Benefits from Canada’s Energy Boom Remain in Energy Sector and Largely in Alberta, Reports IMF

The message the federal government has been pushing through its ‘responsible resource development’ ad blitz in recent years is one of all Canadians benefiting from developing our energy sources (particularly the oilsands). This is why export pipelines must be built through our communities and LNG plants for natural gas constructed on our coasts. Canadian oil and gas must reach international markets for the economy to thrive, argues Prime Minister Stephen Harper’s government.

The International Monetary Fund (IMF), the infamous global finances referee, took a closer look at Canada’s energy sector – oil and gas primarily – earlier this year and finds the benefits from Canada’s energy boom still remain largely within the energy sector.

“There appears to be an important scope to increase inter-industry linkages across Canada that would lead to wider sharing of benefits from the energy sector,” concludes the IMF report released last January.

The IMF finds every dollar invested in the energy sector in Alberta grows Canadian GDP – an economic vitality indicator – by 90 cents. Of this growth, 82 cents remains in Alberta, mostly in the energy sector (67 cents). The leftover GDP growth is split between Ontario (four cents), the rest of Canada (three cents) and the U.S. (two cents).

“The (IMF) report also shows that the positive impacts of additional exports outside of the energy sector and the producing provinces are surprisingly modest,” says Andrew Jackson, senior policy advisor at the Broadbent Institute in a recent article.

Energy Sector Created Only 1.7 per cent of New Jobs in Canada from 2007 – 2012

Make no mistake the IMF report favours increasing Canadian oil and gas production and building more pipeline capacity. As one would expect the IMF sees impacts of the energy sector on Canada’s economy as positive. The report does not assess the environmental or the social consequences – particularly on Canada’s relationship with First Nations – of the energy sector, which have their own social and economic impacts.

IMF's breakdown of $1 investment in the energy sector scenario.

But the IMF almost appears disappointed by the energy sector’s contributions to economic growth and job creation in Canada:

“The energy sector accounts for only 0.1 percentage points of the average (2¼ percent) annual GDP growth over the last decade. Also, employment in the energy sector increased by less than 13,000 over 2007–12, against a total 752,000 jobs created over the same period in Canada,” states the report.

Health care and social assistance created 22,000 jobs in December 2013 alone according to Statistics Canada.

Photo from federal government's responsible resource development campaign.

While the IMF does not dare to say Canada is suffering from “Dutch disease,” it does conclude the energy boom has taken its toll on the Canadian manufacturing industry.

“Higher energy prices contributed to the real appreciation of the Canadian dollar since early 2000s, which has intensified Canada’s competitiveness challenges in non-energy sectors, particularly in manufacturing,” reads the IMF report.

Rapid Growth vs Slow Growth in Energy Sector – Modest Difference

The IMF gazes into the economic crystal ball to try to predict the future impacts of rapid versus slow development of the energy sector on the economy. If no additional infrastructure to export Canadian energy were to be built – the slow scenario  Canadian GDP would only decrease 0.5 per cent by 2020.

At the other extreme, if all proposed energy export infrastructure is approved and the energy sector develops rapidly (i.e. a 20 per cent increase in oil and gas production in the report) GDP would increase be 2 per cent by 2020. However, the IMF concludes there would be a certain downside to this growth:   

“the current account would be slightly negative, reflecting larger deterioration in the non-energy balance driven by higher imports demand from households and firms.”

Jackson says the “gap between the two scenarios is more modest than might have been thought” given the daily dose of rhetoric Canadians hear insisting the “approval of new pipelines to export oil and gas are central to Canada's economic future.”

IMF Recommendation: Strengthen Domestic Supply Chain

Strengthening Canada’s “domestic-supply chain” will increase the “spillover” benefits from the energy boom into non-energy sector industries according to the report. Building more domestic pipelines to connect western Canadian oil to eastern Canadian refineries is one of the recommendations:

“Canada’s internal market remains segmented, as refineries in eastern Canada are not connected with pipelines to western Canada…. and import much of their crude oil at the higher global (Brent) price,” argues the report.

“This has not only a direct negative impact on Canada’s energy trade balance, but potentially also an indirect one as it limits the competitive boost that Canadian manufacturing firms could derive from accessing a cheaper, domestic source of energy,” concludes the report.

All new pipeline proposals in Canada including TransCanada’s “nation builder” Energy East pipeline involve exporting Canadian oil to international markets. Enbridge’s recently approved Line 9 pipeline from Sarnia to Montreal may be the only exception, but Line 9 could easily be transformed into an export pipeline as well.

The IMF reports supports similar findings by the Canadian Energy Research Institute in 2011 that finds 94% of the economic benefits of expanding the oilsands remain in Alberta.

Image Credit: Government of Canada, IMF

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