports (2019)

According to World’s Top Exports, Canada’s total exports were valued at approximately $592.46 billion, or $15,790 per Canadian in 2019.

Canada exports goods to several countries around the world, with more than three quarters (76.7%) going to the United States and Mexico. The remaining locations:

11.7% went to Asia

 8.9% went to Europe

 1.3% went to Latin America (excluding Mexico)

 0.9% went to Africa

0.5% went to Oceania (mostly Australia, New Zealand)

Top 10 Canadian Export Products (2019)

In other words, Canada is an exporting nation which benefits immensely from trade with other countries.

Exports are also a huge part of our country’s overall prosperity. Last year, exports accounted for 23.5% of the nation's total gross domestic product (GDP).

Canada's most valuable export commodity are mineral fuels, accounting for 22% of total exports in 2019. The following list also shows just how crude oil and other petroleum exports stack up to those from other sectors of the economy:

1 – Mineral fuels including oil: $130.57 billion (22% of exports)

2 – Vehicles - $81.47 billion (13.8%)

3 – Machinery including computers $46.18 billion (7.8%)

4 – Gems, precious metals: $28.26 billion (4.8%)

5 – Electrical machinery, equipment: $17.91 billion (3%)

6 – Plastics, plastic articles: $16.85 billion (2.8%)

7 – Wood: $15.52 billion (2.6%)

8 – Aircraft, spacecraft: $14.99 billion (2.5%)

9 – Ores, slag, ash: $11.81 billion (2%)

10 – Pharmaceuticals: $11.14 billion (1.9%)

Notice the value of Canada’s total oil and gas export products considerably outweigh any other listed. Mineral fuel exports also outweigh the total value of numbers 4 through 10 combined.

Even the auto industry you always hear about as a Canadian, about how important it is to our country economically, had exports worth just over half of the value of oil and gas. These export figures above are comparative to those in 2018.

*conversions from USD to CAD using Bank of Canada's 2019 exchange rate of 1.3269

Oil & Gas: Overall Economic Contribution

Trade is just one element of a nation’s overall economic performance. To get a better idea of how important oil is to the Canadian economy, public and private consumption, government investment and spending and foreign balance of trade (net exports) among other factors must be considered.

These all constitute GDP, a widely used measure of an economy’s output or production. Depending on deficits among other factors, the overall contribution to the national economy may be larger (or smaller) for a given industry. Having said so, let's put the importance of oil and gas to Canada into perspective.

A good example is despite car exports this year being similar in total value to what they were in 2018 - just over half the value of mineral fuel exports - the overall contribution of the oil and gas industry to the national GDP ($117 billion) was about 6 times that of the Ontario auto industry.

In simpler words, we sell a lot more liquid fuel products than we buy, creating an immense overall net positive contribution, or trade surplus to our national economy.

canadian auto sector vs. oil and gas contribution to national gdp 2018

The bottom line is this: oil and gas is one of the single largest contributing sectors to the national economy. Furthermore, over the next decade oil and gas is projected to be one of the largest contributors to our GDP and a major source of tax revenues

> $1.4 trillion to Canada’s GDP

> $139 billion in federal tax revenues

> $86.7 billion in provincial tax revenues

Canadian Sectors by GDP Contribution (2018)

Canada benefits when any of its industries are performing well, especially the oil and gas sector.

To put into perspective just how important oil is to the Canadian economy, some brief comparisons of total GDP contribution to Canada’s economy in 2018:

> Oil and gas extractive, service and pipeline sector - $132 billion

canadian gdp contributions oil and gas vs. finance and insurance sector 2018

> Total finance and insurance sector - $129 billion

canadian gdp contributions oil and gas vs. transportation sector 2018

> Transportation sector (air, water, rail, trucking, related warehousing) - $78 billion

canadian gdp contributions oil and gas vs. residential construction sector 2018

> Residential construction sector - $51 billion

canadian gdp contributions oil and gas vs. agriculture, forestry and fishing sector 2018

> Agriculture, forestry and fishing industries - $40 billion

canadian gdp contributions oil and gas vs. telecommunications sector 2018

> Telecommunications sector - $33 billion

canadian gdp contributions oil and gas vs. auto and parts manufacturing sector 2018

> Auto and parts manufacturing sector - $16 billion

A Strong Oil and Gas Sector Benefits all of Canada

As indicated by the immense contribution to the national GDP, the oil and gas sector is extremely important to the Canadian economy.

Many respected business leaders across the country have said something along the lines of what Patricia Mohr has, a respected economist and market commodity specialist in Vancouver, BC:

“Canada is a trading nation. We owe our economic prosperity and relatively high per-capita income to trade — and crude oil dominates that trade.”

She is right. For example, in 2014/2015 Alberta (home to over 80% of oil production in Canada) had a net contribution to federal finances (taxes paid minus services and transfers received) of $27 billion. That was when the province's petroleum industry was strong and oil prices were high. In 2018, that figure dropped to around $21 billion.

Even when Alberta’s oil and gas sector was struggling to get back on its feet, it still made net transfer payments to Ottawa of well over $20 billion each year between 2015 - 2018.

As a matter of fact, between 1961 and 2017, Alberta has contributed more than $600 billion to Ottawa in net federal transfer payments, largely due to a robust and prosperous. energy sector.

Canadians Should Be Proud!

A strong oil and gas sector in Canada means billions more in transfer payments that can help pay for social programs, schools, hospitals and the jobs that go with across the country.

According to the most recent study, the world’s demand for oil is expected to peak by 2035. As the most environmentally friendly, transparent and regulated oil producer in the world, Canada should be the one to meet growing demand across the globe.

A strong oil and gas sector is extremely important to the Canadian economy. All Canadians should realize just how incredible its economic contribution is for municipal and provincial economies – whether it be through direct / indirect activity, or transfer payments – from coast-to-coast-to-coast.