Canada, the failed petrostate?

Canada hasn’t bet the economy on the energy sector. Not even close.


You hear a lot about Canada being a petrostate from energy industry opponents. You might hear them say things like, “we’ve fallen into the staples trap.” You’ll also hear much the same story, although with a different implication, from the industry’s proponents who are quick to argue that our economy depends heavily on oil and gas, and without oil and gas we’d be short schools, hospitals, and other social programs (PDF).

I’ve taken to opening most public talks I give with a question: What is the share of oil and gas extraction in Canada’s GDP? I get a wide range of answers, generally in a range from 5-40%. The high numbers, in the 30s and 40s, tend to come both from the industry’s staunchest opponents and from those occupying the corporate towers of Calgary.

So, what do the data say? The data tell you that the energy share and oil and gas share of Canada’s GDP is dropping, that the growth in the energy sector has accounted for a much smaller share of Canada’s economic growth than most people seem to imagine, and that the oil and gas share of of total corporate taxes paid in Canada is smaller than its GDP share. The data also show little to no evidence of a Harper-effect. Let’s look at each of these in turn.

First, the GDP shares. Since 1997, the energy sector share of Canada’s GDP has declined – yes, declined – from over 12% to less than 10%. Over that same time period, oil and gas extraction has also declined slightly, from just over 7% to just over 6%.  Data on unconventional oil extraction are not available over this entire timespan, but between January 2007 and August 2013, that subsector (which includes oil sands) increased from 1.3% of GDP to 2.0% in the most recent data available—rapid growth to be sure, at 7.5% per year, but on a small base.

Energy and oil share of Canada's GDP. Source: Statistics Canada (CANSIM Table 379-0031).


What about roles in economic growth? The graph below shows GDP growth rates by sector for 9+ years before Prime Minister Harper took office and the 7+ years since, as well as the cumulative average growth rates over the entire period.  In all cases, the energy sector actually lags behind overall economic growth – something which was already implied given its share becoming less important.  What is evident from this graph is the disparity in impacts from the economic crisis and beyond – manufacturing and good production in general are hard-hit, while services and energy are closer to historic levels. But, despite the soundbites, our economic recovery hasn’t been driven by the energy sector.

Sector GDP growth rates. Source: Statistics Canada (CANSIM Table 379-0031).


In terms of contribution to Canada’s economic growth, the growth in the energy sector was equivalent to 8% of Canada’s total GDP growth during the 2006-2013 period. The change in oil and gas sector GDP was approximately the same as the change in total energy sector GDP over that same period. For comparison, growth in public sector GDP was equivalent to 26% of total economic growth over the first 7+ years of Mr. Harper’s time as Prime Minister – perhaps we are more of a bureaucrastate than a petrostate?

What about taxation? The oil and gas industry has recently become a champion of social programs, schools, and hospitals. We are to believe that the expansion in oil and gas production has led to vast new tax revenue for governments through which to fund our social programs.  That also doesn’t stand up very well, in Canada or in Alberta. Canadian data on tax base and revenue are updated with a longer delay than GDP data, so we only have data up to 2011, but they still tell an interesting story.  In 2006, when Prime Minister Harper took office, oil and gas (including support activities) comprised  8% of taxable corporate income in Canada – a total which fell to 4.3% by 2011. Similarly, the oil and gas share of total taxes paid fell from 9.4% in 2006 to 4.2% in 2011. The story is similar in Alberta with respect to royalties – resource royalties as a share of government income were over 40% when Prime Minister Harper took office, and are around 30% today – still important, of course, but not increasing as you might have been led to believe.  If the oil and gas industry is worried about paying for our schools, hospitals, and social programs, they are going to have to get their profitability house in order first—Statistics Canada estimates that sector profit margins dropped from 21.5% in 2005 to 8.5% in 2011. Taxes are paid on net revenue, after all.

