How natural gas supports one of Canada’s largest manufacturing sectors

From the Canadian Energy Centre

‘When you think about the demand for more sustainable outcomes: clean air, clean water, clean energy, safe, nutritious, abundant food and electric vehicles, that’s more and more and more chemistry’

Canada’s chemical industry sold a record $72.7 billion of product last year amid recovery from COVID-19 and strong consumer demand, according to the Chemistry Industry Association of Canada (CIAC).

Natural gas is a key input to the chemistry sector, the broad term that refers to manufacturing a myriad of products used in everyday items from plastics to agriculture and pharmaceuticals.

“Chemistry products go into 95 per cent of finished goods. It’s an important sector,” says CIAC president Bob Masterson.

“It’s a sector that can grow as long as we fancy improving our lives and building a better world for tomorrow.”

Chemicals in Canada

Canada’s chemistry industry is the country’s fourth largest manufacturing sector by value of sales after food ($147 billion), transportation equipment ($119 billion), and petroleum/coal products ($118 billion).

It is primarily centered in Ontario, Alberta and Quebec.

The CIAC publishes an annual report on the sector’s activity using Statistics Canada data, separated into two categories: chemicals overall, and industrial chemicals.

Chemicals overall includes manufacturing of soaps, cleaning compounds, paints, coatings and adhesives, pesticides and fertilizers, pharmaceuticals, rubbers and synthetic fibres, and basic chemicals.

Industrial chemicals refers to the manufacturing of intermediate products used as inputs by industries including plastic and rubber products, forest products, transportation equipment, clothing, perfume and cosmetics, construction and pharmaceuticals.

Global Growth

According to Vantage Market Research, the global chemical market was valued at US$584 billion in 2022. It’s expected to grow by more than 55 per cent in the coming years to reach US$917 billion by 2030.

This isn’t just driven population growth, Masterson says.

“When you think about the demand for more sustainable outcomes: clean air, clean water, clean energy, safe, nutritious, abundant food and electric vehicles, that’s more and more and more chemistry,” he says.

“Some of the predictions are that the volumes of chemistry will double in the next 20 years. Canada and Alberta in particular are exceptionally well positioned to help meet future market demand for these products. The demand is not going away. There’s no question about that.”

Jobs

In 2022, Canada’s chemicals sector directly employed 90,800 people, or approximately the population size of Sudbury, Ontario. The industry paid about $7 billion in salary and wages.

That’s the direct impact of employment in the chemistry sector, but the CIAC estimates the full benefit to Canadians to be much higher as a result of indirect economic activity it supports.

CIAC estimates that every job in Canada’s chemistry sector creates another five indirect jobs in other parts of the economy. This means the sector supported 454,000 jobs across Canada in 2022.

Industrial chemicals alone directly employed 17,100 people and indirectly supported 85,600 jobs in the broader Canadian economy last year, the CIAC says.

Rising Trade

At a value of $72.7 billion, Canada’s overall chemical industry sales were their highest ever in 2022 – a 30 per cent increase compared to 2019, prior to the COVID-19 pandemic.

Industrial chemicals sales reached a record $34.2 billion, a 32 per cent increase compared to 2019.

Exports also increased last year, rising to a value of $52.8 billion compared to $45.9 billion in 2021. Of that, the sector exported $24.8 billion of industrial chemicals, up from $22.5 billion the previous year.

The United States is Canada’s main customer for chemical exports, representing 76 per cent of exports or $40.1 billion in 2022. The next largest export markets are China ($1.86 billion), the Netherlands ($1.7 billion), and the United Kingdom ($1.1 billion).

The Canada Advantage

Canada has distinct advantages as a chemical manufacturer and exporter including growing access to global markets, CIAC says.

In Alberta, the main advantage is access to low-cost natural gas resources – specifically valuable natural gas liquids like ethane, propane and butane.

“The rich abundance of natural gas liquids that come out of the ground when we drill for natural gas let Alberta be a low-cost chemistry producer despite being pretty much the only large chemistry industry worldwide that’s not on tidewater,” Masterson says.

