What our American neighbours (and Canadians) gain from oil and natural gas

Mark Milke and Lennie Kaplan, Canadian Energy Centre, September 23, 2021

One critical problem for political and business leaders alike is to try and get people to think outside their own local “box.”  While most people might well prefer a local restaurant or coffee shop to a national chain, international trade is the very reason why a Canadian restaurant can offer vegetables in winter, from Mexico, for example: because they’re fresh and cheaper, as greenhouse vegetables for all Canadians for six months a year would be exorbitant in price.

Similarly, the reason your neighbourhood café can serve you coffee is because the beans are planted, grown, harvested and shipped from multiple hot-climate countries worldwide be they Brazil, Kenya, or Indonesia or others.

Both vegetables and coffee are examples of why international trade matters and is helpful: Because no country possesses every type of product every day of the year. Moreover, even if they did, some products, companies and countries are better at producing some goods vis-à-vis others, the economic theory known as comparative advantage.

What’s true of a globalized world for food and drink is also true of oil and natural gas, which some nations produce while others are mostly or solely consumers.

Canadians have a significant stake in the U.S. oil and gas industry. That’s a reality of which both Americans and Canadians should be aware. Americans in addition should know how much tax revenue flows to American governments and how many jobs the U.S. oil and gas sector provides to their fellow Americans.

First the mutually beneficial facts: between 2000 and 2019, the total trade in energy products between Canada and the United States was nearly $2 trillion, including $138 billion in 2019 alone. Of that trade, crude oil (including bitumen) was the highest value commodity, at a total value of $1.1 trillion over the 20-year period examined. That includes nearly $102 billion in crude oil flows in 2019.

Natural gas is the second highest value commodity in the cross-border energy products trade flow, representing a cumulative total trade value of over $426 billion over two decades, and over $12 billion in 2019.

Canadian heavy oil matters a lot to U.S. refineries. The percentage of total exports of Canadian heavy oil that has been shipped to U.S. refineries has more than doubled over the past two decades, from just over 25 percent of all Canadian oil exported in 2000 to almost 56 percent in 2019. Overall, Canadian exports of crude oil to the U.S. for processing (also known as refining) have risen from nearly 1.3 million barrels per day in 2000 to over 3.8 million barrels per day in 2019, an increase of over 194 percent.

Anyone vaguely aware of anti-pipeline activism and political positions over the last 15 years will know that Canada could have shipped more oil via pipelines rather than increasing rail shipments, pipelines being safer.

That aside, here are some direct benefits for Americans that flow from their oil and gas sector, and about which Canadians should also be pleased given the cross-border trade just noted.

Like to have a job? The U.S. oil and gas industry provided five million of them in 2019 (the most recent year for which this data is available). Two million are directly created by the oil and gas industry and another three million are indirect jobs.

The top five industries that benefit from indirect jobs created by oil and gas range from over 107,000 in the real estate sector to nearly 343,000 in computer programming.

In 2019, those 343,000 computer programming jobs came with $31.2 billion in compensation, or an average income of $90,966. (Dear millennials in computer programming: Thank oil and gas for some of your work and salaries.)

Tax revenues to governments should matter to Americans as well. In the case of the United States, the taxes paid by oil and gas are significant. In 2019, they ranged from almost $44 billion at the sub-county level (including special districts) to $14.8 billion in county taxes, to over $63 billion in oil and gas revenues to state governments.

The oil and gas industry also paid over $116 billion to the U.S. federal government. In total, the oil and gas industry sent cheques worth over $238 billion to American governments of all levels in 2019.

Be it American refineries, which process Canadian crude, or five million Americans employed in the oil and gas sector, the economic impact of the oil and gas industry and the shared nature of it in North America matters to millions.

If anyone says different, think of them as akin to a coffee-lover who believes her coffee beans magically appear on the grocery store shelf but forgets they originate in Central or South America. The interconnected world of oil and natural gas matters for both Canadians and Americans.

Mark Milke and Lennie Kaplan are with the Canadian Energy Centre, an Alberta government corporation funded in part by carbon taxes. They are authors of the report Enhancing North American Energy Security: Analyzing the Economic Impacts of the U.S. Oil and Gas Industry. Image credit: Pixabay.