EnviroStats
Canada's Quarterly Natural Resource Wealth

by Nazrul Kazi

Release date: May 30, 2016

Introduction

Natural resources, a key component of natural capital, play an important role in the Canadian economy. Their extraction forms a significant component of Canada’s gross domestic product (GDP) or current income. Likewise, remaining stocks of natural resources are a potential source of future income. As such, natural resources are a key component of the country’s wealth – as important in Canada as its buildings and equipment.

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Natural capital comprises land, natural resources, and ecosystems and the ecosystem goods and services these generate. An eventual goal of Statistics Canada’s environmental accounts and statistics program is to track stocks of all main types of natural capital. Currently, accounts include natural resource asset accounts, thematic ecosystem accounts on land cover/land use and on water. Statistics Canada also produces accounts that track the flows of selected natural capital (water, energy), as well as residuals (greenhouse gas emissions). For more details, see the Methodological Guide for the Canadian System of Environmental–Economic Accounting.

This article focuses on natural resource stocks as estimated by the Natural Resource Asset Account (NRAA). These accounts currently include three categories of natural resource stocks:

  • energy resources composed of coal, crude oil, crude bitumen and natural gas
  • mineral resources consisting of gold, iron, copper, nickel, molybdenum, uranium, potash, lead and diamonds
  • timber

In theory, other natural resources could be included in the NRAA, but the necessary data and methods to value resources such as fish stocks are not yet available.

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Annual natural resource wealth estimates: a data series integrating price, production, and resource reserves

Natural resource asset accounts (NRAA) help show a broader dimension to Canada’s national wealth by quantifying the economic value of the stocks of natural resources such as energy resources, mineral resources, timber and land. Although the monetary value of a natural resource asset can be derived using several approaches, the NRAA uses the value of the net present value generated from the resource.

The value of a natural resource stock is primarily determined by its global demand and supply and can fluctuate substantially due to factors such as major discoveries, geo-political uncertainty, and expected growth in resource importing economies such as India and China. The stock’s value is also partly determined by the current value (net present value) of the resource rent,Note 1 which is influenced by market conditions. For example, the recent rapid declines in natural resource wealth have been heavily influenced by the drop in energy resource prices, particularly for crude oil and crude bitumen.

Natural resource wealth is therefore inherently volatile as it embodies highly unpredictable factors such as resource prices, extraction costs and resource rent. The physical reserve of a resource, the basis of the wealth, also occasionally undergoes changes due to extraction, technological advancement and discoveries or re-evaluations of resource stocks.

Currently, Statistics Canada estimates both annual and quarterly NRAA, with both facilitating informed economic decisions. Annual estimates of energy reserves date back to 1961 for some asset types, consistent with the land and produced asset accounts, while most mineral reserve estimates date back to 1976 or 1977.

Addition, extraction and reserve

Natural resources are of two types: renewable resources such as naturally grown timber and fish; and non-renewable resources such as oil, gas and gold. A renewable resource can be sustained if it is not over-exploited; however, the stock of a non-renewable resource is assumed to be fixed even though the total amount is largely unknown. The known physical reserve of a resource, used to calculate natural resource wealth, largely depends on the discovery and extraction of the resource.

Using a set of economic and geological criteria, Natural Resources Canada classifies mineral resource reserves under several classes: proven and probable, indicated and measured, and speculative and hypothetical.Note 2 Statistics Canada assigns monetary value only to those mineral reserves in the first class. Similarly, Statistics Canada limits its natural resource wealth estimates to established reserves for oil and gas and to accessible and harvestable reserves for timber.Note 3

The variation in the size of an established reserve is exemplified by crude bitumen. In 2006, crude bitumen reserves, widely known as oil sands, more than doubled in size reaching 3,340 million cubic metres from the previous year (Chart 1). The reserve continued to increase and peaked at 4,300 cubic metres in 2008 (Chart 1). These fluctuations were driven by factors such as rising energy prices, extraction rates and changes in technology, which increased the portion of the known stock that was economically recoverable.

