The Gasoline Powered Vehicle and the Canadian Economy

The last vehicle on display in Lisbon’s National Coach Museum — a ‘must-see’ museum amongst the many wonderful museums in Lisbon — is the first automobile to appear in Portugal, a “4-seater vehicle of French origin” acquired by the fourth Count of Avilez, in 1895.  Suddenly then, in a matter of steps, the museum-visitor crosses the gap between ‘real’ horsepower, and horsepower fueled by fossil fuels.

Over a century later we see a world transformed immeasurably by this revolution, and struggling, perhaps as never before, with the supply, demand, and impact issues of this energy source.  Canada, having the third largest proven source of oil globally is engaged in all aspects of this struggle: — struggling to develop the resource, to maximize its economic benefit to the country, and to assess, understand, and manage the correlated environmental issues.

As this struggle has intensified—pipelines and trade deficits with our largest trading partner are currently the ‘hot’ issues—one thing we must appreciate is the underlying economics of the Canadian oil industry.  Recently, an article in the National Post newspaper article by Patricia Mohr, an economist and commodity market specialist in Vancouver, provided some basic facts.

Trade in crude oil is Canada’s number one export category.  In 2014, before the oil-price downturn, it generated “a $70-billion trade surplus for Canada—excluding smaller surpluses in refined petroleum products and natural gas—far outstripping any other export category.”  In 2016, at the bottom of the oil-price correction it still generated a $33-billion dollar surplus.  In 2017 “net oil exports increased…to $46 billion.”  In 2018, with the recovery of West Texas Intermediate oil prices to the $70 mark, the expectation is that it will generate a $50 billion surplus.

Other categories of Canada’s merchandise trade, however, are to the negative and have been since the overall shift in our merchandise-trade balance from surplus to deficit in 2015.  In 2017, consumer goods generated a deficit of $53.6 billion, consumer and industrial electronic goods a deficit of $38.5 billion, industrial equipment of $19.5 billion, and autos and auto parts of $18.8 billion.  Gains in oil, agri-food, forest products, and natural gas exports last year helped reduce our overall deficit to $23.3 billion.

Ms. Mohr’s article also summarizes the significance of the oil industry in generating tax and royalty revenues payable to governments across Canada.  In 2016, the latest data available, consistent with the long-time sharing of its resource wealth with the rest of Canada, Alberta paid Ottawa $22 billion more than it received—over $5,100 per capita— contributing to funding of equalization payments to Quebec, the Maritime provinces and Manitoba.  Alberta’s net federal payments are five times bigger per capita than any other province.

Pipeline capacity and location is a significant factor in oil export capability.  Simply put, the contribution of the oil industry to our overall balance of trade and to government services could have been even higher if more pipeline capacity had been available.  Lack of capacity also depresses the price of our resource.  The federal government has now taken steps to nationalize the expansion of the Trans Mountain pipeline indicating its understanding of this important issue.