Lastly, we hear a lot about energy exports, which have definitely increased, although more in the pre-Harper years than since he took office.  The figure below shows energy sector imports and exports both increasing since 1997 (this data set was truncated to match the GDP data above), with significant changes in net exports as well.  In the period from 1997 through to PM Harper’s swearing-in, energy exports increased at an average rate of 10% per year—yes, 10%. Since, they’ve increased at an average rate of 5%. Net exports follow basically the same trend – an increase of 10% in the 9 years before this Prime Minister took office, and 5% per year on average since.  Net exports have increased quickly since the depth of the financial crisis, in January of 2009, at a rate of 15% per year on average, but even over that period, exports grew at a rate nearly identical to the pre-Harper years. We best be careful. Another decade or two with these kind of increases and we’ll be in Norway territory.

Energy imports, exports, and net exports, seasonally adjusted, balance of payments basis. Source: Statistics Canada Cansim Table 228-0059

If someone tries to tell you that Canada has bet the economy on the oil sands or that we are a petrostate, perhaps this will give you a few tools to question that contention.


Canada, the failed petrostate?

  1. If there is an issue, it’s the appearance of the tail wagging the dog.

    The smaller the tail, the bigger the wag.

    Cut off the tail and see what happens? The dog may lose balance for a while, or run in circles chasing the phantom.

  2. Harp’s ‘energy superpower’ fizzle

  3. But the Harper Conservatives have cut environmental regulations at the behest of CAPP, and they fire and muzzle scientists who study climate change which is being largely caused by the burning of fossil fuels.

    So economically we are not a petrostate, but in their legislation and publicity and handling of the public service the Harperites act as if we are one. Leach is only looking at part of the picture and that is not enough.

    • So, on the policy front, we should ignore removal of favourable capital cost allowance, changes in income trusts, increased restrictions on FDI into oilsands? After all, we would not want to look at only half the story, right?

      • None of which affects significantly overall investment today due to high prices.

        • I made no claims as to impacts of these changes on production, but they are among the if not the policies which have had the most material impact on the sector under PM Harper

          • Yeah, but I was the one saying the “material impact” was small.

            The corollary would be that if they were significant (as they might have been with less robust prices/investment) good chance they wouldn’t have been changed. ITs are a bit different – more of a tax loophole that wasn’t intended, and not limited to O&G.

          • Easy to speculate. Feel free.

          • No need to speculate. Just look at ongoing levels of investment, industry inflation, “skills shortage”. All pointing to no material effect.

      • The removal of environmental regulations is a huge part of the story and you should not pretend it is not important.

        The Harperite war on scientists is going to have dire effects on Canada and their motive is to push petrostate politics. They are all about surface appearances and they constantly try to cover up the reality of climate change and its implications for us.

        • So, before reading my article, would you have assumed that the share of oil and gas extraction in Canada’s GDP had increased or decreased under the “Harperites”?

          • I pretty sure Ms. Stick also lives in Calgary. This am, coincidently, there was a story on Global News about comments one of the AB Gov’t Ministers (Minister of Municipal Affairs Doug Griffiths) made on lack of diversity of AB economy. Watch here, top clip:


            True, he is not making economic arguments (as your post does), more social etc. – a point I believe she is making.

          • Yes indeed. Economic actions are not the entire story, and there are important social consequences including the failure of the pipelines to be built, the rise of Idle No More, and the abject failure of the government to deal with the climate change crisis.

            Andrew, your argument that oil & gas has not increases merely demonstrates how ineffective the Harper Conservatives are.

            Likewise, their bullying approach in trying to make out that environmentalists are terrorists has been counterproductive. I am sure that they did not intend to harm the oil industry by their behaviour, but their stupidity and arrogance has done such harm. They are fools, essentially.

          • Idle No More was the laughingstock of the nation.

    • Name one scientist who has been muzzled. ONE.

      Activist scientists are not allowed to engage in propaganda during the workday though as that would be a misuse of Canadian taxpayers’ money.

  4. AL, what do you make of this policy position of Harper/Redford concerning requisite reciprocal GHG emissions policy for the O&G sector so that AB/Canada is not disadvantaged when it comes to attracting investment to that sector?

    Apart from upgrading/refining (which we have already ceded to the US) why would Canada’s O&G sector be disadvantaged if it acted unilaterally? The low emissions conventional oil won’t be largely affected, it would mainly hit the oil sands, which competes internationally, no similar investments in the US.