Chart 1 Established crude bitumen reserves, 1990 to 2014

Data table for Chart 1
Chart 1
Established crude bitumen reserves, 1990 to 2014
Table summary
This table displays the results of Established crude bitumen reserves Million cubic metres (appearing as column headers).
Million cubic metres
1990 524
1991 502
1992 482
1993 458
1994 565
1995 574
1996 661
1997 614
1998 1,336
1999 1,891
2000 1,860
2001 1,830
2002 1,840
2003 1,720
2004 1,660
2005 1,620
2006 3,340
2007 3,500
2008 4,300
2009 4,216
2010 4,130
2011 4,060
2012 4,110
2013 4,009
2014 3,745

Higher resource prices provide an incentive for businesses to expand and intensify exploration and drilling activities. Consequently, new deposits are often discovered. Also, with the advancement of technology, previously discovered reserves may become profitable to extract, and in turn, increase the size of the reserve. This in return would increase the monetary value of the reserves that Statistics Canada assigns to natural resources. For example, extraction of offshore oil and gas resources, which had been discovered in the late 1970s, began only in the late 1990s when it became economically and technologically feasible.Note 4 For similar reasons, diamondsNote 5 discovered in the late 1980s, did not become part of natural wealth until 1998.

Adding natural resource wealth to the National Balance Sheet

Canada’s National Balance Sheet Accounts (NBSA) help track the country’s non-financial capital stocks, including the value of land and of produced assets, including residential and non-residential structures, machinery and equipment, consumer durable goods and inventories.

The National Balance Sheet records national wealth; that is the sum of all sectors’ produced non-financial assets such as buildings, machinery and equipment, as well as non-produced non-financial assets such as land and natural resources.Note 6 For several years, annual stock estimates of Canada’s natural resource asset accounts have also been incorporated in the annual estimates of the National Balance Sheet at the aggregate level. Integrating natural resource assets with other income-generating assets such as land,Note 7 buildings and bridges is essential for tracking the national wealth of a resource-based economy like Canada’s.

Until recently however, natural resource assets were not reflected in the quarterly versions of the NBSA for two reasons: (i) conceptual challenges related to the need to allocate the natural resource assets to the various sectors of the economy, and (ii) the need to develop quarterly estimates to match the frequency of the NBSA.

In December 2015,Note 8 Statistics Canada became one of the first national statistical agencies to integrate natural resource wealth into the quarterly NBSA. Doing so involved developing a robust and rigorous methodology to sector natural resources using Statistics Canada’s annual estimates of natural resource assets as the basis for generating quarterly estimates.Note 9

Moving from an annual estimate to a quarterly

The new quarterly NRAA are produced using the annual natural resource wealth estimates as their basis. They have been produced from 1990 and are also projected forward to 2016 to be consistent with the quarterly NBSA.Note 10

As noted above, there are two key challenges related to using the annual Natural Resource Wealth estimates in the quarterly NBSA. The first is to develop quarterly estimates that reference the same period as the NBSA. The second is to divide natural resource wealth estimates among the various sectors of the economy.

Quarterly estimates are developed using monthly production and prices for each commodity included in the natural resource asset accounts, along with a set of extraction cost indicators. An example of this type of indicator would be production costs such as raw materials and supply, labour and fuel.  In the event that monthly numbers are not available for a particular commodity, an average is taken from the available months to complete the quarterly estimate. The projected estimates are later revised in subsequent quarters when benchmark data and other indicators become available.

The second step in creating quarterly natural resource wealth estimates relates to partitioning the value of these assets between the government and the corporate sectors.

In Canada, natural resources belong to the government, but the exploration and extraction are conducted by private businesses. The resource rent from an extracted resource is shared between the government and corporations; that is, the government collects royalties and corporations earn profits. This allows both to anticipate receiving a stream of income in the future. Accordingly, total natural resource wealth is allocated between the government and corporations based on the split between the amount of royalties collected by the government and the amount of profits earned by the corporations. 

