Overview

The downstream sector turns oil and gas into usable products, adding value to Alberta's energy resources. These activities create jobs, increase and diversify economic activity, increase exports and create value for Albertans. The royalty system is one of a number of tools used to encourage investment in the downstream sector, which includes upgrading, refining and petrochemical production.

We can tell if the framework is attracting investment and promoting job growth by tracking:

  • value of downstream energy industry exports
  • employment in Alberta's downstream sector
  • how employment in Alberta’s sector compares with other oil and gas jurisdictions
  • Alberta’s downstream investment as a percentage of Canada’s downstream investment

At a glance

  • Exports of petroleum and chemical products that were refined and processed in Alberta were almost $9 billion in 2017, about 9% of the province’s total merchandize exports.
  • The downstream value-added sector in Alberta in 2017 directly employed about 14,100 people.
  • An estimated $669 million was invested in Alberta’s downstream value-added sector in 2017.
  • In 2017, about one-quarter (25%) of all estimated investment in petroleum and coal product manufacturing, and chemical manufacturing in Canada was made in Alberta.

Downstream value-added exports

The oil and gas extraction sector has spin-offs in a variety of downstream sectors.  The exports of downstream value-added products include industrial chemical, plastic and rubber products. This category of products includes lubricants and other petroleum refinery products, petrochemicals, and plastic and rubber finished products, among others.

In Alberta, after reaching $9.2 billion in 2014, the value of downstream value-added exports declined by 2% to $9.1 billion in 2015, and by 4% to $8.7 billion in 2016. However, in 2017, Alberta’s downstream value-added sector exported about $9 billion worth of goods, an increase of about 4% compared to the year before. The recovery in downstream value-added exports from 2016 to 2017 after a decline over the 2014-2016 period was generally consistent with trends that took place in several other areas of Alberta’s energy industry, such as upstream and downstream employment, which also achieved some recovery in 2017, but with 2017 activity still below the 2014, or pre-oil price decline levels.

Table 1. Downstream value-added exports

Figures are in millions of dollars.

  2015 2016 2017
Alberta 9,075 8,670 8,998
British Columbia 994 885 849
Saskatchewan 385 322 229
Newfoundland 83 28 59
Canada 33,043 31,793 33,041
Source: Statistics Canada

Overall, Alberta has been able to maintain fairly stable exports of basic and industrial chemical, plastic and rubber products - despite significant challenges in the upstream industry over the 2015 to 2017 period.

Exports from Alberta’s downstream value-added sector made up about 9% of all goods exported from Alberta in 2017. Compared to the key oil and gas producing jurisdictions within Canada - Saskatchewan, British Columbia and Newfoundland - Alberta had the highest exports in this category in 2017 at about $9 billion. From 2016 to 2017, the trends among other oil and gas producing provinces were fairly mixed, with Newfoundland and Labrador also increasing its basic and industrial chemical, plastic and rubber exports, while British Columbia and Saskatchewan experienced declines. Similar to Alberta, downstream value-added exports for Canada as a whole also went up by about 4% from 2016 to 2017.

Figure 1. Exports of basic and industrial chemical, plastic and rubber products

Employment in the downstram value-added sector

Employment in the downstream value-added sector

The downstream value-added sector, which consists of petroleum and coal product manufacturing, and chemical manufacturing, directly employed 14,100 people in 2017.

The decline in oil prices that took place in late 2014 had a significant impact on the upstream energy industry employment, and also likely had an impact on some industries that make up the downstream energy sector. Overall employment in the downstream sector declined from 15,100 in 2014 to 12,900 in 2015 (a 15% decline), and then further to 10,900 in 2016 (another 15% year over year decline) before increasing by 29% in 2017 to 14,100.

It is much more difficult to establish a clear relationship between oil price changes and downstream energy industry employment than for the upstream employment. Two issues create limitations on downstream data analysis. The first is the fact that unlike the case with the upstream sector, it is much more difficult to capture full direct downstream energy employment. Downstream sector, as defined here, has a narrow focus, as it captures employment for two sub-sectors, so the trends examined here apply only to the portion of the downstream activity. The second issue is that due to the relatively small size, the results are much more likely to be subject to variability; therefore, what may appear as a significant change in results should not necessarily be interpreted as being part of a developing trend.

Within the downstream, there were significant differences between the employment trends in Petroleum and Coal Product Manufacturing, and Chemical Manufacturing in Alberta. The former was actually 59% higher in 2017 than in 2014; on the other hand, employment in the latter was 24% lower in 2017 than in 2014. Since in absolute terms, employment in Alberta’s Chemical Manufacturing is significantly larger than Petroleum and Coal Product Manufacturing employment, the combined employment for both sectors in 2017 was about 1,200 people, or 8% lower than in 2014, a much smaller percentage decline than the one that took in the upstream employment over the same time period.

Figure 2. Employment in the downstream sector

Employment in the Downstream Sector

Capital investment in the downstream value-added sector

The energy industry generates significant downstream activity and investment.

Figure 3. Capital investment in Alberta's downstream value-added sector.

Capital investment in Alberta Downstream Sector

Table 2. Downstream investment (NAICS 324 & 325) in Alberta (2012-2017)

Downstream investment 2012 Actuals 2013 Actuals 2014 Actuals 2015 Actuals 2016 Actuals 2017 Preliminary Actual Data
Petroleum and coal products manufacturing (NAICS 324) 256.6 362.6 533.7 800.9 658.3 274
Chemical manufacturing (NAICS 325) 431.0 680.6 616.1 495.5 449.4 395
Total downstream investment 687.6 1,043.2 1,149.8 1,296.4 1,107.7 669
Alberta as a percentage of Canada 22% 31% 34% 36% 33% 25%
Source: Statistics Canada

It is significantly more difficult to examine the downstream energy industry than the upstream, as the downstream impacts are diffused throughout multiple industries, and therefore can not be easily captured. Due to these limitations, downstream investment and employment are focused on two sub-sectors – Petroleum and Coal Product Manufacturing, and Chemical Manufacturing. This allows for the coverage of petroleum refining and petrochemical manufacturing activity, among other downstream activities.

Overall, the trends that were observed for the upstream energy industry investment over the 2014-2017 period did not consistently translate into similar trends for the downstream investment for Alberta. The smaller downstream capital investment is much more susceptible to significant swings year over year due to major one-time investment decisions that may not actually reflect the industry trends. Alberta downstream investment in 2017 was 42% lower than in 2014. The significant declines in Alberta’s Petroleum and Coal Products Manufacturing investment over the 2015-2017 period can be attributed to the completion of major projects at existing refineries. It is more difficult to generalize on the trend for Chemical Manufacturing in Alberta, which shows more fluctuation from 2015 to 2017; this sector is comprised of companies with varying manufacturing end products, including petrochemical and fertilizer products.