    A red herring?

    • I’ll likely write on that.

  5. Harper cut all tax (Revenue) and runs canada on a Credit Card.
    He has no Management skills.
    Even 3rd world Africa has an Energy Policy, not canada.
    Harper is the worst leader in canadian History.

  6. I think you’re missing a huge part of the picture here without factoring in growth in wages and jobs with oil and gas. So looking just at corporate taxes and saying at oil and gas doesn’t pay as much for social programs vs others is misleading if you aren’t considering how many people they are employing at high wages across the country. These people pay taxes and spend in their communities. Then also consider the big infrastructure projects, real estate and other sectors, particularly in Saskatchewan, Alberta and now even BC that oil and gas is driving. That’s really what it is actually — oil and gas is driving the bus here in Canada. Without it, many of those other sectors contributing to GDP fall. For example, many a construction job or banking job in Calgary and even in many other places across Canada does not happen without oil and gas.

    • Peter Jay you are correct.

      I’m not sure Western Canada would be a good place to live without oil and gas.

      It certainly has a large effect on my income and I live in Victoria.

    • I was about to make the same point. While Mr. Leach has given us some very interesting and counterintuitive stats, my instinct would be to investigate whether the categories of what constitutes oil and gas revenue is too little. What about construction? As a separate “contribution to GDP” category does it differentiate between someone building a condo in Toronto or an oil sands site? One of the interesting things about the oil sands is the capital intensity versus punching a hole in the ground and collecting a check for the crude the way they do in Norway and Saudi. Then there is the federal tax receipt effect, with well paying oil patch jobs driving wages for even the unskilled into the top tax bracket. That may be the real boon to funding social programs, not the oilpatch’s direct corporate taxation or Alberta royalties.

    • Peter et al. – thanks for reading. You are absolutely correct that oil and gas has a significant supply chain – the question is how you attribute that, in particular in an economy not at full employment. In the mid-2000s, it’s a safe assumption that people not employed in the oil and gas supply chain would be otherwise employed in some other sector’s supply chain, so the net effect of a change in oil and gas on “indirect” employment would be small. That’s not necessarily true today, although given the data on labour in oil-and-gas-related fields, it’s still not a terrible assumption. From an employment perspective, oil and gas is really capital-intensive, so that 6ish percent of GDP is associated with about 0.4% of national employment. If you through in supply chains, the Canadian Chamber of Commerce bring the number up to about 2% of national employment. Finally, the point which you make which is important, and I will address in a future post, is the construction impact – with oil sands in particular, much of the impact right now is in terms of new capital projects, not producing projects. So, that growth impact isn’t accounted for in the number above. Though, it’s important to remember that higher production costs don’t directly translate to higher revenue – that which is spent on production costs is what would otherwise be royalties, taxes, and profits. The value of oil is not in the costs of getting it out of the ground. http://www.theglobeandmail.com/report-on-business/economy/economy-lab/oils-value-lies-in-profits-not-costs/article620680/

      • It’s not even just the supply chain that you can directly tie to oil and gas. That guy renovating his house in Cape Breton, getting his kid the high end goalie pads, and going to Whistler on his holidays? He’s able to do that b/c he makes 100K plus (many are plus 150K). There is no other sector in Canada that would have replaced that. I guess economists can say there’s no value in the costs to get it out but those people employed directly or indirectly would have a different perspective.

        • Yes, there are “induced” impacts. Most of those, insofar as oil is being produced, are not net impacts. The dollars which flow to your example in Cape Breton would otherwise flow to others through taxes, profits, and royalties and the associated expenditures of those dollars. If you start adding up the “induced” impacts claimed by every sector, our GDP would be the size of the US…which, of course, it isn’t.

          • Really? I think “induced” benefits are a massive part of this story here. I think your problem is that you find these benefits hard to measure. You’ve taken a couple measures that are easy and your headline says we’re a failed petro-state. Which is hard to square with the reality of what any Canadian west of Manitoba sees from people they know, and the people they serve in their businesses.

