As winter sets in across Europe, the real impacts of the worst energy crisis in a half century are starting to be felt by both industries and individuals.

In the United Kingdom, three-quarters of all households, or 53 million people, will be pushed into energy poverty by January, defined as having to spend 10 per cent or more of their net income on fuel.

Germany’s Office of Civil Protection and Disaster Assistance is urging households to stock up on battery-powered flashlights and candles, preparing meals on camp stoves and stocking up on “long-life foods that can be eaten cold,” as regular blackouts to reduce fuel demand has become a strong possibility.

Even Switzerland’s small population of under 9 million is being warned that they may have to leave their electric vehicles parked, and even turn off their game consoles and Christmas lights in the event of significant power shortages.

Even with our vast natural resources, Canadians haven’t been immune, with soaring energy prices impacting costs at the pumps, restaurants and grocery shelves.

Welcome to the global energy crisis of 2022. Hope you brought a sweater.

But how did we get here?

While many point to the February 2022 invasion of Ukraine by Russia, the seeds of the energy crisis had been sown years earlier, with some countries pushing a rapid phase out of fossil fuel production that hobbled investment into critical domestic oil and gas projects while ramping up energy imports from producers like Russia, despite its history of weaponizing natural resources.

The following is a timeline of today’s world energy crisis, which provides both a warning for Canada, as well as an opportunity to help our global partners by supplying the energy security they so desperately need.

2020 – 2021:

• The COVID-19 pandemic slows investment in new oil and gas development, spurred by reduced demand and crashing global oil prices.

Summer 2021:

• With global energy markets rebounding, Europe faces a wind drought, with the continent’s largest producers – Great Britain, Germany and Denmark – harnessing just 14 per cent of power capacity, compared to an average of about 20-26 per cent in previous years. With less wind power, demand for coal and natural gas rises, along with prices.

September 2021:

• Despite a growing array of nations agreeing to phase out coal, power generation from coal-fired plants reaches an all-time high, increasing by 8 per cent and accounting for more than half of the additional power demand in 2021. That growth, largely driven by Asia, results in record emissions from coal of more than 100 megatonnes over the previous peak in 2018.

November 2021:

• With elevated energy costs impacting prices at gas pumps and home heating bills, Washington withdraws 50 million barrels of oil from the U.S. Strategic Petroleum Reserve, the first of many such withdrawals in the months ahead. The SPR is maintained to ensure energy security in the event of global shortages of oil and gas.

December 2021:

• Natural gas prices reach record highs with dire warnings prices could go even higher with Russian troops massing on Ukraine’s border.

January 2022:

• UK energy company OVO, one of Britain’s largest utilities, advises customers facing steep power bills to cuddle pets, leave ovens on and eat porridge to stay warm.
• A slowdown in natural gas exports from Russia to Western Europe results in a 30 per cent increase in gas prices, prompting International Energy Agency head Fatih Birol to accuse Russia of manufacturing the energy crisis by throttling supply and heightening “geopolitical tensions.”
• Birol identifies Canada is a preferred global oil and gas supplier and should take steps to ensure it remains so in the decades to come. “We will still need oil and gas for years to come… I prefer that oil is produced by countries… like Canada who want to reduce the emissions of oil and gas,” he says.

February 2022:

• Japan agrees to redirect some of its imports of liquefied natural gas (LNG) to Europe as increasing supply disruptions from Russia worsen as tensions grow with the west.
• As energy prices continue to soar in Europe, governments begin efforts to shield households and businesses via measures like subsidies and price caps.
• Following months of flaring tensions, Russian troops invade eastern Ukraine prompting widespread condemnation and raising concerns over how Europe’s dependence on Russian oil and gas could impact international response.

March 2022:

• The first economic sanctions against Russia are announced, with Canada and the U.S. quickly ordering a ban of oil and gas imports from Russia. Due to its heavier reliance on Russian energy, the EU takes a more cautious approach, agreeing to reduce purchases of Russian gas by two-thirds by the end of 2022.
• With the cost of gasoline and energy beginning to soar, Washington considers diplomatic talks with state-owned oil and gas producers in Venezuela, Saudi Arabia and Iran to help replace Russian energy impacted by sanctions.
• Days after Russia’s invasion, the U.S. administration orders the release of another 30 million barrels of oil from its Strategic Petroleum Reserve in an effort to boost global supply. By month’s end, Washington orders ongoing releases of an average of 1 million barrels of oil per day for the next six months to act as a bridge while “domestic production ramps up.”

April 2022:

• The World Bank warns the energy crisis will spark the largest commodity shock in 50 years, which will impact everything from energy to food to consumer goods.
• Decommissioned coal plants in Europe are brought back online while China begins to ramp up coal production in response to soaring energy costs.
• In a sign of things to come, European countries look at ways to ration energy, including in Italy, which bans schools and public buildings from setting air conditioning lower than 25C.

May 2022:

• Hungry for alternatives to Russian natural gas, European countries become major players on the global LNG import market, significantly driving up costs while pricing some LNG-reliant Asian countries out of the market.
• The Bank of America warns a further drop in supply of Russian oil and gas will likely trigger a global recession and wreak havoc on energy markets.
• Amid a heat wave and with domestic supplies tapped, India’s power ministry calls for more coal imports to stave off blackouts.

June 2022:

• Steel, chemical and fertilizer manufacturers begin shutting down European factories due to the impact of soaring oil and gas prices as well as growing concerns Russia may cut off energy supplies.
• After meeting in Germany, G7 leaders agree that increasing LNG deliveries is important and that “investment in this sector is necessary in response to the current crisis.”
• Soaring LNG prices force Pakistan to scrap energy contracts despite a worsening power crisis that prompts the government to order shopping malls and factories to close early in some cities.

July 2022:

• Following a three-month economic crisis that saw Sri Lanka run out of all its fuel reserves after being unable to secure fresh supplies, President Gotabaya Rajapaksa flees the country, prompting thousands of protestors to storm the presidential palace.
• IEA head Birol warns the global energy crisis will continue to worsen in the months ahead, noting “The world has never witnessed such a major energy crisis in terms of its depth and its complexity.”
• European lawmakers vote to move ahead with a plan to label some nuclear and natural gas power as green energy, a major shift from previous EU policy.