Chart 2 Natural resource assets, corporate and government sectors’ claims, first quarter 1990 to first quarter 2016

Data table for Chart 2
Chart 2
Natural resource assets, corporate and government sectors’ claims, first quarter 1990 to first quarter 2016
Table summary
This table displays the results of Natural resource assets Natural resource assets, Corporations and General governments, calculated using $ billion units of measure (appearing as column headers).
Natural resource assets Corporations General governments
$ billion
1990
Quarter 1 178 120 58
Quarter 2 157 105 51
Quarter 3 158 106 51
Quarter 4 221 145 76
1991
Quarter 1 111 69 42
Quarter 2 60 37 23
Quarter 3 44 28 17
Quarter 4 71 44 27
1992
Quarter 1 94 53 41
Quarter 2 110 62 48
Quarter 3 117 66 51
Quarter 4 131 73 58
1993
Quarter 1 176 113 63
Quarter 2 197 132 64
Quarter 3 174 113 61
Quarter 4 217 139 77
1994
Quarter 1 287 194 93
Quarter 2 309 224 85
Quarter 3 311 214 97
Quarter 4 313 217 96
1995
Quarter 1 421 330 90
Quarter 2 489 408 80
Quarter 3 455 369 87
Quarter 4 456 366 90
1996
Quarter 1 421 323 98
Quarter 2 401 309 92
Quarter 3 397 287 110
Quarter 4 446 327 119
1997
Quarter 1 426 302 124
Quarter 2 401 304 97
Quarter 3 401 293 108
Quarter 4 427 329 98
1998
Quarter 1 323 226 98
Quarter 2 337 266 70
Quarter 3 322 242 80
Quarter 4 359 268 91
1999
Quarter 1 398 306 92
Quarter 2 457 367 90
Quarter 3 511 396 115
Quarter 4 532 399 133
2000
Quarter 1 689 535 154
Quarter 2 790 664 126
Quarter 3 834 645 190
Quarter 4 850 677 174
2001
Quarter 1 914 722 192
Quarter 2 744 605 139
Quarter 3 572 490 82
Quarter 4 419 329 90
2002
Quarter 1 494 386 108
Quarter 2 612 503 109
Quarter 3 572 462 110
Quarter 4 640 509 131
2003
Quarter 1 732 573 159
Quarter 2 625 496 129
Quarter 3 593 467 126
Quarter 4 549 427 122
2004
Quarter 1 764 622 141
Quarter 2 819 663 155
Quarter 3 858 686 172
Quarter 4 850 694 156
2005
Quarter 1 722 567 155
Quarter 2 853 689 165
Quarter 3 1,125 927 198
Quarter 4 1,144 917 226
2006
Quarter 1 796 584 212
Quarter 2 996 768 228
Quarter 3 1,020 776 244
Quarter 4 1,057 877 180
2007
Quarter 1 1,027 832 195
Quarter 2 989 795 194
Quarter 3 873 635 238
Quarter 4 795 575 220
2008
Quarter 1 1,328 1,072 257
Quarter 2 1,802 1,423 379
Quarter 3 1,808 1,356 452
Quarter 4 979 836 143
2009
Quarter 1 484 409 75
Quarter 2 515 387 128
Quarter 3 641 438 203
Quarter 4 704 514 190
2010
Quarter 1 941 713 228
Quarter 2 867 668 198
Quarter 3 809 595 214
Quarter 4 949 746 204
2011
Quarter 1 1,104 870 234
Quarter 2 1,208 961 247
Quarter 3 1,088 848 240
Quarter 4 1,130 888 242
2012
Quarter 1 798 618 179
Quarter 2 850 686 164
Quarter 3 760 544 216
Quarter 4 891 761 130
2013
Quarter 1 721 544 177
Quarter 2 800 639 161
Quarter 3 1,012 791 221
Quarter 4 685 479 206
2014
Quarter 1 1,098 835 263
Quarter 2 1,314 995 318
Quarter 3 999 705 294
Quarter 4 533 363 170
2015
Quarter 1 248 186 62
Quarter 2 494 348 146
Quarter 3 258 197 60
Quarter 4 217 172 45
2016
Quarter 1 248 199 49
Quarter 2 234 188 46
Quarter 3 264 209 55
Quarter 4 293 227 67

Chart 2 illustrates the share of corporations’ and general governments’ claim of natural resource assets. From the first quarter of 1990 to the fourth quarter in 2016, the government’s average share of total natural resource wealth is 23% (Chart 2); this percentage share changes from time to time and from jurisdiction to jurisdiction for each resource. Both government and corporate sector wealth exhibited similar volatility because royalties are closely tied to natural resource prices.

