NWT State of the Environment Report

3. Driving Force - Economy

Le rapport sur l’état de l’environnement 2022 est un document technique destiné à un usage interne. Il n’est disponible qu’en anglais.

Introduction 

The links between the economy and the environment are complex: the environment provides resources to the economy and acts as a sink for emissions and waste. Natural resources are vital inputs for production in many sectors, while production and consumption also lead to pollution and other pressures on the environment. Lessons from around the world demonstrate that a healthy and sustainable environment is key to a healthy, sustainable economy.

Changes in the economy can become a driving force for changes in the environment. These economic indicators provide information about overall changes in the NWT economy, and specific changes in the oil and gas and mineral sectors, sectors that have direct impacts on the NWT environment.

3.1 Trends in Gross Domestic Product and other macroeconomic performance metrics

This indicator reports on a set of macroeconomic performance metrics selected in the NWT Macroeconomic Policy Framework. Data and information used for this indicator are obtained from the NWT Bureau of Statistics, and from the 2022-23 Economic Review budget paper.

Gross Domestic Product (GDP) is a measure of the value of goods or services produced in an economy (minus the intermediate inputs used to produce the goods and services) over the course of the year. For the NWT, the GDP includes all goods and services produced within the NWT, regardless of whether the producer is an NWT resident or a foreign firm.

Ekati Diamond Mine, NWT - R. Mulders
This indicator was prepared by the Government of the Northwest Territories, Department of Environment and Climate Change, using information obtained from NWT Stats and Statistics Canada.

 

NWT Focus

A sizeable portion of the NWT economy is directly connected to the extraction of non-renewable resources, such as diamonds or oil and gas extraction. Of these industries, diamond extraction is the largest sector. Due to the NWT economic dependency on this non-renewable sector, the NWT’s GDP is highly impacted by the volatile nature of global demand and price of commodities.

 

Current View: status and trend

Real GDP of the NWT increased from $3.3 billion in 1999 to a high $4.7 billion in 2007, before declining to $4 billion by 2020 (Figure 1; Ref. 1).

Since 2003, many sectors of the NWT economy have fluctuated significantly. Mining and oil and gas extraction, the primary sector of the NWT economy went from a value of $2.4 billion in 2003 to $1.2 billion in 2013, to $1.3 billion in 2019. During Covid-19 lockdowns, real GDP growth has occurred in the educational services and public administration sectors (Ref. 2) while most sectors declined.

Statistics Canada reported a decline in real GDP of 10.5% between 2019 and 2020 (Ref. 3). The largest contributor to the NWT’s GDP, the mining, oil and gas extraction industry, fell by 30.4% between 2019 and 2020. This large decline was largely a result of Ekati Diamond Mine going into care and maintenance in 2020. While overall diamond production was up at the mine, low revenue occurred due to lower carat quality. In 2021, both the diamond industry and the Real GDP in the NWT are estimated to have increased compared to the lows in 2020, with diamond production up an estimated 4.5% and the GDP 3.7%. 

The oil and gas extraction industry expanded when the Norman Wells oil field resumed operations in late 2018 after a temporary shutdown to fix a portion of the Norman Wells pipeline. Completion of the pipeline repairs contributed to the 25.5% decrease in the engineering construction portion of the GDP, while completion of the Stanton Hospital Renewal Project contributed to the 53.3% decline in non-residential building construction (Ref. 4).

Overall, construction increased by 21.5% between 2019 and 2020. Several service producing industries such as accommodation and food services, transportation and warehousing, wholesale, also declined between 2019 and 2020. This decrease was driven by the effects of COVID-19 that were experienced mostly by mining, industries that support mining, and the tourism and hospitality industries. Other industries such as construction, retail trade and finance and insurance increased over this period. Among service producing industries, the largest percentage increase occurred in retail trade which increased by 4.4% in 2020 (Ref. 4). For more information on the impact of COVID on the NWT economy, consult the NWT Economic Review (Ref. 5).

Figure 2 shows the distribution of GDP by sector in 2020. It appears that the largest contributors to the formation of GDP in Northwest Territories are Public administration, Other and Mining, quarrying, and oil and gas with a respective share in GDP of 20.1%, 16.9% and 14.9%. These three sectors together represent more than 51.9% of the territory's production.