August 2022:

• Despite western sanctions against Russian oil and gas sparked by its invasion of Ukraine, it’s expected Russia will see a 38 per cent increase on earnings from its energy exports compared to 2021, due to increasing purchases from Asian buyers and soaring energy prices.
• Skyrocketing energy prices across the U.K. are expected to take a heavier toll than the 2008 financial crisis, with more than half of all households at risk of falling into energy poverty.
• German Chancellor Olaf Scholz visits Canada hoping to secure a reliable supply of LNG, saying “As Germany is moving away from Russian energy at warp speed, Canada is our partner of choice. We hope that Canadian LNG will play a major role in this.” Despite the plea, Canadian Prime Minister Justin Trudeau expresses skepticism about the business case to supply LNG to Europe.

September 2022:

• The EU proposes a temporary windfall tax on profits for fossil fuel companies in order to raise $140 billion Euros to provide income supports or consumer rebates for member countries amid the energy crisis. The commission also suggests a requirement for countries to cut overall electricity demand by at least 10 per cent until the end of March.
• Claiming repairs are needed, Russia halts the supply of gas to Europe via its Nord Stream 1 pipeline, disrupting plans by Germany and other European nations to top up energy reserves before winter.
• Explosions in the Baltic Sea rupture both the Nord Stream 1 and Nord Stream 2 pipelines that connect Russia’s natural gas to Europe. It’s later determined the three massive leaks are the result of sabotage.

October 2022:

• Amid ongoing energy shortages, blackouts sweep across up to 80 per cent of Bangladesh after the national grid collapses, threatening to inflict severe damage to the economy of the world’s second largest exporter of clothing.
• The IEA’s 2022 World Energy Outlook predicts in the coming year some 75 million people around the world will lose access to electricity and another 100 million will have to go back to cooking with wood or dung.
• Despite the ongoing energy crisis, OPEC+ member countries, including Russia and Saudi Arabia, agree to slash oil production by 2 million barrels per day, citing “the uncertainty that surrounds the global economic and oil market outlooks.”

November 2022

• Global demand for floating LNG storage and regasification platforms skyrockets as countries look to boost their ability to boost imports of natural gas.
• The United Kingdom’s national electricity grid makes plans for planned blackouts for households between 4 p.m. to 7 p.m. on “really, really cold weekdays” over the winter months.
• Despite refusing to diplomatically recognize Venezuelan President Nicolas Maduro, the U.S. agrees to lift sanctions to allow it to resume oil imports from a nation its State Department describes as “marked by authoritarianism, intolerance for dissent, and violent and systematic repression of human rights and fundamental freedoms.”

December 2022:

• The IEA warns EU countries face a potential shortfall of nearly 30 billion cubic metres of natural gas in 2023, about 7 per cent of its total consumption, potentially paving the way for the energy crisis to worsen next year.
• JP Morgan investment bank CEO Jamie Dimon warns Europe’s energy crisis could extend for several years due primarily to chronic underinvestment in oil and gas.

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Efforts by Canada’s oil and gas industry to reduce emissions are paying off, according to the latest data submitted by the federal government to the United Nations.  

Total emissions from Canada’s oil and gas sector in 2020 were lower than they have been in over seven years, decreasing by nearly 12 per cent compared to 2019. 

At first blush, it could appear that the reduction is a result of production decreases in the early days of COVID-19 lockdowns. But a closer look at the data reveals that is not the whole story.  

Oil production did indeed go down significantly in early 2020, plummeting nearly 800,000 barrels per day between January and May, according to IHS Markit.  

But in part because oil production recovered to pre-pandemic levels within months, the overall decrease for the year was just 4.4 per cent. Meanwhile, natural gas production actually increased by 4.7 per cent, according to the Canada Energy Regulator.   

Total emissions from the oil and gas sector decreased by 11.8 per cent, to 179 million tonnes of CO2 equivalent from 203 million tonnes in 2019.  

The reduction is likely in part due to improved emissions intensity – or emissions per barrel of production – in the oil sands.  

Oil sands emissions intensity has been steadily decreasing for at least the last decade, going down 20 per cent between 2009 and 2020, IHS Markit says.  

The improvement comes from a combination of factors including improved efficiency at projects that combine oil sands mining and upgrading, and a greater share of production from less emissions-intensive operations. 

“The fact that GHG intensity continued to decline in 2020 is particularly noteworthy,” wrote Kevin Birn, IHS Markit’s head of GHG estimation, earlier this year in relation to a recent update on oil sands emissions.  

“This occurred despite the industry undergoing the single largest production contraction in its history because of the COVID 19 demand shock.” 

Because of the ongoing improvements in emissions intensity, the oil sands sector is on track to reduce total emissions – not just emissions per barrel – within the next five years, even as production continues to grow, IHS Markit projects.  

Canada’s 2022 National Inventory Report appears to confirm the successful trend.  

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Overview

Fluctuations in the value of Canadian energy exports affect many macroeconomic variables in the Canadian economy, including jobs, GDP, and labour income. An increase in the production and export of oil and gas products boosts Canada’s economic performance and federal and provincial government revenues. Studies have shown that exports have a positive impact on economic growth.

A significant portion of Canada’s merchandise export trade each year comes from the export of energy products and, in particular, oil and natural gas products.¹ Oil and gas exports as a proportion of all energy exports have grown over the past three decades. Oil and gas exports accounted for 60 per cent of all energy exports in 1988, rising to 79 per cent in 2000, and reaching 82 per cent in 2019. In 2020, for example, Canada exported $63.8 billion worth of crude oil and $8.9 billion in natural gas.

This CEC Fact Sheet explores the impact of a crude oil and natural gas export surge on the Canadian economy. Using Statistics Canada’s National Input/Output model (I/O model), we simulate an increase of $100 million in crude oil and natural gas exports, showing the direct and indirect impacts on employment, GDP, output, and labour income. Strong growth in oil and gas exports since the COVID-19-induced recession demonstrates the benefits of crude oil and natural gas exports to the Canadian economy.

1. Energy products are composed broadly of crude oil, crude bitumen, natural gas, natural gas liquids and related products, coal, nuclear fuel and other energy products, electricity (including hydro, wind, and solar), and refined petroleum energy products. Oil and natural gas products are composed specifically of crude oil, crude bitumen, natural gas, and natural gas liquids, and related products.