How important is natural resource wealth in Canada’s economy?

Chart 3 Canada's non-financial assets, first quarter 1990 to first quarter 2016

Data table for Chart 3
Chart 3
Canada's non-financial assets, first quarter 1990 to first quarter 2016
Table summary
This table displays the results of Canada's non-financial assets Total, Produced assets, Land and Natural resources assets, calculated using $ billion units of measure (appearing as column headers).
Total Produced assets Land Natural resources assets
$ billion
1990
Quarter 1 2,303 1,627 498 178
Quarter 2 2,291 1,625 510 157
Quarter 3 2,319 1,640 521 158
Quarter 4 2,419 1,673 526 221
1991
Quarter 1 2,341 1,694 536 111
Quarter 2 2,284 1,687 536 60
Quarter 3 2,279 1,694 541 44
Quarter 4 2,325 1,707 547 71
1992
Quarter 1 2,377 1,721 561 94
Quarter 2 2,402 1,726 566 110
Quarter 3 2,441 1,737 587 117
Quarter 4 2,484 1,754 599 131
1993
Quarter 1 2,562 1,771 615 176
Quarter 2 2,599 1,777 625 197
Quarter 3 2,606 1,797 635 174
Quarter 4 2,694 1,823 654 217
1994
Quarter 1 2,803 1,841 674 287
Quarter 2 2,850 1,855 686 309
Quarter 3 2,894 1,879 704 311
Quarter 4 2,937 1,907 717 313
1995
Quarter 1 3,068 1,925 722 421
Quarter 2 3,158 1,938 731 489
Quarter 3 3,155 1,953 747 455
Quarter 4 3,183 1,966 761 456
1996
Quarter 1 3,171 1,977 773 421
Quarter 2 3,175 1,984 790 401
Quarter 3 3,206 2,009 800 397
Quarter 4 3,295 2,030 819 446
1997
Quarter 1 3,308 2,045 838 426
Quarter 2 3,333 2,066 867 401
Quarter 3 3,373 2,092 881 401
Quarter 4 3,445 2,123 895 427
1998
Quarter 1 3,378 2,144 911 323
Quarter 2 3,436 2,166 933 337
Quarter 3 3,455 2,192 942 322
Quarter 4 3,544 2,221 964 359
1999
Quarter 1 3,624 2,243 983 398
Quarter 2 3,740 2,270 1,013 457
Quarter 3 3,838 2,296 1,031 511
Quarter 4 3,912 2,327 1,052 532
2000
Quarter 1 4,118 2,354 1,075 689
Quarter 2 4,260 2,380 1,090 790
Quarter 3 4,347 2,408 1,105 834
Quarter 4 4,418 2,446 1,122 850
2001
Quarter 1 4,525 2,472 1,139 914
Quarter 2 4,404 2,505 1,156 744
Quarter 3 4,272 2,531 1,169 572
Quarter 4 4,168 2,560 1,188 419
