Oil and Gas: Region of Western Canada and the Territories: 2017-2019

Oil and Gas: Region of Western Canada and the Territories: 2017-2019

Sectoral Profiles provide an overview of recent labour market developments and outlooks for key industries, for various regions of the country.

Executive Summary

The oil and gas industry has been a key driver of Western Canada's economy over the past decade. However, low energy prices have proved challenging for the industry over the past three years. In 2016, heavy job losses continued as industry employment fell 11.3% across Western Canada due to diminished drilling activity. Though energy prices are not expected to fully recover in the short-term, prices have climbed throughout much of 2017 and brought with them a renewed sense of optimism to the industry.

Key Drivers

  • Production in Canada's oil and gas industry far surpasses demand. Almost all of the country's oil and gas exports are to the U.S., although a number of proposed pipeline and terminal projects aim to increase access to overseas markets.
  • The western provinces account for most of Canada's domestic oil and gas production, benefitting from continuous energy sector investments due to sizable reserves, geopolitical stability, and direct access to U.S. markets.
  • Technological advances have transformed the oil and gas industry. In Alberta, new extraction techniques have allowed oil sands production to surpass conventional methods. In addition, new drilling and hydraulic fracturing technology has opened up shale gas and oil production. As a result, increased North American production has led to lower prices for crude oil and natural gas.
  • Over the longer-term, demand for gas reserves in Western Canada and the Territories may also be impacted by the adoption of alternate energy sources such as wind, solar, hydro, and geothermal.

Background

The rise of the oil and gas industry helped shift Canada's economic centre of gravity westward. In fact, oil and gas extraction was the country's top export earner by value from 2005 to 2015 (automobile manufacturing led in 2016).Footnote 1 All four western provinces have oil and/or gas operations that contribute meaningfully to their GDP and export earnings. The industry is most significant in Alberta, where sustained investment in the oil sands – the third largest proven oil reserves in the world – has generally resulted in the strongest economic performance in Canada over the past decade.Footnote 2

Saskatchewan's oil and gas industry is the second largest nationwide, both by employment and by export earnings.Footnote 3 All told, Alberta's oil and gas extraction industry accounted for 81.5% of all Canadian oil exports in 2016, with Saskatchewan a distant second with 7.6%.Footnote 4

Across the North, the oil and gas industry is far less active. Production is in long-term decline in the Northwest Territories and remains minimal in Yukon. Nunavut has not been an oil and gas producer since the 1970s.Footnote 5 Even so, potential energy plays have been identified in all three territories, and exploration activity remains an important economic activity.

Oil and Gas Provincial/Territorial % Share of Employment and GDP, 2006 vs. 2016
The data table for this figure is located below

Sources: 1. Statistics Canada CANSIM Table 379-0030 - Gross domestic product (GDP) at basic prices, by North American Industry Classification System (NAICS), provinces and territories, annual (dollars). 2. Statistics Canada Labour force estimates by detailed industry, age, sex, class of worker.
Note: The GDP percentage includes oil and gas and support activities for oil and gas. The percentage of total employment includes oil and gas and support activities for oil and gas.

Show data table

 

% of Total GDP

% of Total Employment

Manitoba

 

 

2016

1.8%

0.3%

2006

1.2%

0.3%

Saskatchewan

 

 

2016

15.4%

2.1%

2006

17.4%

2.9%

Alberta

 

 

2016

28.9%

5.8%

2006

25.4%

7.2%

British Columbia

 

 

2016

3.8%

0.6%

2006

3.4%

0.5%


Employment

After peaking in 2014 at 200,000 workers, oil and gas employment appears to be trending downward. In 2016, there were 156,900 people employed in the oil and gas industry across the western provinces. The extraction sub-industry, which is primarily comprised of firms that own and operate oil and gas properties, accounted for 52.0% of total industry employment. Meanwhile, the support services sub-industry, which includes drilling and exploration firms, accounted for the remainder (48.0%).Footnote 6

Across the West, employment in the extraction industry remained relatively stable between 2014 and 2015, before plunging in 2016 (-13.5%). In order to reduce costs, many oil and gas producers slashed operational budgets and laid off staff. Employment in energy support services plummeted in 2015 (-21.9%) and continued to fall in 2016 (-8.7%), as budgets for drilling and exploration activities were cut dramatically. Overall, employment decreased 11.3% in the oil and gas industry across the western provinces in 2016.