Export value of Canadian crude oil and natural gas products: Over $1.9 trillion between 1988 and 2019

The cumulative real value of Canada’s crude oil and natural gas product exports was over $1.94 trillion between 1988 and 2019 (see Figure 1).

• Since 1988, the value of Canada’s crude oil and natural gas product exports has been as low as $14 billion (in 1988) and as high as $123.8 billion (in 2014).
• After 2014, crude oil and natural gas exports ranged from a low of $64.9 billion in 2016 to a high of $102.1 billion in 2019.
• Between 1988 and 2019, the real value of Canadian crude oil and natural gas exports increased by nearly 630 per cent.

Source: Statistics Canada, Table 12-10-0121-01.

Export value of Canadian crude oil and natural gas during the COVID-19 era

In 2020 and into early 2021, COVID-19 had a devastating impact on Canadian crude oil and natural gas exports. Over the past few months as the global economy has begun to recover from COVID-19, however, the demand for oil and gas has increased. Alberta saw record crude oil production in the first half of 2021, averaging 3.53 million barrels per day. International crude oil exports from Canada have also increased; between July and September 2021, Canada exported $31.9 billion of oil and gas (see Figure 2).

Source: Statistics Canada, Table 12-10-0121-01.

Simulating the impact of a $100 million increase in crude oil and natural gas exports on the Canadian economy in 2022

The impact of the crude oil and natural gas sector on employment, GDP, output, and labour income in Canada is very relevant to current discussions about the role of crude oil and natural gas in Canada’s future.

The estimates presented in this paper are derived from a custom simulation of the Statistics Canada National Input/Output model (I/O National model). The study estimates how the Canadian economy will benefit from a $100 million surge in oil and gas exports.

Table 1 reports on the changes to the Canadian economy from a $100 million surge in crude oil and natural gas exports. The analysis includes the direct impacts of Canadian crude oil and natural gas exports on jobs, nominal GDP, output, and labour income and the indirect effects of such export activities on other sectors in Canada.

Results

• Each $100 million increase in crude oil and natural gas exports is estimated to support 289 direct and indirect Canadian jobs in 2022;
• Each $100 million increase in crude oil and natural gas exports is estimated to add $86 million to nominal GDP in 2022;
• Each $100 million increase in crude oil and natural gas exports is estimated to generate nearly $153 million in outputs in 2022, consisting primarily of the value of goods and services produced; and
• Each $100 million increase in crude oil and natural gas exports is estimated to add $40 million to labour income in 2022.

Source: Derived from Statistics Canada (2021), Supply and Use Tables, custom tabulation. Totals may not add due to rounding.

Conclusion

As global demand for crude oil and natural gas picked up after the first wave of COVID-19, Canada’s energy exports increased significantly in 2021 compared to 2020 and will likely continue to grow in 2022.

Given the recent debate about the future role of crude oil and natural gas, it is worth noting that even a marginal increase in crude oil and natural gas exports will have a significant positive impact on Canada’s national economy.

Each $100 million increase in Canadian oil and natural gas exports is estimated to add $86 million to the country’s nominal GDP and create 289 jobs in 2022.

Appendix: Methodology, Assumptions, and Definitions

Methodology

There are several ways to estimate the impact of increased oil and gas exports on the Canadian economy. This type of analysis can be done using the Input/Output model (I/O model) or some form of Computational General Equilibrium (CGE) model. Over the past number of years, there has been some debate about the strengths and weaknesses of I/O models in assessing the contribution of industry sectors to the Canadian economy.²

For background on Statistics Canada and its I/O model that we used to arrive at the estimates in this CEC Fact Sheet, we refer to extracts from the following papers by Statistics Canada. From Statistics Canada, Supply, Use and Input-Output Tables, 2020:

Input/output (I/O) models are generally used to simulate the economic impacts of the output of one or several industries. The I/O tables allow the analyst to explore “what if?” questions at a detailed level, exploring the impact of changes in final demand on output while taking account of the interdependencies between different industries and regions of the economy and the leakages to imports and taxes. For example, such models might be used to study the question: “If Canadian oil and gas exports doubled, what industries would be most affected and in which provinces?”

The estimates presented in this paper are derived from a custom simulation of the Statistics Canada National InputOutput model (I/O National model). The study estimates how the Canadian economy will benefit from a $100 million “surge” in oil and gas exports. The I/O National model can capture the extent to which an increase in oil and gas sector exports will benefit Canada’s economy.

Increased crude oil and natural gas exports change the final demand for oil and gas, driving demand for products and services in other sectors. The interrelationship between industries in the economy is captured in the I/O model. The I/O model uses the economic relationship between sectors to satisfy the increased crude oil and natural gas export demand by increasing demand for related non-oil and gas sectors.

The I/O model is constructed from Supply and Use Tables (SUTs). The SUTs capture and present the production of products by domestic industries, imports of products, and their use, either as inputs, final consumption, investment, or exports. The SUTs are from the 2017 calendar year.

2. For an in-depth discussion and comparison between the I/O model and the CGE model, refer to G. Kent Fellows and Jennifer Winter (2018), Getting to Know Models: A Primer and Critique on Input-Output and Computable General Equilibrium Models and Their Uses for Policy and Project Analysis.

Assumptions

A few assumptions are made in running the I/O model. We assume no supply constraints, no relative price effect, and a fixed proportion of technology in production. The model assumes a short-run time horizon, and the economy is in equilibrium during that short period.

To run the I/O model, a forecast for oil and gas prices is required. The study assumes a West Texas Intermediate (WTI) crude oil price of $69.00 per barrel, a Western Canada Select (WCS) oil price of $43.00 per barrel, and a natural gas price of $4.20 per MMBtu for 2022. The model uses estimated 2022 production and investment values based on the 2017 SUTs.

Using these inputs, Statistics Canada performed a custom simulation for the Canadian Energy Centre (CEC) to study the impact of a $100 million surge in crude oil and natural gas exports on the Canadian economy in 2022.

