The Canadian media is dominated by economic uncertainty these days. The United States’ new administration is determined to change the world order with tariffs and tough talks, and much is directed at its neighbour to the North.
Canada, which would normally be the USA’s closest ally in the community, is now the subject of panicked headlines and apprehensive businesses. Policymakers are also trying to understand a fluid and fast-moving, highly tense situation.
It’s not hard to see why. Canada has relied on the US almost exclusively for two things. First, it was a continental defense force. Second, the US provided a large and geographically convenient marketplace in which Canada could sell its abundant natural resources and manufactured goods. All of this is in doubt with the return of Donald Trump as president.
One Canadian executive, however, is keeping his cool in the face of this situation. James Kydd, a veteran of more than twenty years in the oil and natural gas industry, is based in Calgary. This city, also known as the oil-spigot of North America, is the largest in Alberta. Kydd has been praised by his peers for his work in managing and building important infrastructures such as the Trans Mountain Expansion Pipeline and the Coastal Gas Link Pipeline. Due to his extensive knowledge of fossil fuels and pipelines, he is considered an expert on heavy industry. He remains optimistic about the Canadian economy despite President Trump’s blustery, heavy-handed and hard-to read rhetoric.
He explains that a good relationship is in the best interests of both the United States and Canada. “And that’s because of one thing energy. Canada is blessed with an abundance of energy. We have vast amounts of crude oil and gas, more than we can ever use. It’s a good thing, because our American friends and family consume tons of it. “We have it and they want it to buy.”
Long considered a predictor of the future of the Canadian economy, the health of the energy and transportation sector is one of its main pillars. The Canadian Association of Petroleum Producers’ (CAPP) data shows that the oil and gas industry will contribute $71.4 billion or 3.2% to Canada’s gross domestic product in 2022. Canada’s real Gross Domestic Product (GDP), which is the country’s total gross domestic product, grew 3.8% during this period.
In contrast, Canada’s GDP real growth in 2015 slowed from 2.6% to just 1.0%. The dramatic fall in crude oil prices from more than $100 per barrel at the beginning of 2014 to less than $40 per barrel at the end 2015 was directly related. The drop in crude oil prices resulted in a reduction in revenues for the energy sector. This led to fewer investments in Canada’s oil-producing areas, including pipeline construction.
Kydd says that while the Canadian economy has a good level of diversification – we are not a Petro State like Venezuela, Russia or Saudi Arabia – our economic fortunes, at least in part, are linked to energy production. When our oil is flowing freely and selling at a high price, we do well. We tend to feel the effects when it doesn’t.
Kydd says that it’s a well-kept secret among Canadian economics, government officials and industry executives that the country’s economy is closely tied to the pace of pipeline construction. It’s important to note that this is a correlation, not a cause.
Recent data confirms this correlation. IBISWorld data shows that the Oil and Gas Pipeline Construction sector in Canada saw a 2.7% revenue drop in 2023. A report by Statistics Canada showed that the Canadian economy was also hit hard, as real GDP growth slowed to just 1.5% in the year 2023. This is down from 6.0% in the previous years and 4.2% in the year 2022. Industry projections suggest a possible reversal in this trend, with a projected increase of 2% by 2024. This would bring industry revenue up to $12.5 billion.
This positive trend is further illustrated by the completion of new major projects. Trans Mountain Pipeline Expansion for example, tripled its capacity recently, resulting in an additional 590,000. barrels per day. This has given a significant boost to Canada’s infrastructure of oil transportation. These developments are not only beneficial to the energy sector, but they also have a positive impact on the wider economy. According to Canadian Energy Centre research, every additional million barrels transported via pipelines adds $23.2 to Canada’s Gross Domestic Product and supports 69 jobs both directly and indirectly.
Pipeline construction is still strong in Canada. It’s actually on the rise. James Kydd says that when you start to see a decrease in the number, it’s time to be concerned. Fewer pipelines under development will likely mean a bottleneck when transporting energy resources. This would result in reduced revenues and job losses. Until then I am optimistic that the Canadian Economy will remain strong.”
