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Economic Implications of Shale and Tight Resource Development

A product of the Energy and Mines Ministers’ Conference

The development of shale and tight resources has the potential to make significant contributions to the Canadian economy. Benefits include jobs for Canadians, lease and royalty payments to the provincial or territorial governments that own the resources, and tax payments to municipal, provincial, territorial, and federal governments.

Macroeconomic implications also include increased investment, a stronger trade balance, and reduced dependence on imported energy.

Canadian Economy

In 2014, the oil and gas industry represented 7.8 percent of Canada’s nominal GDP and supported over 190,000 direct jobs and over 170,000 construction jobs. The industry also accounted for $83 billion, or 31 percent, of total Canadian capital expenditures and $137 billion in domestic exports.

Federal, provincial, territorial and municipal governments receive direct revenues from energy industries in the form of corporate income taxes, indirect taxes, crown royalties and crown land sales.

Government revenue associated with oil and gas production is used for meeting government priorities, such as increasing tax revenue, reducing the deficit, supporting infrastructure projects and delivering a variety of programs and services to the public.

Between 2009 and 2013, government revenues from the oil and gas industry averaged $21.9 billion.

Natural Gas Prices

Natural Gas Prices (AECO)Footnote 1

Figure 1 - Natural Gas Prices (AECO)
Text Version - Figure 1

Figure 1: Line graph showing the decline in natural gas prices between 2003 and 2014 and average prices for each year.

Since 2008, rapid growth in U.S. shale gas production has contributed to a significant oversupply in the North American natural gas market. As a result, average natural gas prices in Canada have declined by nearly 71%, reaching record lows in December 2015

While Canadian natural prices have averaged around $4.60 per gigajoule over the past decade, prices in Europe and Asia have averaged around $10 per gigajoule.

Due to low natural gas prices, to remain competitive, Canadian producers are increasingly targeting natural gas deposits that are rich in natural gas liquids (e.g., ethane, propane, butanes and pentanes). Prices for these natural gas liquids are linked to oil prices and therefore sell at a higher price than natural gas.However, recently, growth in natural gas liquids production has created a supply glut in Canada and the U.S. and this oversaturated market is also leading to lower natural gas liquids prices.

Low natural gas prices have positive implications for Canadian consumers – be they in households, businesses, or industry.

In Canada, natural gas is used by residential and commercial users as a fuel for space heating, water heating, clothes drying, and cooking. Close to 50 percent of space heating and 67 percent of water heating in Canadian homes is fueled by natural gas. The decline in natural gas prices post-shale/tight revolution has yielded annual space heating savings of more than $300 per household.

Low natural gas prices have encouraged utilities to invest in gas-fired electricity generation, and are beneficial for energy-intensive businesses and industries that use natural gas as feedstock and fuel, such as the oil sands, or facilities that produce chemicals, fertilizer, pharmaceuticals and plastics.

Energy Trade

Canada’s exports of oil and natural gas are coming under significant pressure from increasing marketable shale and tight production in the U.S., by far our largest energy customer. Demand for both imported oil and natural gas in the U.S. has declined since the mid-2000s.

By 2017, the U.S. could be a net exporter of natural gas and be producing as much as 10.6 million barrels of crude oil per day by 2020. This development, combined with limitations in existing pipeline infrastructure, has led to Canadian production consequently being under pressure to find alternative markets through the construction of pipelines and the development of liquefied natural gas (LNG) export terminals in Canada.

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