Industry Trends

Energy Prices

North American benchmark crude oil prices began to decline in mid-2014, sliding from over $100 US per barrel to a low of $30 US in early 2016. The value of Canadian oil and gas exports tumbled alongside global energy prices for two years following 2014. In 2016, oil and gas exports were valued at $61 billion, down 46.3% compared to 2014's record-breaking $113 billion.Footnote 7 National oil and gas exports still remained far ahead of other industries in 2015 but fell to second place in 2016 for the first time since 2004.Footnote 8

In general, slumping energy prices are linked to increasing production levels and weak global economic growth. Looking specifically at crude oil, U.S. production rose by roughly four million barrels per day (+72%) between 2010 and 2015 due to explosive growth in tight oil plays such as Bakken and Eagle Ford Shale.Footnote 9 Over this same period, Canadian crude oil production increased to 3.9 million barrels per day (+38%), largely because of expanding bitumen production in Alberta's oil sands.Footnote 10

In mid-2015, the International Energy Agency pegged the global crude oil oversupply at around two million barrels per day.Footnote 11 This glut continued in 2016, prompting OPEC to finally announce oil production cuts of 1.2 million barrels per day for 2017.Footnote 12 The International Energy Agency now expects demand and supply will balance out this year and, as of October 2017, prices had recovered to around $52 US per barrel.Footnote 13,Footnote 14 Recent price gains could be the beginning of a sustainable rally, but many experts remain hesitant to label prices over $50 per barrel the “new normal”. The explosive growth of U.S. shale, combined with other non-OPEC producers, will add enough fresh supply in 2018 that demand growth will likely struggle to keep pace.Footnote 15

Moving Forward

Canadian oil and gas firms responded fairly rapidly to the downturn in energy prices. Producers slashed both capital spending and operational budgets. The energy services industry was hit particularly hard due to much lower conventional drilling activity. Between 2014 and 2016, the number of wells drilled in Canada dropped by 69%.Footnote 16 Drilling activity is expected to increase in 2017, but will remain 57% lower compared to the peak activity of 2014.Footnote 17 As a result, rig utilization rates are projected to average only 23% in 2017—helping to explain the many layoffs and branch closures in the energy services industry.

Capital expenditures in the oil and gas extraction industry fell by $15 billion in 2016, following a $25 billion decline the year before. An increase in capital construction projects is expected to drive capital investment up 2.3% in 2017. The Conference of Board of Canada predicts energy investment will improve in Alberta over the near-term, but not in the form of major greenfield oil sands projects. Instead, growth will be driven by investment in major pipeline projects to export crude oil, including the Trans Mountain Expansion, Enbridge's Line 3 replacement, and Keystone XL.Footnote 18 If these projects do proceed, the Conference Board forecasts Alberta's total real non-residential investment will rise by 6.7% in 2018.Footnote 19

Bitumen production continues to increase in Alberta's oil sands as new projects and expansions come online. Unlike conventional drilling activity, both the scale and sunk costs of these operations make it unlikely that they will shutter. Bitumen production did not increase in 2016 due primarily to the Fort McMurray wildfires. However, production is expected to be up in 2017 to compensate for lost volume.Footnote 20

The overall outlook for Western Canada's oil and gas industry is uncertain over the next few years. Even under optimistic price recovery projections, the industry still faces several challenges. For example, the proposed oil pipeline projects are needed to increase capacity and reach additional markets. However, most have so far been delayed or cancelled because of environmental, economic, and political considerations. The industry's longer-term growth depends on its ability to address these issues, as well as overall global demand for oil and gas products.

Employment Outlook

Projected employment change for the oil and gas sector during the 2017-2019 forecast period

Economic Region

Projected Change in Employment

Projected Annual Growth

Manitoba

0

-2.0%

Southern Manitoba

 

-2.2%

Winnipeg

 

-1.8%

Northern Manitoba

 

-1.6%

Saskatchewan

-200

-1.4%

Regina & Southern Saskatchewan

 

-1.4%

Saskatoon & Northern Saskatchewan

 

-1.4%

Alberta

2,100

1.0%

Calgary & Southern Alberta

 

0.8%

Edmonton, Red Deer, Camrose, & Drumheller

 

1.1%

Northern Alberta and Banff

 

1.1%

British Columbia

600

4.8%

Vancouver Island & Coast

 

6.8%

Lower Mainland - Southwest

 

5.0%

Okanagan - Kootenay

 

6.9%

Northern BC

 

3.3%

Yukon

-

-

Northwest Territories

-

-

Nunavut

-

-

Source: Service Canada Regional Occupational Outlooks in Canada, 2017-2019
Note: Service Canada does not forecast employment for this sector in the three territories.

The expected long-term recovery in energy prices should positively impact employment levels in Western Canada in the coming years. As Canada's largest hub for oil and gas activity, Alberta is projected to see the greatest increase in industry employment (+2,100) during the forecast period of 2017 to 2019. Moderate increases are expected in British Columbia (+600), while Saskatchewan and Manitoba will see virtually no change. Estimates for the oil and gas industry are not available for the territories given that projections are combined with the overall mining industry.