Definitions

We define the broad Canadian oil and gas sector as the sum of oil and gas extraction (NAICS 211) and oil and gas investment. Oil and gas extraction comprises establishments primarily engaged in operating oil and gas field properties. Such activities may include exploration for crude petroleum and natural gas; drilling, completing, and equipping wells; operating separators, emulsion breakers, desilting equipment, and field gathering lines for crude petroleum; and all other activities in the preparation of oil and gas up to the point of shipment from the producing property. This subsector includes the production of oil, the mining and extraction of oil from oil shale and oil sands, and the production of gas and hydrocarbon liquids, through gasification, liquefaction, and pyrolysis of coal at the mine site. Oil and gas investment includes capital expenditures on construction, machinery and equipment, and exploration by the oil and gas extraction industry. GDP is defined as the unduplicated value of the goods and services produced in the economy. Output consists primarily of the value of goods and services produced by an industry. Jobs include employee jobs (full-time, part-time, and seasonal) and self-employed jobs. Direct impact of oil and gas extraction is the effects directly attributed to this industry’s production. The direct impact of oil and gas investment is the deliveries by domestic industries to satisfy capital expenditures by the oil and gas extraction industry. Indirect impact covers upstream economic activities associated with supplying intermediate inputs (the current expenditures on goods and services used up in the production process) to the directly affected industries.

Notes

This CEC Fact Sheet was compiled by Ven Venkatachalam, Chief Research Analyst, and Lennie Kaplan, Executive Director, Research, at the Canadian Energy Centre (www.canadianenergycentre.ca). All percentages in this report are calculated from the original data, which can run to multiple decimal points. They are not calculated using the rounded figures that may appear in charts and in the text, which are more reader friendly. Thus, calculations made from the rounded figures (and not the more precise source data) will differ from the more statistically precise percentages we arrive at using source data. The authors and the Canadian Energy Centre would like to thank and acknowledge the assistance of Philip Cross and an anonymous reviewer in reviewing the data and research for the initial edition of this Fact Sheet. Image credits: Christian Pauschert.

References (all links live as of December 23, 2021)

ATB Economics (October 18, 2021), Oil production in Alberta higher than ever <https://bit.ly/3mRmJzF>; Athanasia S. Kalaitzi and Trevor W. Chamberlain (2020), Merchandise exports and economic growth: multivariate time series analysis for the United Arab Emirates, Journal of Applied Economics 23, 1: 163-182 <https://bit.ly/3DIosxA>; CAPP (undated), Oil Sands and Canada’s Economy <https://bit.ly/3CHXPaw>; Financial Post (August 24, 2021), Business Cycle Council declares end of COVID-19 recession, says recovery is ongoing <https://bit.ly/3kZhwEU>; G. Kent Fellows and Jennifer Winter (2018), Getting to Know Models: A Primer and Critique on Input-Output and Computable General Equilibrium Models and Their Uses for Policy and Project Analysis, University of Calgary, School of Public Policy <https://bit.ly/3mQ9jSY>; Lennie Kaplan and Mark Milke (2020), 701 Billion: The Energy Sector’s Revenues to Canadian Governments 2000–2019, Canadian Energy Centre <https://bit.ly/3cCu14F>; Lennie Kaplan and Mark Milke (2020), Over $1.9 Trillion: The Value of Canada’s Oil and Gas Exports, 1988 to 2019, Canadian Energy Centre <https://bit.ly/3nF7Ykc>; Lennie Kaplan and Mark Milke (2020), Jobs and GDP: The Oil and Gas Sector’s Contribution to Canada’s Economy in a “Slump” Year, Canadian Energy Centre <https://bit.ly/3cKisZc>; Statistics Canada (2018), National and Provincial Multipliers, Surveys and statistical programs, Documentation: 15F0046X <https://bit.ly/32L4L8q>; Statistics Canada (2019), Supply, Use and Input-Output Tables <https://bit.ly/3kWU8aY>; Statistics Canada (2020), Workshop: Statistics Canada Supply-Use Framework, The Use Table, March 9-10, 2020; Statistics Canada (2021a), Table 12-10-0121-01: International merchandise trade by commodity, monthly <https://bit.ly/3xbpXSo>; Statistics Canada (undated), Input Output Model Simulations (National Model), custom tabulation <https://bit.ly/3xfSI0f>.

Creative Commons Copyright

Research and data from the Canadian Energy Centre (CEC) is available for public usage under creative commons copyright terms with attribution to the CEC. Attribution and specific restrictions on usage including non-commercial use only and no changes to material should follow guidelines enunciated by Creative Commons here: Attribution-NonCommercial-NoDerivs CC BY-NC-ND.

The resilience of Canada’s oil sands is on display despite the sector going through the greatest oil shock in history, according to energy analysts.

Full-year financial and production results are now in for 2020, and they show that oil sands producers fared better than their biggest competitors, in the United States.

“Alberta’s oil sands survived it. In fact, they performed better and rebounded faster than their American counterparts in the tight oil areas,” said Peter Tertzakian, deputy director of the ARC Energy Research Institute, in a Mar. 9 podcast.

“Whatever you think of the oil sands region, events of the past year should dispel any notion that it’s the world’s most vulnerable, high-cost producer,” he wrote in an associated blog post.

The pandemic has shown how integral oil is to power the world, according to Joseph McMonigle, secretary general of the International Energy Forum (IEF), which represents energy ministers from 70 producing and consuming nations including Canada, the United States, China, India, Norway, and Saudi Arabia.

“In 2020 we saw oil demand fall by 10 million barrels per day, but as you will see, 2021 forecasts show a rebound in demand of about 5 to 6 million barrels per day,” McMonigle said during a February joint virtual session with OPEC and the International Energy Agency.

“Certainly the impact to demand was profound and unprecedented, the biggest demand shock in history, but it is important to note that 90 per cent of demand remained intact, demonstrating oil’s resiliency and necessity to fuel the world economy.”

More than light-duty vehicles

Jackie Forrest, executive director of the ARC Energy Research Institute, estimates that at the height of pandemic lockdowns in April 2020 approximately one-third of the world’s vehicles were off the road and up to 95 per cent of airplanes out of the sky. At that height of the immobilization, global oil demand dropped by just 20 per cent.

“It is shocking, because I think a lot of people didn’t realize that light-duty vehicles are not the only thing that consumes oil. We still continued to want to eat and move goods around, and a lot of shipping still happened,” Forrest said. “That level of lockdown didn’t reduce oil demand maybe as much as people thought.”

