As seen by the rest of the world, Canada is a trade-dependent nation with a wealth of natural resources. Given the explosive growth that is underway in China and India and a few other emerging nations, the rest of the world’s appetite for raw materials would seem to be good news for Canada. This dynamic is part of the reason for the climb in value of the Canadian dollar to parity with the U.S. dollar.

Exports account for a little more than one-third of Canada’s total Gross Domestic Product (GDP). It is interesting to look at the latest trade numbers and consider whether or not they match with the popular conception about Canada’s place in the world. Not wishing to keep anybody in suspense, let me just say that on the whole they do.

The following examines Canada’s major export success stories at this time. There are 13 product groupings. They are arranged according to dollar value of exports (annualized), from highest to lowest. These are only the commodities for which there is currently a surplus in trade, January through April 2008 versus January through April 2007.

It will be no surprise to anybody that energy products fill the first three positions at the top of the 13-category list. Way out front is crude petroleum (at nearly $60 billion in annualized exports and +48.5% year to date.) This is entirely due to the fact that the U.S. is dependent on foreign sources (led by Canada) for its oil.

Oil is shipped from Canada to the U.S. to be further refined into gasoline and a host of other products. Most of this oil comes from Alberta, Saskatchewan and offshore Newfoundland. Plans are proceeding to increase output in those provinces as quickly as possible, given material, manpower and environmental constraints.

What is perhaps surprising is the large dollar volume of crude oil ($30 billion annualized or about half of the export figure) that is imported into Canada, mainly by way of the Atlantic coast and the St. Lawrence Seaway. This has traditionally been processed into gasoline by refineries in New Brunswick, Québec and Ontario.

The second major export surplus is in natural gas ($33.6 billion and +13.0% year to date). Again, this is a product that is shipped (from the West and offshore Nova Scotia) to the United States. As with oil, this requires arteries of pipelines that run across and up and down North America. A major push is underway to expand shipping facilities to the U.S. midwest, south and west coast.

Natural gas prices have been slowly moving upward to restore their natural correlation − in terms of “thermal” equivalency − with oil prices. The next “mega” pipeline project is likely to be the Mackenzie Valley route linking Arctic drilling fields in the Northwest Territories with southern markets.

As an aside, Alberta’s petrochemical industry has a particular advantage at this time. Ethane, ethylene and polyethylene (i.e., plastics) producers in that province have abundant access to lower-cost natural gas as a feedstock versus Gulf of Mexico producers, which are more closely tied to oil.

The third energy commodity grouping at the top of the exports chart is petroleum and coal products ($21.0 billion and +34.8%). This is refined gasoline that makes its way to the United States. Again, the dollar volume of imports in this commodity category is about half as much as the dollar volume of exports. It is a matter of geography and how the need can be most easily filled.

I’ll continue with an examination of the remaining ten Canadian export success stories in tomorrow’s blog entry.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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