The morning after Canada Day, we wait to see details of the Government of Alberta’s submission of the West Coast pipeline to the federal Major Projects Office. An announcement is expected later today.

Much of the commentary on the pipeline has been focused on delivering on Canada’s promises to be a global energy superpower, diversifying our customer base beyond the U.S., and getting better and more stable pricing for the energy we sell. Those are all very valid points.

But there is another factor that seems to get overlooked: Canada’s economy needs to find ways to grow. Not just this year or next year, but for the decades to come.

Tuesday’s GDP release shows that the economy is poised to pick up again in the second quarter. That’s positive, and should quiet the recession chatter, but it says almost nothing about Canada’s long-term structural challenge.

That challenge is that investment and exports have been missing from Canada’s per capita growth picture for more than a decade. Much of this weakness in the headline GDP numbers has, until recently, been masked by record population growth, which helped keep consumer spending and housing going.

Consider this: Real business investment per person is 20% below its Q4 2014 peak and real per capita exports are 9% below their Q1 2019 peak. Canada doesn’t have a GDP per capita problem; it has an investment problem (exports too, but it's hard to get exports without investment).  

Canada’s related productivity struggles have also been well documented. It turns out that the energy sector is a highly productive sector and delivers higher compensation per worker as a result. In recently released data, Canada’s oil and gas extraction sector had a labour productivity level of $438 (real GDP per hour worked in 2017 dollars), compared to an all-industry average of $61. Compensation per hour was $92 versus the overall average of $53. While the role of oil and gas in Canada’s productivity growth has been debated, there’s no question that the resource industry, as University of Calgary economist Trevor Tombe points out, is a “productivity powerhouse.”

The federal government recognizes the growth problem and has set a goal to catalyze $1 trillion in investment over the next five years and double non-U.S. exports over the next decade.

Recognizing the problem is an important step. Sending signals to global investors is also important, and we’ve seen some early signs of interest from Germany’s purchase agreement on LNG and Shell’s purchase of ARC Resources.

The challenge, as we’re now discovering, is that all this takes time. While foreign investment inflows have picked up,  real business capital spending in Canada has continued to edge lower.  

So the question for Canada is: how are we going to reignite investment and then exports?

It turns out that expanding energy infrastructure is one powerful way to do this. Oil and gas is a highly capital-intensive and productive industry. Building a pipeline, and more importantly filling a pipeline, will require tens of billions of dollars. After construction, Canada then gets an export kick. A one-two punch.

In March, ATB Economics worked with energy expert Peter Tertzakian and the Studio.Energy team to quantify the impact of expanding Canada’s oil export capacity by 1.5 million barrels per day, which would include the West Coast pipeline. The study estimated that about $40 billion would be spent on construction, $100 billion in upstream investment to fill the new pipes, and $20 billion for the Pathways carbon capture project. That’s $160 billion hitting the economy over the next decade.

Our estimated impacts? An average annual lift to real GDP of $31.4 billion, and adding an average of 112K to employment, between 2027 and 2035. At the peak, the impact would be $39.7 billion of additional GDP and 136K jobs.

It can be done. We’ve already seen the benefits from recent investments in export infrastructure: energy exports to Asia have surged since the construction of TMX (oil), LNG Canada Phase 1 (natural gas) and the Ridley Island Propane Export Terminal (propane).

Of course, building energy infrastructure isn’t the only way to improve Canada’s growth. The country should look at all avenues, such as agri-food, critical minerals, defence, AI infrastructure, and advanced manufacturing.

Our view is that one does not need to come at the expense of the others. What’s clear is that Canada’s economy needs an investment jolt, and this is an avenue that builds on existing strengths.

So what’s next? We haven’t built the West Coast pipeline project into our forecast for Alberta and Canada as there’s still uncertainty on ultimate execution. So treat it as a potential upside for now. The next big day to watch is October 1, when the federal government determines if it’s in the national interest.

Answer to the previous trivia question: The Port of Vancouver is Canada’s largest port, moving more cargo than the next five largest Canadian ports combined.

Today’s trivia question: In what year was Chargex (Canada’s first universal charge card) introduced, greatly expanding Canadian consumer credit?