In addition to transportation fuel, oil is used to make countless plastic and synthetic products from clothing, computers, cell phones, car components and furniture to medical equipment, plexiglass, hand sanitizer, carpets, toys, and beauty products.

Forrest says that while the impact of the lockdown on oil demand may have been less than expected, it nevertheless had drastic impacts for oil and gas producers and their business supply chains.

Production losses

Oil sands companies were some of the first globally to shut in production as the lockdown began, Forrest says.

Overall Canadian oil production decreased by more than 850,000 barrels per day between March and May 2020, according to the Canada Energy Regulator. However, this was temporary. Companies started to bring production back online by June, steadily increasing to reach a record 4.9 million barrels per day in December.

In the United States – Canada’s biggest oil competitor and customer – companies shut in production too. According to the U.S. Energy Information Administration, U.S. oil production dropped to 9.6 million barrels per in May from 12.3 million barrels per day in March. As of December, production remained stuck near 10 million barrels per day.

Oil sands comeback

A key difference between U.S. tight oil and Canadian oil sands is the “decline rate,” or how much drilling is needed to keep production at a certain level.

Oil sands projects require large upfront spending, but because of geology, once they are up and running have lower rates of decline, resulting in relatively low spending after the initial capital cost.

With different geology, U.S. tight oil production is less costly to start up but has high rates of decline, requiring a constant churn of new drilling to keep rates steady.

The end result is that when oil sands producers shut-in production, they can dial it back up relatively easily compared to their competitors.

“People were thinking at this time last year or 11 months ago that the oil sands were going to be the ones to have the most damage done to them, but no, because they have a flatter base decline rate,” says Phil Skolnick, analyst with Eight Capital.

‘We need new oil projects’

The world “may be walking into a supply crunch in a few years’ time” due to underinvestment in oil projects, according to Tom Ellacott, a senior vice-president with energy consultants Wood Mackenzie.

Global oil demand has recovered to 94 per cent of its level pre-COVID, or 95.89 million barrels per day as of February 2021, according to the U.S. Energy Information Administration (EIA). The EIA forecasts that by the end of 2021, oil demand will have reached 98 per cent of levels pre-COVID, and it will continue to rise to exceed pre-pandemic levels by December 2022.

This would represent the largest two-year global oil demand increase on record since 1950, according to the American Petroleum Institute, which is warning that a shortage could be on the way as investment in supply lags.

“The message is simple: we need new oil projects,” Helle Kristoffersen, president of strategy and innovation with France-based Total SA, told the company’s fourth-quarter investor call. “That’s true even if you take a very cautious view on short-term demand recovery and on future demand levels.”

Total projects that the world could be short the oil it needs by 10 million barrels per day in 2025.

“That’s a massive shortfall of supply to cover in just a very few number of years,” Kristoffersen said.

More reliance on OPEC+

While free-market oil companies focus on returning cash to investors and for some transitioning spending to renewable energy sources, state-owned oil companies like those in the OPEC+ group are more than willing to take up their market share.

The CEO of Russia’s Rosneft reported to president Vladimir Putin in February that the state-controlled oil company is launching new oil projects to meet global demand as existing fields decline and other international oil companies transition to green energy.

“By developing these new fields, we will try to satisfy the deficit that may arise in the market,” he said.

TMX to make Canadian projects ‘extremely competitive’

Right now, Canada has limited access to deliver its own oil to meet the rising global demand. That will change once the Trans Mountain Pipeline Expansion is put into service, which is expected by the end of 2022. Once the new pipeline is up and running, oil sands projects will become “extremely competitive,” Skolnick says.

He says with TMX online, “you’re going to see not just resiliency but upside for Canadian oil because it is that direct gateway to Asia. That really actually is a re-rate for the competitiveness of Canadian oil sands.”

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Twenty-six-year-old Daniel Baker is excited about getting started on a career in energy. It’s an appealing field for a young person, he says, because the sector has a bright future.

“There’s a misconception that young people don’t want to get into the oil and gas industry, and it’s just not true. A majority of my friends at university or who have graduated want to get into the oil and gas industry,” says Baker, who is nearing completion of a Master of Science in Geology degree at the University of Alberta.

“I like the idea of providing energy to people that need it; it’s really exciting. You get your hands on so much information and data and then you have to try to integrate it in different ways to find a solution to an issue or a problem.”

Oil and gas jobs in Canada have risen modestly after taking a hit in 2020 due to the COVID-19 pandemic, according to labour information provider PetroLMI. As of January 2021, the industry directly employed 173,700 people, up from a low of 156,000 in June of last year.

“We’re starting to see some green shoots. The services sector is starting to actually see shortages of skills in some areas,” says PetroLMI vice-president Carol Howes. “There’s activity starting to pick up and they’re starting to do some hiring.”

Around the time Baker expects to enter the workforce – in 2022-23 – the market is forecast to improve further, Howes says.

That’s good news for the Canadian economy, which benefits from oil and gas development. Thanks to the oil and gas workforce, the sector contributed $493.3 billion to federal, provincial and municipal governments between 2000 and 2018; revenues that help pay for roads, schools and hospitals.

The sector leads the country in terms of labour productivity, the level of income or output per unit of labour input.

According to CEC research, in 2019 the labour productivity rate of Canada’s oil and gas extraction sector was $700 of real income for every hour worked, nearly 12 times higher than Canada’s overall industry labour productivity rate of $60.

Howes attributes the expected increase in oil and gas jobs in the coming years to a number of factors including improved prices, new pipeline export capacity, LNG project development, retirements, an increased focus on adding roles that support environmental, social and governance (ESG) performance, and the industry branching out to develop new energy sources like hydrogen.

The constant evolution of the oil gas sector is part of the appeal for Skye Lybbert, who is also an MSc geology candidate at the U of A. Through internships, he has seen that “oil and gas is a very dynamic environment with lots of problem solving. All these companies have been through ups and downs, but they’re always looking for ways to adapt and optimize the resources responsibly.”

Today, “we’re seeing oil and gas embracing more of the things that we find within the earth, like geothermal, hydrogen, [and] companies researching lithium extraction from brine waters” that can power batteries, he says.

Baker and Lybbert are both members of Students for Canada, a non-partisan, student-run volunteer group across Canada that advocates for responsible resource development.