Regional Overview

  • Calgary and Southern Alberta: As the corporate hub for Canada's oil and gas industry, Calgary was hard hit by low energy prices. Employment in the region's resource sector declined significantly through 2015 and 2016. Southern Alberta is also home to a large number of energy service companies that support operations in the oil sands and other nearby energy plays. Going forward, the Calgary and Southern Alberta region is expected recover slowly as energy prices begin to rebound. Employment is expected to increase +0.8% on an annual basis during the 2017 to 2019 period.
  • Northern Alberta and Banff: Home to Fort McMurray and the oil sands, this region had an extremely active labour market over most of the past decade as thousands of oilfield and construction workers regularly commuted into the region from other parts of Alberta and Canada. Production in the region was negatively impacted by the devastating Fort McMurray wildfires in 2016. Activity has since resumed to normal and industry employment is expected to move higher over the near-term (+1.1% per year).
  • Saskatchewan: As the second largest oil and gas producing province behind only Alberta, Saskatchewan's combined oil and gas production was worth $6.6 billion in 2016.Footnote 21 The downturn in energy prices hurt several regions, particularly in the southern part of the province where conventional oil and gas activity slowed significantly. On a positive note, a number of steam assisted gravity drainage projects came online throughout the province in 2016 with similar developments planned in the coming years.Footnote 22 Nonetheless, annual employment losses are still projected throughout the province.
  • Territories: Although prospective energy plays continue to be of interest to producers, exploration and development costs remain very high in the North. Given the added hit of low energy prices, the oil and gas extraction industry in the territories is unlikely to enjoy the revival expected in the region's mining industry. According to the Conference Board of Canada, any new investment in oil in the territories will be hindered by incoming carbon pricing and a five-year federal ban on drilling in the Beaufort Sea.Footnote 23
Distribution of employment in the oil and gas sector across Western Canada (%) The data table for this figure is located below

Source: Service Canada Regional Occupational Outlooks in Canada, 2017-2019
Note: Territorial percentages are estimates derived using the 2011 National Household survey and current employment levels in the Mining, Oil & Gas sector.

Show data table

Economic Region

Percent (%)

Southern Manitoba

0.3

Winnipeg

0.2

Northern Manitoba

0.1

Regina & Southern Saskatchewan

1.7

Saskatoon & Northern Saskatchewan

2.5

Calgary & Southern Alberta

48.6

Edmonton, Red Deer, Camrose and Drumheller

17.0

Northern Alberta & Banff

23.7

Vancouver Island and Coast

0.9

Lower Mainland - Southwest

0.7

Okanagan - Kootenay

0.9

Northern BC

2.6

Yukon

0.2

Northwest Territories

0.4

Nunavut

0.1

Note

In preparing this document, the authors have taken care to provide clients with labour market information that is timely and accurate at the time of publication. Since labour market conditions are dynamic, some of the information presented here may have changed since this document was published. Users are encouraged to also refer to other sources for additional information on the local economy and labour market. Information contained in this document does not necessarily reflect official policies of Employment and Social Development Canada.

Prepared by: Labour Market Information (LMI) Division, Service Canada, Region of Western Canada and the Territories
For further information, please contact the LMI team

Footnotes

Footnote 1

Industry Canada. Trade Data Online. (accessed October 2017)

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Footnote 2

Alberta Energy. Oil Sands: Facts and Statistics. (accessed October 2017)

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Footnote 3

Industry Canada. Trade Data Online. (accessed October 2017)

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Footnote 4

Ibid

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Footnote 5

Nunavut Department of Economic Development and Transportation. Nunavut's Energy System. (accessed July 2016)

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Footnote 6

Employment estimates for the energy services industries also includes mining-related support activities. In Alberta's case, the mining component is fairly limited. However, in Saskatchewan, Manitoba, and particularly BC, the mining services sector is of greater importance.

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Footnote 7

U.S. Energy Information Administration. Short Term Energy Outlook Browser. (accessed October 2017)

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Footnote 8

Industry Canada. Trade Data Online. (accessed October 2017)

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Footnote 9

U.S. Energy Information Administration. Crude Oil Production. (accessed October 2017)

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Footnote 10

Canadian metric figures have been converted for comparison to U.S. domestic growth.

National Energy Board. Annual (1998-2015) - Estimated Production of Canadian Crude Oil and Equivalent. (accessed October 2017)

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Footnote 11

CBC News. (May 13, 2015). Global oil glut grows to 2 million barrels a day as OPEC pumps more.

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Footnote 12

Gramer, Robbie, (November 30, 2016). Amid Oil Glut, OPEC Finally Agrees to Curb Crude Production.

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Footnote 13

Petrosyan, Kristine. (September 20, 2017). Looking for Balance in the Oil Market. International Energy Agency.

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Footnote 14

U.S. Energy Information Administration. (November 2017). Short-Term Energy Outlook.

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Footnote 15

Cunningham, Nick. (November 14, 2017). IEA's Shocking Revelation About U.S. Shale.

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Footnote 16

Canadian Association of Oilwell Drilling Contractors. (September 2017). Well Counts.

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Footnote 17

Canadian Association of Oilwell Drilling Contractors. (November 2017). Updated CAODC Forecast – 2017.

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Footnote 18

The Conference Board of Canada. (November 2017). Provincial Outlook Economic Forecast: Alberta - Summer 2017. (subscription required)

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Footnote 19

Ibid

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Footnote 20

Alberta Energy Regulator. (August 2017). Crude Bitumen Production.

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Footnote 21

Government of Saskatchewan. (November 2017). Crude Oil Volume and Value Summary by Month.

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Footnote 22

Star Phoenix. (December 13, 2016). Husky Energy to spend $1 billion on new heavy oil projects in Saskatchewan.

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Footnote 23

The Conference Board of Canada.(2017) Territorial Outlook Economic Forecast: Summer 2017. (subscription required)

Return to footnote 23 referrer

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