          • I didn’t say they weren’t there, or that they were hard to measure (Statistics Canada is pretty clear on how to measure them as well as on reasons you shouldn’t use them, because they are generally gross but not net impacts.)

          • The difference between the statistics and the “feel” on the ground for western Canadians is quite striking. I thought this was interesting — from the (suddenly and weirdly relevant to Canadian public policy) Vice magazine http://motherboard.vice.com/blog/autonomous-dump-trucks-are-coming-to-canadas-oil-sands
            If this takes off we could see a reverse of the trend: oil sands profits and thus corporate taxes go up and other good things happen, while the knock on social and consumer spending effects buoyed by the wages and tax brackets of the unskilled fall away.

    • Also, one add-on – remember that oil and gas has always had a supply chain, and so the decline in the relative size of the oil and gas sector in the Canadian economy still tells you something about the decline of the relative size of its supply chain. It misses the caveat about construction/new capital, which is a fair point.

      • Offshoring to places like China for steel (once the domain of a now non existent Dofasco and Stelco) and South Korea for modules also contributes. Critical size/mass matters in setting up alternate country supply channels (as well as exchange rates, labour costs, taxes etc.).

        • True. Will see if I can break down supply chain import share for a future post.

  7. Another way to summarize this article is with the second graph. What it shows is that prior to Harper, all sectors of the economy were growing. Since Harper, only energy has been growing, and that growth rate is the same as before Harper.
    So it shows two things. First, that Harper doesn’t care about any other sector of the economy other than energy. Second, he’s not more friendly to the energy sector than his predecessors.

    • The second graph actually shows that, under Harper, energy has been growing more slowly (1.12%) than average (1.43%). As the article states, much of the growth has been underpinned by the service sector, and in particular by the public sector (26%) as opposed to energy (~8%).

      • The second graph shows nothing about the public sector, and nothing about what’s been growing period. At best, it shows what’s been growing as an averaged percentage of GDP. That’s very different from straight growth — after all, if GDP declines 10%, an industry declining only 2% shows great growth by that metric.

        And then there’s how averages are tricky beasts at the best of times, more so when there’s a global recession and temporary government action to deal with them that can really skew your numbers. Like they say, if Bill Gates walks into a small room, everybody in it suddenly becomes a millionaire — on average.

        • “As the article states, much of the growth has been underpinned by the service sector, and in particular by the public sector (26%) as opposed to energy (~8%)”

          Those calculations are (growth in sector GDP/total change in GDP), so the relationship actually works the opposite from how you describe it. In order to counteract the sectors which decline, there, is a significant amount of GDP growth from other sectors. The oil and gas share of the total sector-level additions to GDP is smaller than the oil and gas share of the net growth in GDP.

          As you say, averages are tricky beasts.

          • I always take high level StatsCan data with a grain of salt. For example, some trends that the “Energy Sector” data might not capture:

            1) Trend to outsourcing. Use of contract employees for just about every function (engineering, geologists, project managers). I presume this shifts their costs from energy to service.

            2) Increased capital costs (plant and equipment). You touched on this, but I presume this would result in a rise in durable manufacturing (shift in product mix as well).

            3) Trend to alternate forms of transportation. Not significant now, but how would these StatsCan categories pick up say shift to train transport from pipelines, for example.

            Just a few off the top of my head I’d question.

          • StatsCan data is notorious for not attributing impacts in one sector to another sector. They don’t take their sector definitions with a grain of salt.

  8. Wow. And if only there wasn’t a teeny tiny little thing called a global recession that happened–along with the echoes of it that are still going on–your thesis might have some merit.

    I mean, that 26% growth in public service, you think that maybe, perhaps, there might be a slight off-chance that a temporary stimulus package might have had some effect on those averaged numbers?

    Or that the growth of the oil sands *during* a global recession.. even if it’s not as fast as it was growing *before* the recession.. might be indicative of something? Even if it is on a “small base” (interesting how that’s the *only* sector you give the base for.. had to find something to downplay the actual numbers there, did you?)

    Are we a petrostate? No. Not yet. However, it seems that’s the goal that Mr. Harper has set out to achieve.