Lybbert says he is also excited to work in an industry that values communities and he has seen the social benefits, such as company-supported volunteerism and efforts to educate about mental health.

“They really focus with help making sure your well-being is good. I know every company is different, but that is based off what I’ve observed from the ones that I’ve worked at. It’s like a community,” he says.

“Working with your team, you’re looking for ways to make things better. It invites you to think of new ways to go about things and think of solutions, and it’s very satisfying.”

Howes says the health and safety of workers is a priority for the industry, and oil and gas continues to be one of the higher-paying industries in Canada. In 2018, earnings for people in the sector averaged $2,727 per week, compared to the $1,001 in weekly earnings for the average of all industries in Canada, according to CEC research.

The higher salaries, the diversity of work, and significant contribution of the industry to the Canadian economy continue to help attract workers, Howes says.

“Where we believe that young people and Indigenous communities in particular will really start to see even more value of the industry going forward is the expansion into these broader energy sub-sectors like geothermal, hydrogen and carbon capture, utilization and storage.”

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Oil and gas pipelines will be at the heart of Canada’s economic recovery from the COVID-19 pandemic as well as the country’s future, says Chris Bloomer, CEO of the Canadian Energy Pipeline Association (CEPA).

This includes transporting products to satisfy ongoing global oil and gas demand as well as capitalizing on new energy opportunities like hydrogen transportation.

Canada’s competitive advantage in global energy markets is its performance on environmental, social and governance (ESG) measures, he says. In addition to greenhouse gas emissions, ESG includes criteria such as water use, worker safety, community investment, representation of women, Indigenous people and visible minorities.

Research by BMO Capital Markets ranks Canada number one in all ESG categories among the world’s top oil and gas reserve holders.

“[ESG] is something that we need to keep building on because it’s going to give us a competitive advantage and put us in a position to attract capital and investment, and that’s what we all need,” Bloomer says.

“We are one of the few jurisdictions in the world that can significantly grow our production and be a reliable stable, sustainable source of oil and gas for the future.”

Fueling the economy

CEPA’s newly released 2020 performance report describes the sector’s wide-ranging impacts on the Canadian economy. This includes the reliable supply of energy for electricity, heat and transport, feedstocks to make products like medical plastics, enabling key exports, supporting jobs and making purchases from supporting businesses along thousands of kilometres of pipeline corridor.

Pipelines in Canada resulted in 13,434 full-time equivalent jobs in 2019, CEPA reports. Companies also spent almost $2.9 billion with vendors along their routes, including $528 million from Indigenous businesses.

“[Pipelines] impact suppliers right across the country,” he says. “We have a linear system and we spend in a linear way.”

Helping to fuel activity is progress on major projects including the Trans Mountain Expansion, Coastal GasLink, Keystone XL, Enbridge Line 3 and the TC Energy NGTL system.

Improved safety performance

CEPA’s latest report shows that last year Canada’s oil and gas pipelines got closer to the goal of zero spills or releases.

CEPA’s members, which represent the majority of pipeline transportation in Canada, had zero incidents classified as “significant” on oil pipelines in 2019 and saw just one significant incident on a natural gas pipeline system. There were nine total incidents on Canadian oil and gas pipelines in 2019, which is down from 20 in 2018.

“Our goal is always to have zero incidents. If you look at the data, certainly last year and at the five-year record, we’re getting very, very close,” Bloomer says.

“We have to be vigilant and there’s always things that we’re going to learn, but we have to keep striving for that.”

An incident is considered “significant” if it includes serious injury or fatality, liquid release of greater than 50 barrels, unintentional ignition or fire, or pipeline rupture or break.

Bloomer credits the improvement in 2019 to the sector learning from previous incidents, its strong safety culture and the impact of new technologies. One example is in-line inspection, which is contributing to improved performance today and has even bigger promise for the future, he says.

In-line inspection builds on the success of tools known as PIGs (pipeline intervention gadget) — now known as “smart PIGs” — that deploy sensors to inspect pipelines from the inside.

“The key thing is that we want to make sure that we know what’s happening in terms of the pipeline’s integrity [and] that we are getting ahead of issues,” Bloomer says.

“The ability to handle, crunch, correlate and eventually use artificial intelligence to interpret that data is huge, and that’s going to keep going.”

Canada’s pipeline operators conducted in-line inspection runs on 38,937 kilometres of their systems in 2019, CEPA reports. They also invested $1.5 billion in maintenance and monitoring and $10.6 million in new technology to improve safety performance.

Tom Jackson has watched his small northern Alberta First Nation evolve into a community with a growing economy thanks to abiding relationships with the energy industry.

Jackson, who lives on the Goodfish/Whitefish Lake First Nation, is CEO of the Goodfish Lake Business Corporation, which is 100 per cent-owned by the band some 200 kilometres northeast of Edmonton.

Even amid a global pandemic, the community has seized on economic opportunities, and Jackson is deeply aware how important those partnerships forged with oil and gas companies have been to his nation’s success.

“Syncrude and Suncor have been incredible partners for our nation for over thirty years and has benefited nearly every single one of our members,” says Jackson.

The Indigenous business leader reflects on how much has changed for the community since he left in the late 1970s, and takes pride that he has been able to come back to the reserve to help carve out a prosperous future.

“When I came back to Alberta, the most noticeable change has been the growth of First Nation owned businesses – there’s everything now,” says Jackson.

“Goodfish/Whitefish has a total membership of 2400 with nearly 1800 who call the reserve home.

“This high percentage of people on reserve speaks to the amount of opportunity our members have in and around the nation.”

Over the years, Jackson said, many members have lived in and around Fort McMurray and been employed by the energy sector, says Jackson.

Jackson spent time mining uranium in Saskatchewan, coal in British Columbia, and working for the Saskatchewan Wheat Pool in his long and winding career, which made him a perfect fit to come back to lead his community’s business corporation.

Jackson said the most impactful role he had, however, was when he worked for English River First Nation in Saskatchewan as CEO of their construction company.

“Being CEO at that company taught me how to work with industry in a way that creates positive relationships for both First Nation and industry partners.”

It was that position as CEO at English River that ended a four-decade journey for Jackson, which heralded his return home to Goodfish/Whitefish to lead this company.

“I started in February and only a few weeks into my role as CEO, COVID-19 hit, and our community responded extremely well,” he says.