Figure 2. Statistics Canada. Gross domestic product (GDP) at basic prices, by industry, provinces and territories, percentage share (Ref. 6)

 

The NWT Economic Review states that, “Eight of the 13 indicators are negative, with the key drivers of GDP and productivity signaling economic decline. In the following figure, the indicators with red bars show a negative percentage change in their values and the indicators with green bars show a positive percentage change in their values since benchmark year of 2007. However, these indicators do not necessarily provide an accurate measure of the economy since 2020 data is from the lowest point in the pandemic is compared to 2007, when the territory’s fourth diamond mine was being constructed and there was much more activity in the NWT economy.” (Ref. 5).

Figure 3. Macroeconomic Policy Framework performances indicators (metrics) (Ref. 4).

 

Looking around

Real Gross Domestic Product fell by 10.5% between 2019 and 2020. In contrast, Nunavut experienced the largest increase of 4%, and the Yukon experienced a 1% growth over the same period, both expanding due to growth in their mining sectors. The other two territories were the only jurisdictions to experience an increase in 2020; whereas the Canadian GDP decreased on average 5.4%. (Ref. 6)

 

Looking forward

The GNWT continues to work to diversify its economy through conservation, remediation, fishing, forestry and knowledge economy initiatives (among others) but in the near future, the NWT economy is expected to remain largely based on non-renewable resources. Currently, the NWT economy is structured around the mining industry, which is influenced by the global economy (Ref. 5). Current and future global economic uncertainties are directly reflected in short-term financial decisions made by resource industries, which in turn result in an NWT economy that follows a “boom and bust” pattern.

 

References

Ref 1. NWT Bureau of Statistics. 2020. GDP for Canada, Provinces and Territories, 1999 to 2019. Available at https://www.statsnwt.ca/economy/gdp/

Ref 2. NWT Bureau of Statistics. 2020. NWT GDP by Industry, 1999-2019. Available at http://www.statsnwt.ca/economy/gdp/

Ref. 3. Statistics Canada. Table 36-10-0400-01 Gross domestic product (GDP) at basic prices, by industry, provinces and territories, percentage share.

Ref 4. NWT Bureau of Statistics. 2020. Gross Domestic Product Northwest Territories, 2019 Preliminary. Available at https://www.statsnwt.ca/economy/gdp/June2020_GDP.pdf

Ref 5. GNWT, Finance. 2021. Economic review 2021-2022. Northwest Territories. Available at https://www.fin.gov.nt.ca/sites/fin/files/resources/2022-23_budget_address_and_papers_final.pdf

 

3.2 Trends in oil and gas and mineral production

This indicator measures trends in the production of two of the main drivers of the economy in the NWT: oil and gas and minerals, mainly diamonds as of 2022.

Production is reported in volume produced for oil and gas, and volume of shipments for minerals.

This indicator was prepared by the Government of the Northwest Territories, Department of Environment and Climate Change, using information obtained from Natural Resources Canada, as summarized by Statistics Canada. Production of oil and gas was obtained from NWT Bureau of Statistics, with data from National Energy Board and Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC).

 

NWT Focus

Today, the NWT economy is driven mostly by the diamond mining industry. In the past, mining of other minerals was a major economic driver. Oil and gas production will have a declining impact on the economy over the next ten years (Figure 1). With the implementation of the carbon emissions tax, it is probable that the NWT will be an economically unfeasible location for large scale fossil fuel production, compared to the breakeven points of wells in the United States and Alberta.

 

Current View: status and trend

Oil and Gas

Figure 1: Source: NWT Bureau of Statistics. 2022. Annual Volume of Gas and Oil Production by Commodity.

 

Both oil and gas production in the NWT has been declining since 2002. There is currently one oil production field in the NWT at Norman Wells (Imperial Oil). Cameron Hills (Strategic) last produced oil in 2015. Total oil production in the NWT in 2021 was 324,000 m³. The total aggregate natural gas production in the NWT was 58 million m3 in 2021. Gas production in the NWT occurs at two locations; Norman Wells (Imperial Oil), and Inuvik (Ikhil: AltaGas). Production levels in Inuvik continue to be low annually as efforts to conserve reservoir pressure remain in place, with approximately 4.4 million m3 of natural gas produced during 2021. Gas from this field is used as a back-up system for power generation in Inuvik. There has been no production occurring at Cameron Hills since 2015 when the field was shut in because of low oil prices. (Ref 1)

In 2019, no new exploration or development wells were drilled or seismic acquired in the Northwest Territories. The last four exploration wells were drilled in the Central Mackenzie Valley; 71 kilometers of 2D seismic was acquired in 2013.

