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Energy industry in Canada: impact on provincial economies
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by Annette Laurent
Introduction
Production in the Canadian energy sector1 accounted for over $53 billion to total GDP in 20022, an important contribution. In addition, it also has made significant contributions to the Canadian economy in terms of exploration activity and capital investment. This is especially true in a regional context, where recent changes and discoveries in oil and gas have changed and impacted some provincial economies in a significant way over the last decade. Growth and change over the past years will be profiled and recent events in the sector will be discussed. The impact on provincial corporate profits will also be examined.3
Energy sector in a Canadian context
Chart 1 shows the breakdown of the GDP of the energy sector in constant dollars in Canada for 1992, 1997 and 2002. The sector is typically considered to be composed of six sub-industries: oil and gas extraction, coal mining, electric power generation, transmission and distribution, petroleum and coal products manufacturing and pipeline transportation. As can be seen, for Canada, oil and gas extraction as well as electric power generation dominate energy, while the proportions of the other industries are much smaller. Also, the growth of the oil and gas industry has remained steady between 1997 and 2002, while electric power experienced a slight decline.
Chart 1: Breakdown of the energy sector in Canada, 1992 to 2002
Breakdown by province
The regional weight of the energy sector in GDP differs greatly by province or territory. The energy sector is a much more dominant part of the economy in Newfoundland and Labrador, Saskatchewan, Alberta and the Northwest Territories than in the other provinces (Chart 2). The proportion of GDP derived from energy has risen dramatically for Newfoundland, from 5% in 1993 to over 20% of total GDP in 2002. Alberta and the Northwest Territories’ proportion of energy GDP have declined over that same period. Energy GDP remained relatively steady over this time period in all the other provinces and territories4.
Chart 2: Energy GDP / total province GDP: 1993 and 2002 for all provinces
More detailed examination of the period from 1984 to 2002 shows that some provinces exhibit more volatility than others. Chart 3 shows the energy share of GDP for select provinces and territories. Newfoundland and Labrador, Alberta and the Northwest Territories show the most volatility and change over this period. Although it is not completely evident, some important compositional changes are taking place in Nova Scotia’s economy as well.
Newfoundland experienced explosive growth in its energy sector, primarily due to new developments in offshore oil. Its share of energy GDP rose from just 5% to 21.5% of its total GDP. Conversely, Alberta and the Northwest Territories both experienced a decline in their share of energy. Although Nova Scotia did not experience a significant change in the overall growth of their energy sector, the composition changed significantly. Oil and gas extraction experienced significant growth over the past few years, while coal mining has undergone a significant decline.
Chart 3: Energy GDP / total province GDP: 1984 to 2002 for selected provinces
Corporate profits5
The energy sector influences overall provincial corporate profits. The following graph shows the ratio of corporate profits in nominal GDP for all industries for the period 1981-2002 for selected provinces (that show profits generally higher than the national average). As can be seen, Saskatchewan, Alberta and the Northwest Territories have tended to have higher corporate profits than the national average. Similarly, Newfoundland and Labrador’s corporate profits surpassed the national average in 1999, the second full year of Hibernia oil production. Energy prices have fluctuated during this time as well, from the highs of the early 1980s to a low in 1998, rising sharply in 1999 and 2000, falling slightly in 2001, and rising again since. Finally, the corporate profits of the Northwest Territories are influenced in a significant way by the recent developments in the diamond mining industry, and not just the oil industry.
Chart 4: Corporate profits / nominal GDP: 1981-2002 (all industries)
Newfoundland and Labrador has undergone tremendous change in its provincial economy in recent years. This has been primarily due to discoveries and developments in its oil industry, which have provided an enormous boost to its economy. Discoveries of offshore oil led to the construction of the Hibernia oil platform in 1997 and the beginning of oil production. 1998 was the first full year of output, with production soaring between 1999 and 2001 as Hibernia reached its full operation. Subsequent development of the Terra Nova oil field (2002) and White Rose (coming on stream in late 2005 or early 2006) continue to fuel the growth of Newfoundland and Labrador’s oil industry. The future looks promising, with recent efforts to revive the Hebron-Ben Nevis oil project.
The composition of Nova Scotia’s energy sector has changed over the most recent years, with gas extractions outpacing and replacing the contributions to the economy formerly made by coal mining. During the period 1997 to 1999, the Sable Island natural gas project was in construction, followed by production of natural gas, with increasing output and contribution to exports.
The last couple of years have seen lower natural gas prices and production levelling off after the two years of rapid growth. This particularly affected Alberta and Saskatchewan as well as Nova Scotia. However, the future looks bright, with the promise of new discoveries and planned developments.
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