How Important is Oil to the Canadian Economy?

Whether you like it or not, oil is an extremely important part of the Canadian economy. In many ways, revenues generated by the oil and gas industry “pay the rent” in the country.

Yet many Canadians seem unaware of the importance of oil to Canada.

This knowledge seems to be lost amid the intense misinformation campaigns by special interest groups attacking the industry.

The latest falsehood from such groups includes the idea that the Trans Mountain Pipeline expansion doesn’t make economic sense.

These groups argue there is no demand for heavy oil that would be shipped on the expansion project’s second line to the west coast for export, expanding Canada's access to markets other than the United States.

This is false. The demand for Alberta oil is alive and well in Asia.

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

a majority of british columbians support trans mountain pipeline expansion 2019

Trade Value of Canadian Oil & Gas Exports

According to World’s Top Exports, in 2018 Canada’s total exports were valued at approximately US$449.8 billion.

Canada exports to several countries around the world, and more than three quarters (76.5%) went to the United States and Mexico.

> 12.4% went to Asia

> 8.5% went to Europe

> 1.4% went to Latin America (excluding Mexico)

> 0.7% went to Africa

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

In terms of Gross Domestic Product (GDP), the value of Canada’s exports in 2018 represented 24.5% of its overall GDP.

In short, Canada is an exporting nation which benefits immensely from trade with other countries, and is also a huge part of the country’s overall prosperity.

The single most valuable export commodity from Canada in 2018 was mineral fuels (includes oil), accounting for 22% of total exports. More specifically, the value of Canada’s oil and gas exports:

Top 10 Canadian Export Products (2018, USD)

1 – Crude Oil - $66.9 billion

2 – Cars - $41 billion

3 – Gold (unwrought) - $12.3 billion

4 – Processed petroleum oils - $12.2 billion

5 – Automobile parts & accessories - $11.4 billion

6 – Petroleum gases - $9.7 billion

7 – Sawn wood - $8.2 billion

8 – Medication mixes in dosage - $6.7 billion

9 – Turbo-jets - $6.6 billion

10 – Aircraft, spacecraft - $6.5 billion

Notice the value of Canada’s total oil and gas export products considerably outweigh any other on the list.

Even the auto industry you always hear about as a Canadian, about how important it is to our country economically, is less than half of the total value of oil and gas export products.

Oil & Gas: Overall GDP 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.

For example, while in 2018 the total export value of crude oil from Canada was over 1.5 times that of cars (as seen above), the overall contribution of the oil and gas industry to the national GDP ($117 billion) was more than 6 times that of the Ontario auto industry.

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

The bottom line: oil and gas is one of the single largest contributing sectors to the national economy. Furthermore, over the next decade oil and gas is expected to continue to be one of the largest contributors 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

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

*Note: 2018 GDP contribution of oil and gas above includes additional related sectors vs. PLANT figure of $117 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.

Canada 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.

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