Goodfish Lake Business Corporation is comprised of its cattle ranch, one of Canada’s largest dry-cleaning and laundering facilities, and its garment facility – Goodfish Lake Garment Manufacturing. That facility has partnered with energy giant Syncrude and Suncor for 30 years producing overalls and coveralls for their workers.

In response to the global health crisis, the garment facility pivoted to manufacture several different models of non-medical cloth face masks, which have benefitted not only Jackson’s community, but the neighbouring Kikino Métis Settlement and other First Nations as far away as British Columbia.

“We have created over 250,000 masks with the majority of them going to our partners at Suncor and Syncrude, but also have benefited Alberta’s school children, and our neighbours at Beaver Lake First Nation and Kikino [Métis Settlement],” Jackson said.

“We didn’t have to lay anyone off due to COVID-19, rather, in order to fulfill these new retail orders, the garment factory hired new staff and paid a lot of overtime in order to meet this new demand.”

Jackson, with some pride, says the garment facility employs over 100 workers, over 90 per cent of whom are Indigenous, not only from Goodfish/Whitefish but neigbouring communities as well.

One of those workers who has played a key role in making the protective masks is a veteran of the community’s garment facility, Vivian Jackson, a member of Goodfish/Whitefish First Nation.

“We take pride in knowing that we are helping others in our community and within the energy industry,” says Vivian, who’s the garment facility’s assistant manager.

“Oil and gas has supported us and our community and I am very proud to know that my work is helping people across Canada.”

She remembers her first day in 1983, when the garment factory occupied several rooms in the old schoolhouse. The operation now occupies a 10,000 sq ft building with dozens of workers.

The energy industry, she says, has provided her with steady and continuous employment at the facility for nearly 37 years.

“Syncrude has always been a customer of ours and has helped my family pay off many things in our life,” Vivian says.

“And my daughter, who works at the band office, and son, who is a nine-year red seal millwright who works in energy, have had the chance to do whatever they want in their career.”

Ending oil pipeline development in Western countries and moving free-market producers away from fossil fuels altogether is unlikely to have the effect desired by the industry’s detractors, according to leading Canadian energy analysts Jackie Forrest and Peter Tertzakian.

Rather than reducing global greenhouse gas emissions, they say the more likely effect would be a major geopolitical shift that hurts North America and Europe.

As an example, Tertzakian, who is deputy director of the ARC Energy Research Institute, pointed to the recent announcement that London, UK-based BP intends to reduce its oil and gas production by 40 per cent by 2030.

“It’s a shame that a leading transparent Western free-market oil and gas producer that was already very focused on ESG [environment, social and governance] is going to be taken offline and their barrels are going to be replaced by barrels of opaque, state-controlled oil from wherever,” he said during an ARC Energy Ideas podcast in August.

“I can just see the Russians rubbing their hands, saying ‘this is fantastic. We’re taking offline super-major free-market production, and we’re just going to take that market share.’”

Demand To Continue

Global oil demand hasn’t really changed, despite the impacts of the COVID-19 pandemic. According to analysts with IHS Markit, demand has already bounced back to 89 per cent of pre-COVID levels and is expected to return to up to 95 per cent through the first quarter of 2021.

The International Energy Agency now forecasts that based on the world’s current trajectory, between 2018 and 2040 oil and liquids demand will increase by approximately 10 per cent, from 99.2 million barrels per day to 109.2 million barrels per day. Although the IEA forecasts that with more aggressive climate action, by 2040 oil supply will be decreased by 25 per cent, that would still leave 73.6 million barrels per day of demand for producers to meet.

Peter Tertzakian, ARC Energy Research Institute

Pushing free-market companies out the business leaves state-owned operators to fill the void.

“It just means the oil will find different supply chains,” Tertzakian said.

Those supply chains involve oil producers like Russia and OPEC countries, which are less transparent and not as focused on ESG.

“I don’t think this move of Western oil companies to get off oil is necessarily a good thing, because it just means that the barrels are going to become more opaque and not as ESG-friendly barrels as they were before.”

Russia already benefiting

Russia and other oil producing nations have already benefited from delayed pipeline development in North America. For example, because of delays constructing the Keystone XL pipeline, there is a lack of access to Canadian oil in the massive US Gulf Coast refining cluster, where most facilities are tailored to process this type of crude. US sanctions against Venezuela that started in January 2019 created an opportunity for other heavy oil producers to fill Gulf Coast refineries, but Canada has largely missed out.

According to Argus Media, Gulf Coast refiners have adjusted their oil feedstock slates and increased imports from Iraq, Trinidad and Tobago, Russia and the UK.

“Companies have already pounced on Russian- or Baltic straight-run fuel oil called M-100, which fell to steep discounts in October,” Argus analysts said in January. “Adopting the feedstock can reduce production of valuable clean fuels, but will still fill [refineries] at the right price.”

Concerns for energy security

It is already clear that the sharp pandemic-induced reduction in oil demand earlier this year was temporary, although a full return to pre-COVID oil demand depends on the timing of travel activities getting back to normal, especially air travel and commuting to work, IHS Markit said.

“It may be that COVID has reset oil and gas demand at a lower level, but probably we may increase from there as mobility starts to increase, population grows [and] people get more wealthy,” said Jackie Forrest, executive director of the ARC Energy Research Institute.

“It will result in economic benefits for those countries who maybe increase their production; even though demand may decline at some point they could actually get a bigger and bigger market share, and they could be getting those economic benefits and places like the US, Canada and Europe wouldn’t … Energy security for North America is going to get worse in that we’re going to be more dependent on offshore energy.”

The counter argument, Tertzakian said, “is ‘okay well we’re transitioning off of hydrocarbon fuels to electric vehicles etcetera, therefore this whole argument is moot.’ It’s not moot, because the rate at which we are transitioning on the consumption side is far slower than the rate that we are seeing issues on the supply side.”

Global oil demand is rebounding quickly off COVID-19 pandemic lows and Canada is positioned to benefit more quickly than its biggest competitor, according to new analyst reports.

IHS Markit says that world oil demand has bounced back by a “meteoric” 13 million barrels per day in the last four months and is now at 89 per cent of pre-COVID levels. Analysts expect demand to return to up to 95 per cent of pre-COVID levels through the first quarter of 2021.