The Inuvialuit Energy Security Project is intended to start production of liquefied natural gas and synthetic diesel to supply the Inuvialuit region once the regulatory process is complete. The key benefits of the project include NT resource development, energy security, reduced cost of living, regional economic development, employment, contracting, training and capacity building opportunities, and reduction of GHG emissions.

 

Minerals

In the past, NWT mines produced gold (16 mines, 1938 to 2004), silver (5 mines, 1966 to 1984), and uranium (2 mines, 1933 to 1982) in the Taiga Shield ecozone, and tungsten (1 mine from 1962 until 2007) in the Taiga Cordillera. Lead/zinc (1 mine, 1966 to 1988) was produced in the southern part of the Taiga Plains. The first closure of the diamond mines (Snap lake, 2008 to 2015) is scheduled to begin in 2022.

Diamonds are now the main minerals being produced: As of 2022, there are three diamond mines in operation, all located in the North Slave region:

  • Diavik Diamond Mine
  • Ekati Diamond Mine
  • Gahcho Kue Diamond Mine Project

Figure 2: Source: NWT Bureau of Statistics. 2022. Annual Volume of Mineral Production by Commodity

 

Mineral exploration in the NWT continues to fluctuate year to year. In 2003, the value of mineral exploration in the NWT was at a low of $53.6 million. By 2007, that number had reached $193.7 million worth of exploration dollars. For 2013, mineral exploration had again dropped to a value of $90 million. This fluctuating trend continued into 2021 and 2022 exploring intentions.

 

Looking forward

The COVID 19 pandemic was one of the primary reasons for the spike in the gold and silver prices in 2020. As precious metals are following the market correction in 2021, it is important to note that over the past twelve months, we have witnessed tremendous economic volatility, frugal spending from investors, relocation and shut down of metal refining and processing facilities, disruptions in shipping and logistics sector and lately the political willingness to accelerate for a cleaner and low carbon economy. This will increase the demand for battery metals and electric vehicles, and the increased demand will be advantageous for NWT due to rare earth minerals located in the territory.

 

Find out more

More detail on oil and gas in the NWT and on future projects related to the industry can be found on ITI web pages at https://www.iti.gov.nt.ca/en/oil-gas

For the dollar values of oil and gas and mineral production, refer to NWT Bureau of Statistics most recent date at http://www.statsnwt.ca/economy/minerals/

For more information on historical mine activities go to NWT & Nunavut Chamber of Mines website at http://www.miningnorth.com/

 

References

Ref 1. GNWT - ITI. 2019. NWT Oil and Gas Annual Report. https://www.iti.gov.nt.ca/sites/iti/files/nwt_oil_and_gas_report_2019.pdf

Ref 2. NWT Bureau of Statistics. 2022. Minerals. Value of Mineral Exploration and Deposit Appraisal Activity, NWT, 1999 to 2022i.

 

3.3. Trends in global markets for natural resources

This indicator reports on prices for certain commodities that are important to the NWT economy. The natural resource price index provides an indicator of the global supply and demand for NWT’s main renewable and non-renewable resources that sell on the world market.

This indicator was prepared by the Government of the Northwest Territories, Department of Industry, Tourism and Investment and Environment and Climate Change, with data summarized from NWT Stats (Ref. 2), Statistics Canada (Ref. 3) and fur data from GNWT (Ref. 4, Ref. 5)

 

NWT Focus

As global prices for natural resources fluctuate, prospects for exploration and development of some of the NWT’s resources also change. These driving forces have affected past land use patterns in the NWT and will continue to affect the NWT environment in the future. Fur prices are one of the main causes for changing participation in the trapping portion of the traditional economy in the NWT.

 

Current View: status and trend

Energy, Minerals and Timber

The all-items global natural resource price index decreased on average more than -5.5% per year from 2012 to 2021 (Figure 1, Ref. 3). The declines in prices in 2014 and 2016 were primarily driven by supply factors, including booming U.S. oil production, receding geopolitical concerns, and shifting OPEC policies, which triggered slowdowns in the global economy. Then between 2017 and 2018 the price index had a correction upwards. However, starting in late 2019 there was a sharp increase in resource prices caused by the COVID-19 pandemic lockdowns and the resulting supply chain issues.

