How much of our 7.7% inflation rate is caused by higher energy prices?

More than half, the ugly secret the Trudeau Liberals keep quiet about and Biden denies

Canada produces 673,643 cubic meters of oil per day in Western Canada and 27,414 cubic meters in the East, according to the Canada Energy Regulator. A cubic meter of oil comprises 6.28987 barrels, so for an old oil investor like me that total is 4.4 million barrels a day. Canada produces about 16 Bcf/day of natural gas and about 1.2 million barrels a day of natural gas liquids. At ~$100 a barrel for oil and natural gas liquids and ~$6 per thousand cubic feet of natural gas, that production has an annual value of $239 billion. Here is the breakdown:

Oil 4.4 million x 365 days x $100 = $160.6 billion
Gas 16 Bcf x 365 days x $6,000,000 per Bcf = $35 billion
NGL 1.2 million x 365 x $100 = $43.4 billion

TOTAL $239 billion

For reference, Canada’s GDP is approximately $1.7 trillion.

For interest, the United States is not much better. Oil consumption of 19 million barrels a day and natural gas usage of 95 Bcf a day at $108 WTI and $5.70 Henry Hub for gas while coal prices are up ~180% on annual usage of 488 million tons.

Source: Trading Economics

That adds up to $1.2 trillion of hydrocarbon consumption. Prices have risen ~50% in the past year, adding $600 billion to the price of energy in an economy with a $21 trillion GDP. Hydrocarbon prices have added 600/21000 x 100 = 2.9% to U.S. inflation from wholesale prices alone, and with refining margins rising by $40 a barrel that inflates to 4.7 percentage points of inflation now measured at ~8%. More than half the U.S. rate of inflation is nothing more than rising hydrocarbon costs.

How about Canada? Canadian exports of oil and gas totaled $102.1 billion in 2019 and at today’s export prices is closer to $120 billion or about half of the total production. The rest is consumed domestically since very little goes into storage (and in the case of natural gas, storage has been declining for the past year or two).

Of course, those data are wellhead prices. Refining margins for oil today add about $40 a barrel to the price of domestically consumed oil and natural gas processing and distribution costs which some estimates put at about $8 billion (in year 2000 dollars) which adjusted for inflation would be close to $20 billion today.

Like it or lump it, Canadian fossil fuel energy costs total somewhere around $140 billion a year or just over 8% of GDP. Canadian gas and oil costs have more than doubled in Canada in the past year suggesting that at least 4 percentage points of the 7.7% inflation reported recently is higher energy costs. Energy costs are passed on and marked up by transportation companies and with Canada 3,500 miles wide and about 100 miles deep, railroads, trucks and great lakes ships are in constant motion delivering goods to Canadians. The foregoing inflation estimate excludes the impact of Trudeau’s ill-conceived carbon tax from which Ottawa collects about $3 billion at current rates all of which directly adds to inflation. ¹

Economists spending their time estimating the impact of supply chain issues, demand pressures, wage pressures, or the war in Ukraine are ignoring the actual cause of inflation - a global energy shortage created by left-wing governments promoting the specious theory that CO2 emission cause global warming and enacting policies to promote costly and unreliable “renewables” while vilifying fossil fuels. This is the height of stupidity.

Now that our governments (Trudeau and Biden in particular) have created rampant inflation they will further damage our economy to reign it in with nosebleed interest rates which will be a band aid on the problem. A deep recession, a collapse in housing prices and a few million more unemployed will result and there will be a short period of lower commodity prices including oil & gas as the economy contracts, but no one is going to increase hydrocarbon supplies during that downturn. As the recession ends (as they always do) demand will recover and energy costs will rise to even higher levels since the only way to constrain the global price of hydrocarbons is increased supply and the climate nutters in Washington and Ottawa will not support this vital industry and its ability to right the ship.

The solution to our economic problems is at the ballot box. Throw these lunatics out of Ottawa and Washington, elect leaders with at least a high school foundation in the laws of physics and economics, and march ahead. In Canada, Pierre Poilievre is our best bet. In the United States, Ron De Santis looks promising. For certain, it is not Biden or Trudeau.

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(CO2 is demonstrably harmless and the carbon tax does nothing but give the climate nutters a virtue-signaling warm feeling as if they were ‘saving the planet’ when they are the actual threat to the planet).