2002
Quarter 1 4,290 2,583 1,213 494
Quarter 2 4,457 2,618 1,227 612
Quarter 3 4,468 2,655 1,241 572
Quarter 4 4,591 2,692 1,259 640
2003
Quarter 1 4,726 2,715 1,279 732
Quarter 2 4,670 2,745 1,300 625
Quarter 3 4,690 2,778 1,319 593
Quarter 4 4,761 2,817 1,395 549
2004
Quarter 1 4,986 2,854 1,369 764
Quarter 2 5,112 2,907 1,386 819
Quarter 3 5,215 2,954 1,404 858
Quarter 4 5,271 3,001 1,420 850
2005
Quarter 1 5,229 3,050 1,457 722
Quarter 2 5,441 3,098 1,490 853
Quarter 3 5,807 3,158 1,524 1,125
Quarter 4 5,921 3,221 1,556 1,144
2006
Quarter 1 5,711 3,288 1,627 796
Quarter 2 6,072 3,366 1,710 996
Quarter 3 6,225 3,447 1,758 1,020
Quarter 4 6,370 3,533 1,780 1,057
2007
Quarter 1 6,484 3,602 1,855 1,027
Quarter 2 6,567 3,648 1,931 989
Quarter 3 6,557 3,709 1,975 873
Quarter 4 6,564 3,770 1,999 795
2008
Quarter 1 7,234 3,836 2,069 1,328
Quarter 2 7,824 3,920 2,102 1,802
Quarter 3 7,927 4,013 2,105 1,808
Quarter 4 7,095 4,047 2,069 979
2009
Quarter 1 6,589 4,043 2,062 484
Quarter 2 6,699 4,066 2,118 515
Quarter 3 6,931 4,102 2,188 641
Quarter 4 7,072 4,126 2,242 704
2010
Quarter 1 7,427 4,163 2,324 941
Quarter 2 7,427 4,201 2,359 867
Quarter 3 7,438 4,256 2,372 809
Quarter 4 7,661 4,304 2,409 949
2011
Quarter 1 7,960 4,351 2,506 1,104
Quarter 2 8,185 4,406 2,572 1,208
Quarter 3 8,190 4,475 2,627 1,088
Quarter 4 8,331 4,536 2,664 1,130
2012
Quarter 1 8,158 4,594 2,766 798
Quarter 2 8,349 4,653 2,846 850
Quarter 3 8,374 4,733 2,880 760
Quarter 4 8,599 4,798 2,910 891
2013
Quarter 1 8,538 4,815 3,002 721
Quarter 2 8,746 4,869 3,078 800
Quarter 3 9,127 4,971 3,144 1,012
Quarter 4 8,921 5,035 3,201 685
2014
Quarter 1 9,466 5,091 3,277 1,098
Quarter 2 9,835 5,172 3,350 1,314
Quarter 3 9,649 5,269 3,381 999
Quarter 4 9,265 5,329 3,403 533
2015
Quarter 1 9,112 5,402 3,462 248
Quarter 2 9,462 5,431 3,537 494
Quarter 3 9,347 5,496 3,593 258
Quarter 4 9,361 5,534 3,610 217
2016
Quarter 1 9,513 5,580 3,685 248
Quarter 2 9,616 5,616 3,766 234
Quarter 3 9,784 5,703 3,817 264
Quarter 4 9,920 5,772 3,855 293