Volatility in the energy resource price index was the main factor for the volatility in the all-items natural resource price index (Figure 1). During the last decade, the timber resource price index grew on average by 21% per year, while minerals and the energy resource index decreased by 1.2% and 10% respectively on average.

Figure 1. Canada’s natural resource prices index, expressed as an annual rate of change compared to a base year (2012=100 in millions). Source: Statistics Canada, Ref. 3.

 

Fur Industry

Fur prices increased steadily in Canada after the Second World War when a large influx of women in the job market created a strong demand for fur items that had previously only been available to the wealthy. By the late 1980s, the demand and price of furs had increased to an all-time high. Prices collapsed in the early 1990s with large-scale campaigns for the abolition of trapping and changes in the fashion industry (Figure 2). By 2019, the price of marten pelts had returned to about the same value, accounting for inflation, as the 1960s (Figure 2).

Figure 2. Number of NWT marten pelts sold at international auctions (bars) and average price obtained (indexed to 2008) of marten fur pelts sold (line) from 1957-58 to 2021-22. Indexing was calculated using inflation rates from Canada Inflation calculator at http://www.bankofcanada.ca/en/rates/inflation_calc.html. For example, due to inflation, receiving $6.71 for a pelt in 1958 was equivalent to receiving $51.53 for it in 2008. Source: GNWT ITI and GNWT ECC, unpublished data, Ref. 5)

 

From 2013 to 2021, there was a rise in fur domestic sales and a decrease in export sales because of changes in the international fur market and the overall decline in fur usage. However, in the NWT there was an increase of traditional crafters using fur. This is likely due to the increasing value and recognition of Indigenous fashion and art in the marketplace, as well as the rise in local sales for traditional crafts due to less people travelling (and more people staying home and making crafts) during COVID-19. This increase is reflected in the volume of fur and hide sold through the Hide and Fur Program (Ref. 4), which provides crafters across the NWT access to affordable materials to help support and encourage the making and selling of their craft.

 

Looking forward

From 2012 to 2021, the all-items extraction cost index decreased, on average, by 5.5% per year. This decrease was mainly due to the booming U.S. oil production that caused an oversupply of oil in the global market and drove down prices, as well as the overall impacts to the economy due to the halt to economic activity caused by the COVID-19 pandemic. These economic effects have either been cancelled out or made more volatile by the inflation in 2022 and the Ukraine-Russia war, as energy costs are skyrocketing due to sanctions on Russa, a large oil exporter.

The price of pelts on international markets can vary with the global economy and trends in fashion. They also vary depending on winter weather. Warm winters in China and other major fur buying areas result in low fur sales. Warm winters in the NWT produce poorer quality furs, resulting in low prices. On the other hand, an extremely cold or snowy season may reduce pelt availability, increase demand, and increase price. Competition from the wage economy can also reduce the number of furs harvested, reducing supply, and increasing price. How weather and competition will affect the future of the trapping industry in the NWT is uncertain.

 

Find out more

For more information on natural resources and the economy visit https://www.nrcan.gc.ca/science-data/data-analysis/10-key-facts-canadas-natural-resources/16013

 

Technical Notes

Resources are grouped as Energy (natural gas, crude oil, oil sands, and coal), Minerals (gold-silver, nickel-copper, copper-zinc, lead-zinc, molybdenum, uranium, potash, and diamonds), and Timber (timber stocks that are physically accessible and available for harvesting). Most of these resources, except potash, are present in the NWT.

The fur price indicator tracks the average annual price obtained per marten pelt. Marten is the most important species in terms of revenue for the NWT’s fur industry. GNWT compiles information on pelts sold at international auctions in Canada.

 

References

Ref. 1.  Islam, K. 2007. Canada's natural resource wealth at a glance. EnviroStats 1:4-5.

Ref. 2.  NWT Stats. 2021. Value of Exploration and Deposit Appraisal Activity. 1999-2020. Available at: https://www.statsnwt.ca/economy/minerals/Annual%20Mineral%20Production2019.xlsx

Ref. 3.  Statistics Canada. 2020. Natural resource price index. 2001 – 2019. Available at: https://www150.statcan.gc.ca/n1/daily-quotidien/200414/cg-a002-eng.htm

Ref. 4.  ITI. 2021. Fur and Hide Program. Available at: https://www.iti.gov.nt.ca/en/services/genuine-mackenzie-valley-fur-program/hide-and-fur-program

Ref. 5. GNWT. 2020. Fur export data (unpublished). Available upon request.