    • Gee, I didn’t think about that. Thanks.

      You likely won’t be interested to know that the public sector share of GDP was 18.8% in October, 2008, the last pre-recession month, and it peaked at just over 20% in August of 2009. However, public sector growth slowed steadily through the recession and continues to slow now. It’s more an issue that the public sector growth is more resilient than that it grew quickly with stimulus. Stimulus didn’t really increase public sector at all – it was a much bigger factor for sectors like construction, which saw annualized growth rates of 8 or 9% through 09-10.

      But hey, I am sure you knew that.

      • Didn’t actually, perhaps if you’d have put it in your piece in the first place, it would have read as a more balanced article.

        Although really, it would have been just as easy to drop the “small base” comment in the first place, especially since, as you say, public sector growth is slowing steadily both through the recession and now, while O&G looks to be going the other way.

        • Exactly what message do you think I am trying to “spin” with my lack of balance?

          • From my perspective, it’s not difficult to discern a definite hostility amongst EconoWatch bloggers/tweeters towards Nikiforuk, Policy Options in blogs and tweets. Two of your first links.

            Their concerns may not necessarily be best addressed by economics stats (of questionable validity).

            They have some valid points. I don’t personally agree with them all. Your blog reads like talking points for the counter argument. Perhaps that is the lack of balance Thwin seems to perceive.


            “If someone tries to tell you that Canada has bet the economy on the oil sands or that we are a petrostate, perhaps this will give you a few tools to question that contention.”

          • Your perception is correct, Dottt, and it’s much like their hostility toward Suzuki. They focus on economic numbers and miss the big picture of what we are doing to the climate and how our Conservative federal government is especially determined to make climate change worse in order to benefit the fossil fuel industries.

            There is the whole story of the lying ads the government pays for to greenwash the tarsands and the atrocious behaviour of every Conservative Environment Minister, both destroying environmental science in Canada and working to destroy consensus on climate action in every international body Canada is a member of. This is a massive betrayal of the interests of Canadians.

  9. Typical right wing propaganda found in Macleans. Canada is SO a petrostate. Big Oil is running the country and even rewriting our environmental legislation. Get real.

  10. Andrew,

    Perhaps a big part of the perception of a ‘growing petrostate’ in the change in the average relative growth rates between the energy sector and the economy in general. According to your chart, while the energy sector growth has remained relatively stable over the study period, the economy as a whole has changed from an ~2% higher growth rate (3.5 vs. 1.4) to, I would imagine, an ~2% lower growth rate (absent the public sector, likely a little negative (as the 1.4 overall – (26/7) public growth rate = ~-.5%) or at least a nearly similar growth rate (1.4 vs. 1.1). Given the geographic concentration of energy sector growth relative to the dispersion of service, manufacturing and public sector growth, before Harper and more importantly the ‘Great Recession’, the energy sector probably seemed to be growing in lock step with the rest of the economy in the ‘petroregion’ but since then, the energy sector in the ‘petroregion’ has likely maintained a 3% rate while the rest of the economy in the ‘petroregion’ and the economy in general outside of it has slowed to 1.4, from being likely slightly higher before. This relative 1.5% or so change can feel much different than actual full economy pictures.

  11. According to economist Stephen Gordon, the “oilsands is the defining economic fact of our generation.”(2012)

    It’s too bad that Leach flattens this issue into a yes or no, and then takes a very narrow view of the criteria.

    • Can you suggest a set of criteria for a “petrostate” which does not include oil and gas as a share of the economy of at least 10%? Spell out your list of objective criteria, by all means.

      • I’m happy to suggest additional criteria to include. I think you already know some of them, since I suggested a few in the post you reviewed for me back in September. Petrostateness is a set of political and social as well as economic measures.

