Natural gas and oil: Canada’s #1 export — and why it matters

Energy production and export are the backbone of Canada’s economy and fundamental to post-pandemic recovery.

As Canada looks forward to the post-pandemic period there are diverse and often competing views for the path to recovery, making this an opportune time to understand some fundamentals about our nation’s economy: specifically, the enormous role the natural resources sector has always played in driving Canada’s prosperity, especially through exports.

Natural gas and oil are valuable commodities that belong to all Canadians via provincial governments. These energy sources are sought-after worldwide, especially in growing markets like China, India and Southeast Asia — countries that will pay for Canada’s responsibly produced commodities.

Why are exports so important?

Exporting natural gas and oil is the bedrock of Canada’s economy. Here’s why.

Think of a country’s economy as a bathtub half-full of water. If the country is entirely self-sufficient, producing all the goods and services required, there is no need to import or export. The water swirls around but the level doesn’t change: the economy (the water level) neither grows nor depletes.

But most countries do not produce everything they need, so must import goods and services from elsewhere. Imports cost money, which is a drain (pun intended) on the economy. In the bathtub analogy, the water level decreases and the economy shrinks. To offset the loss of money caused by paying for imports, the country must have a source of income. For most, that means producing goods and services other countries want. Exports turn on the tap of wealth and income, restoring and even increasing the water level and facilitating economic growth.

Imported goods and services that cannot be produced within Canada contribute to our standard of living, while exports generate revenue and provide the ability to pay for imports. In short: exports pay the bills. Exporting oil and natural gas means money flows into Canada, creating jobs, government revenue and enabling industries associated with the energy sector’s supply chain to grow — thereby creating even more jobs and government revenue.

If Canada stopped exporting natural gas and oil products, the country would fall into a trade deficit, meaning imports would exceed exports. That would drain the tub by sending more money to other countries than flows back into Canada.

Oil and natural gas are part of a ‘green’ recovery

Some voices are calling for a ‘green’ or ‘just’ recovery based on renewable energy sources such as wind and solar, while drastically reducing reliance on natural gas and oil. While the energy industry acknowledges the increasing role of renewable sources and their positive contribution to reducing greenhouse gas (GHG) emissions, the economic reality is that natural gas and oil are essential, not only to post-pandemic recovery but also to quality of life in Canada and around the world.

Moreover, with strong environmental standards and a focus on continual improvement through innovation, Canadian natural gas and oil are sustainably produced – already part of a ‘green’ recovery. Producers are lowering emissions intensity, and Canadian energy can help displace higher-carbon energy sources around the world, including coal plants in places like Germany and Asia.

Renewables are a good and growing part of Canada’s energy mix, but these energy sources serve domestic energy markets, not export markets. Renewables can’t create jobs, growth or exports on the same scale as natural gas and oil. Turning away from resource development and export would derail Canada’s economic recovery and decrease our ability to finance services from healthcare to education, infrastructure to social programs.

Furthermore, scaling up of renewables can’t happen as quickly as some believe, and won’t address every energy need. While renewables have a key role to play in electrical power generation, natural gas and oil will remain essential for the foreseeable future for applications like air travel, petrochemicals and backup power generation. Larry Fink, chairman and CEO of BlackRock (a large international investment firm) says, “Under any scenario, the energy shift will take decades. Despite recent rapid advances, the technology does not yet exist to cost-effectively replace many of today’s essential uses of hydrocarbons. We need to be mindful of the economic, scientific, social and political realities of the energy transition.”

Sustainably produced Canadian natural gas and oil meet both domestic energy demand and serve international markets, thereby generating income and expanding the economy through exports.

No other sector has the same large-scale, nationwide ability to stimulate Canada’s economic recovery and sustain our financial future.