Responsible Care

Since 1985, Canada’s chemistry industry has operated under an initiative called Responsible Care that encourages companies to innovate for safer and greener products.

CIAC reports that Responsible Care is now practiced in 73 countries and by 96 of the 100 largest chemical producers in the world.

Since 2005, CIAC members have reduced CO2 equivalent emissions by 13 per cent; reduced sulphur dioxide emissions by 94 per cent, and virtually eliminated large scale safety incidents. Since 2012, CIAC members have also reduced net water consumption by 13 per cent.

“We’re not standing in place,” Masterson says.

Related Topics:#Canada'sBestWashroom #Canada'sChemicalIndustry #CanadianEnergyCentre #CIAC #DeborahJaremko #NaturalGas

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Contrasting the principle of equalization with the execution

Quebec – as an example – happens to be sitting on its own significant untapped oil and gas reserves. Those potential opportunities include the Utica Shale formation, the Anticosti Island basin, and the Gaspé Peninsula (along with some offshore potential in the Gulf of St. Lawrence).

So Quebec is effectively being paid billions of dollars a year to not exploit their natural resources. That places their ostensibly principled stand against energy resource exploitation in a very different light.

You’ll need to search long and hard to find a Canadian unwilling to help those less fortunate. And, so long as we identify as members of one nation¹, that feeling stretches from coast to coast.

So the basic principle of Canada’s equalization payments – where poorer provinces receive billions of dollars in special federal payments – is easy to understand. But as you can imagine, it’s not easy to apply the principle in a way that’s fair, and the current methodology has arguably lead to a very strange set of incentives.

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According to Department of Finance Canada, eligibility for payments is determined based on your province’s fiscal capacity. Fiscal capacity is a measure of the taxes (income, business, property, and consumption) that a province could raise (based on national average rates) along with revenues from natural resources. The idea, I suppose, is that you’re creating a realistic proxy for a province’s higher personal earnings and consumption and, with greater natural resources revenues, a reduced need to increase income tax rates.

But the devil is in the details, and I think there are some questions worth asking:

Whichever way you measure fiscal capacity there’ll be both winners and losers, so who gets to decide?
Should a province that effectively funds more than its “share” get proportionately greater representation for national policy² – or at least not see its policy preferences consistently overruled by its beneficiary provinces?

The problem, of course, is that the decisions that defined equalization were – because of long-standing political conditions – dominated by the region that ended up receiving the most. Had the formula been the best one possible, there would have been little room to complain. But was it?

For example, attaching so much weight to natural resource revenues is just one of many possible approaches – and far from the most obvious. Consider how the profits from natural resources already mostly show up in higher income and corporate tax revenues (including income tax paid by provincial government workers employed by energy-related ministries)?

And who said that such calculations had to be population-based, which clearly benefits Quebec (nine million residents vs around $5 billion in resource income) over Newfoundland (545,000 people vs $1.6 billion) or Alberta (4.2 million people vs $19 billion). While Alberta’s average market income is 20 percent or so higher than Quebec’s, Quebec’s is quite a bit higher than Newfoundland’s. So why should Newfoundland receive only minimal equalization payments?

To illustrate all that, here’s the most recent payment breakdown when measured per-capita:

Equalization 2025-26 – Government of Canada

For clarification, the latest per-capita payments to poorer provinces ranged from $3,936 to PEI, $1,553 to Quebec, and $36 to Ontario. Only Saskatchewan, Alberta, and BC received nothing.

And here’s how the total equalization payments (in millions of dollars) have played out over the past decade:

Is energy wealth the right differentiating factor because it’s there through simple dumb luck, morally compelling the fortunate provinces to share their fortune? That would be a really difficult argument to make. For one thing because Quebec – as an example – happens to be sitting on its own significant untapped oil and gas reserves. Those potential opportunities include the Utica Shale formation, the Anticosti Island basin, and the Gaspé Peninsula (along with some offshore potential in the Gulf of St. Lawrence).

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