        Some criteria, and their related questions, that I would suggest include:

        1. degree to which discourse and policy allow for concern and critique of oil and gas extraction without threat or marginalization
        2. the importance of oil and gas to national or provincial economic wellbeing
        3. public perception of the importance of oil and gas to national and provincial economic wellbeing
        4. degree to which Federal and Provincial public policy is being negatively affected by the oil and gas industry
        5. degree to which we are supporting or obstructing the international effort to mitigate climate change
        6. degree to which legal and moral obligations to Indigenous communities are failing to be upheld (in the context of oil and gas of course)

        These seem relevant to me. Certainly some of these were relevant to Homer-Dixon who was one of the first authors to kick off this culture war.

        • 1. degree to which discourse and policy allow for concern and critique of oil and gas extraction without threat or marginalization

          Unit of measurement?

          2. the importance of oil and gas to national or provincial economic wellbeing

          How do you measure economic wellbeing?

          3. public perception of the importance of oil and gas to national and provincial economic wellbeing

          If we think we’re a petrostate we must be a petrostate?

          4. degree to which Federal and Provincial public policy is being negatively affected by the oil and gas industry

          what about areas where public policy has been influenced to the detriment of the oil and gas industry? Or do we only look at one side. Also, how would you measure it? Relative to history, or relative to a prototypical petrostate?

          5. degree to which we are supporting or obstructing the international effort to mitigate climate change

          What international effort? The international effort is a consensus model – how you would measure a particular country’s contributions to it. Lange and Loschel show that most countries have negotiated in their own self-interest while promoting “equity”

          6. degree to which legal and moral obligations to Indigenous communities are failing to be upheld (in the context of oil and gas of course)

          Why would you not look relative to the historic record in Canada for other resources? How have these practices changed? Have oil and gas projects been allowed to infinge on these rights and communities in ways not previously allowed for other development.

          Yes, if you set your criteria up to match what you think is going on, and you think we live in a petrostate, you can define a petrostate. However, you need to judge relative to something. What do you propose be the model? Norway? or Qatar? or Nigeria? or Russia? or Saudi Arabia?

          • I think any model of petrostatishness that we develop would have to save essential ideas about what constitutes a petrostate, while providing insight into other commonly held ideas about the ways and dimensions in which Norway, Nigeria, Venezuala, Russia, Canada, etc, are or are not petrostatish (to what degree, and in what dimensions). That’s an important part of developing a model. It should save certain data and explain the rest.

            I could argue the points and questions you’ve raised, but I’m more interested to know if you can generally agree with, or are opposed to, my inclusion of other criteria. Do you agree that there are other relevant issues at stake here? It seems as though you’ve rhetorically rejected my inclusion of other criteria.

            Yes, if you set your criteria up to match what you think is going on, and you think we live in a petrostate, you can define a petrostate.

            Yes, or you can use other criteria in order to reject the meaningfulness of saying we are petrostatish, or increasingly petrostatish, or petrostatish in certain respects. You’re making my point. The criteria matter.

            If Stephen Gordon is right, and the oilsands are the defining economic fact of our time, then wouldn’t that also be relevant?

  12. Hmm, I believe that this chart of net oil exports by country shows that Canada has increased it’s oil exports by 31% from 2006 to 2011. Most countries were pretty much level through the same period and some, including Norway and Venezuela, went down in the same period. The only countries that had higher growth rates were Iraq (33%) and Azerbaijan (57%).

    Is this relevant? And what does this mean in relation to tax revenue, which apparently is not growing proportionately. Norway, for example, is less of a petrostate than Russia, in part because they have a more progressive taxation, a higher standard of living, a stronger social contract and a deeper commitment to social justice and human rights.

    On these measures, I would hypothesize that we are less of a petrostate than Russia, but more so than Norway.

  13. Wow, this is interesting. According to this data, Canada is the sixth largest oil producing country in the world. Which means, per capita, we’re probably number one. Can that be right?

    I find it challenging trying to understand what all of these shifting terms mean: “oil,” “energy,” “petroleum,” “gas,” “coal,” etc. There are other challenges too. For example, some provinces burn coal in order to make electricity. If they export that electricity, how is it recorded? Economists have a tough job.

  14. Someone said to me, “oil sands have driven GDP growth in Canada for the past many years,” and I pointed her to this article. But on a province-by-province basis, Alberta drives GDP growth she said. I had no reply.

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