Like oil producers around the world, Canadian producers responded quickly to shut in production as prices tanked in March and April amid stay-home orders and social distancing measures. IHS Markit estimates that at its worst, over 700,000 barrels per day of oil sands production may have been temporarily curtailed in the second quarter of 2020.

According to the U.S. Energy Information Administration, U.S. oil producers ramped down from approximately 13 million barrels per day in March to 11.2 million barrels per day at the end of May. Production has continued to decline, to 10.8 million barrels per day as of mid-August.

Meanwhile in Canada, oil sands or heavy oil production is already well into coming back online as producers capitalize on their unique ability to swiftly respond to stabilizing oil prices.

“Canadian oil sands has virtually no base decline, so as production is returned online it can ramp up back to previous levels more quickly,” says Elisabeth Murphy, analyst with ESAI Energy.

“The steep decline rates for [U.S.] shale require constant drilling and completion activity, and it will take a while to get production back to pre-pandemic levels.”

The rebound in Canada is already being seen on the Enbridge Mainline, the country’s largest transporter of crude oil.

“With stabilized prices, we’ve seen heavy [oil] volumes come back. Actually, if you look at July, heavy capacity is being fully utilized again,” Enbridge CEO Al Monaco told analysts in late July.

“Barring another shutdown of the economy, we expect Mainline throughput closer to where we were in Q1 by year-end.”

Monaco said that in April, deliveries on the Enbridge Mainline to refineries in the U.S. Midwest dropped by 12 per cent compared to pre-COVID levels. By July, this was back up to 98 per cent. Meanwhile, Mainline deliveries to the massive U.S. Gulf Coast refining cluster in July increased to 120 per cent of levels pre-pandemic.

“Overall, the pace of recovery was a little bit better than we thought in Q2, but with the rise in infection rates that we’re seeing today, we’re cautious on the timing of a full return,” Monaco said.

IHS Markit says a full return to pre-COVID oil demand depends on the timing of travel activities getting back to normal, especially air travel and commuting to work. “And that won’t happen until there is containment of the virus and effective vaccines,” says head of oil markets Jim Burkhard.

Canada’s oil producers are already better positioned than competitors in the United States to capitalize on demand recovery. According to RBN Energy analyst Martin King, the industry is actually on its way to growth, with small oil sands expansions underway by companies like Canadian Natural Resources and Suncor Energy.

“Canadian production could actually be higher after all this,” he says. “Maybe slightly delayed in terms of getting to that point but still higher next year than where it was pre-COVID, whereas the US could be down by 1.5 million, maybe 2.5 million barrels a day, and it’s all because of the oil sands.”

Oil and gas development creates jobs, and not just jobs at oil and gas companies. There is a ripple effect that stretches from the wellhead through office towers and manufacturing shops to the mall and the corner store.

With Canada facing a record-breaking loss to the economy as a result of measures to prevent the spread of COVID-19, it is important to consider the opportunity presented by jobs created directly, indirectly or induced by the oil and gas sector in the country’s economic recovery.

For example, a new report by the Conference Board of Canada says that expansion of LNG in B.C. could generate “significant, stable, long-lived employment impacts in nearly every province and territory in Canada.”

Construction and operation of these long-life facilities could increase national employment by 96,550 jobs annually between 2020 and 2064, the Conference Board says.

The biggest gain would be in B.C. (71,000 jobs), and the “employment wave” would roll out to Ontario (10,800 jobs), Alberta (9,200 jobs), Quebec (2,700 jobs), Manitoba (1,000 jobs), Saskatchewan (800 jobs), New Brunswick (400 jobs), Nova Scotia (200 jobs), Newfoundland and Labrador (100 jobs), and Yukon (100 jobs).

This scenario includes a combination of jobs that are considered “direct,” “indirect,” and “induced.”

But what does all that really mean? We explain here.

The ripple effect

Direct, indirect and induced categories are part of terminology used in economic input-output models, explains Weimin Wang, senior research economist with Statistics Canada.

Wang is the author of a July 2020 Statistics Canada report that estimates the economic impact of the potential decline in production and investment in the oil and gas industry due to recent shocks in oil prices.

“For a million dollar increase or decrease in the sector’s output, the number of jobs in the sector will increase (decrease) by 0.831 (direct impact), and associated indirect and induced impact on the number of jobs would be 3.2225 and 1.69, respectively,” Wang told the Canadian Energy Centre by email.

The ripple effect pattern is roughly the same for job creation as for job loss, he said.

A 2017 report by the Canadian Energy Research Institute (CERI) found similarly; that every direct job created in oil and gas creates two indirect and three induced jobs on average.

The definitions

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Direct Jobs

A “direct” job in oil and gas is what it sounds like — employment that is directly linked to the production of oil and gas. This includes jobs like drilling, engineering, supply chain, regulatory affairs and stakeholder engagement. According to Statistics Canada’s most recent data, in 2016 there were 202,171 Canadians directly employed in oil and gas.

Indirect Jobs

CERI describes “indirect” jobs as those involved in the production of intermediate goods and services to support oil and gas production. Rather than employees in the oil and gas sector, these are employees of suppliers to the oil and gas sector in industries ranging from engineering and manufacturing to finance and insurance, CERI says. Statistics Canada says that in 2016 there were 338,446 Canadians employed indirectly by oil and gas.

Induced Jobs

CERI vice-president Dinara Millington says that induced jobs are created when households that receive income from direct or indirect employment in oil and gas spend their money.

Induced employment usually manifests in industries such as wholesale and retail trade, education, medical services, and activities that are generated by household spending on additional goods and services, she says.

“That spending has to be supported by some sort of activity where there’s another job, whether that’s a taxi driver or a grocery store clerk or Tim Horton’s counter cashier. It’s that next tranche of the jobs that are outside of the sector directly,” Millington says.

Oil and gas may create more induced jobs than other sectors because of higher wages, she says. Canadian Energy Centre research found that in 2018, average weekly earnings in oil and gas extraction were $2,727 compared to $1,025 in motor vehicle parts manufacturing and $1,435 in aerospace product and parts manufacturing.

Millington says “the average wage rates are higher in oil and gas, and so by that rationale you could say that those households are in receivership of higher incomes, which means they potentially will generate higher economic activity by spending more money.”