The addition of natural resources in late 2015 had a significant impact on fluctuations in the overall non-financial national wealth. Chart 3 shows the NBSA’s major types of non-financial assets on a quarterly basis, including natural resource wealth. The quarterly estimates of natural resources are based on existing annual natural resource wealth estimates (1990 to 2015), including a projection forward to 2016. The main benefit of projecting these figures forward is to provide a comparison to other types of capital in the latest estimates of the NBSA.

In the fourth quarter of 2016, total national wealth—the sum of produced assets, land and natural resources—grew 1.4% reaching $9,920 billion. Produced assetsNote 11 and landNote 12 grew 1.2% and 1.0% respectively, and natural resource assets increased 11.1%.

These three separate components of national wealth do not always behave in a similar manner. Chart 3 shows that the pace of growth for both produced assets and land has been relatively steady, reaching $5,772 billion and $3,855 billion in the fourth quarter of 2016, respectively. By contrast, natural resource wealth, with its tie to global natural resource prices, is much more volatile. This demonstrates that including natural resource wealth in the NBSA has a significant impact on the aggregate wealth measure, while helping to highlight the impact of these assets on the Canadian economy.

Chart 4 Natural resource wealth, first quarter 1990 to first quarter 2016

Data table for Chart 4
Chart 4
Natural resource wealth, first quarter 1990 to first quarter 2016

Table summary
This table displays the results of Natural resource wealth $ billion (appearing as column headers).
$ billion
1990
Quarter 1 178
Quarter 2 157
Quarter 3 158
Quarter 4 221
1991
Quarter 1 111
Quarter 2 60
Quarter 3 44
Quarter 4 71
1992
Quarter 1 94
Quarter 2 110
Quarter 3 117
Quarter 4 131
1993
Quarter 1 176
Quarter 2 197
Quarter 3 174
Quarter 4 217
1994
Quarter 1 287
Quarter 2 309
Quarter 3 311
Quarter 4 313
1995
Quarter 1 421
Quarter 2 489
Quarter 3 455
Quarter 4 456
1996
Quarter 1 421
Quarter 2 401
Quarter 3 397
Quarter 4 446
1997
Quarter 1 426
Quarter 2 401
Quarter 3 401
Quarter 4 427
1998
Quarter 1 323
Quarter 2 337
Quarter 3 322
Quarter 4 359
1999
Quarter 1 398
Quarter 2 457
Quarter 3 511
Quarter 4 532
2000
Quarter 1 689
Quarter 2 790
Quarter 3 834
Quarter 4 850
2001
Quarter 1 914
Quarter 2 744
Quarter 3 572
Quarter 4 419
2002
Quarter 1 494
Quarter 2 612
Quarter 3 572
Quarter 4 640
2003
Quarter 1 732
Quarter 2 625
Quarter 3 593
Quarter 4 549
2004
Quarter 1 764
Quarter 2 819
Quarter 3 858
Quarter 4 850
2005
Quarter 1 722
Quarter 2 853
Quarter 3 1,125
Quarter 4 1,144
2006
Quarter 1 796
Quarter 2 996
Quarter 3 1,020
Quarter 4 1,057
2007
Quarter 1 1,027
Quarter 2 989
Quarter 3 873
Quarter 4 795
2008
Quarter 1 1,328
Quarter 2 1,802
Quarter 3 1,808
Quarter 4 979
2009
Quarter 1 484
Quarter 2 515
Quarter 3 641
Quarter 4 704
2010
Quarter 1 941
Quarter 2 867
Quarter 3 809
Quarter 4 949
2011
Quarter 1 1,104
Quarter 2 1,208
Quarter 3 1,088
Quarter 4 1,130
2012
Quarter 1 798
Quarter 2 850
Quarter 3 760
Quarter 4 891
2013
Quarter 1 721
Quarter 2 800
Quarter 3 1,012
Quarter 4 685
2014
Quarter 1 1,098
Quarter 2 1,314
Quarter 3 999
Quarter 4 533
2015
Quarter 1 248
Quarter 2 494
Quarter 3 258
Quarter 4 217
2016
Quarter 1 248
Quarter 2 234
Quarter 3 264
Quarter 4 293

The role played by natural resource assets in the economy is highlighted in Chart 4, which shows that natural resource wealth peaked at $1,808 billion in the third quarter of 2008 due to record-high oil prices coupled with increases in the energy resource reserves. However, it quickly plummeted in the next two quarters because of the sharp drop in energy resource prices in the wake of the 2008 global financial crisis. The drop in energy prices was driven by decreased oil prices in the global market.

Changes in oil prices also had an important impact on the relative composition of natural resource wealth. In 2010, energy reserves accounted for 62% of total natural resource wealth; mineral and timber resources 25% and 13% respectively.Note 13 By 2015, however, timber had become the most valued resource accounting for 55% of total natural resource wealth, followed by minerals at 26% and energy at 19%. This significant change was due to a drop in energy resources in 2015 due to lower crude bitumen prices. As a result, this also increased the shares of mineral and timber resources of total natural resource wealth.

Acknowledgements

EnviroStats is produced under the direction of Kevin Roberts, Director of Environment, Energy and Transportation Statistics Division.

Editor-in-Chief: Carolyn Cahill

Editor: Iman Mustapha

Acknowledgements: Matthew Kelly, Abdoul-Razak Mamane, Emmanuel Manolikakis, Adian McFarlane, Joe St. Lawrence, Jenny Wang, and Michael Wright.



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