Alberta from Mars – Canada from Venus

“Oil is dead,” pronounced Green Party Leader Elizabeth May. “Oil is never coming back,” says Bloc Leader Yves-François Blanchet.  Their extremist statements are wrong and misinformed. But they demonstrate how the anti-energy narrative plays in parts of Canada.  It seems many Canadians have come to loathe the oilsands!  Over the past 5 years, the unrelenting war by the federal government on Alberta’s energy industry has created new levels of regional tension.

Alberta’s policy position isn’t helping either. It is tone deaf to much of Eastern Canada.  The Alberta government’s opposition to the carbon tax sounds like ‘climate change denying’ to many Easterners.  Alberta votes are irrelevant in the calculation of Parliamentary seat totals for the Liberals, the NDP, the Green Party and the Bloc Québécois.

There are important messages in all this

Message One – The May – Blanchet pronouncements are just an extension of an existing Canadian narrative.

The activist environmental industry sees the oilsands and Canada as a soft target.  Well-funded NGOs have launched numerous public relations initiatives and protests against the oil and gas industry.  

The Liberal government proposed that some pipelines would be permitted while others killed. But the environmental movement never bought into the so-called ‘Grand Bargain’.

The Liberal government also made it clear through regulations and legislation that energy industry expansion wasn’t welcome in Canada.  Industry got the message and massive disinvestment became routine. 

Message Two – The economic damage in Alberta and Canada from low oil prices and constrained market access is dramatic.

The 5-year economic struggle in Alberta has been long and torturous.  Unemployment levels rival those in Newfoundland.  Workers overall suffered a 10% decline in wages.  Weak prices, soft demand and oversupply are becoming a common refrain for all of Alberta’s commodities.

But mostly missing in this conversation is the value of oil to the Canadian economy.  Alberta’s energy sector contributes $70-80 billion to Canada’s nominal gross domestic product annually.  By comparison, auto manufacturing contributes $20 billion and aerospace $13 billion to Canadian GDP.  The anti-oil advocates discount the damage with happy talk about renewable energy but do not account for the potential loss of $113 billion in exports annually (about 25% of all exports).

Message Three – There is no short-term fix.

In March, in response to the COVID-19 pandemic and a price war, it looked like the federal government might be preparing a rescue package for the energy industry.  That caused 208 environmental groups to petition Prime Minister Trudeau to stiffen his anti-oil resolve.  And 265 academics signed a letter suggesting that the oil industry should be left to die, with funding to be re-routed to green energy development.

A modest program of $1.7 billion consisting of debt financing for service companies and a grant to Alberta’s abandoned oil wells clean-up was finally announced.  The federal government says more help is on the way. 

Meanwhile in Alberta, companies have slashed capital budget expenditures. 

  • Suncor reduced its capital expenditures by $1.5 billion to roughly $4.0 billion for 2020.  
  • Imperial Oil reduced its spending by $500 million (30%). 
  • Pembina Pipeline reduced spending from $2.3 to about $1.4 billion. 
  • Cenovus reduced its capital budget by $500 million to 1.0 billion.  
  • Canadian Natural reduced its capital budget by $1.0 billion to $3.0 billion. 

In many cases the capital spending was accompanied by production cuts.

What responses can Severely Normal Albertans hope for?

  • The economic losses in the oil patch will mount.  Global energy is difficult to predict. Perhaps a “V” shaped recovery will emerge after the pandemic. And the Saudis and Russians may launch another attack on North American oil production.
  • Perhaps Canada and the US acting together can blunt the Saudi’s interest in another price war.
  • The federal government has painted itself into a philosophical corner.  No bailout like the 2009 auto sector is politically possible.  Nor would energy companies find federal control of their business at all desirable.
  • What is needed most is debt financing and perhaps technology development subsidies to reduce the carbon footprint of the oilsands.
  • Linked to the energy discussion is the massive wealth transfer from Alberta to fund programs in the rest of Canada. This is particularly jarring during this crisis time in Alberta.  Yet the appetite to deal with western alienation doesn’t seem to have much traction in Ottawa.  There isn’t any observable intention to fix the Equalization Program that subsidizes Quebec by about $13 billion annually.  
  • This is a good moment to shift a big chunk of the funds out of the Equalization Program into the Health and Social Transfer programs where funding is calculated on a per capita basis.
  • The Alberta government finds itself ‘stuck in the middle’; forced accept a deficit of $20 billion in the next year without any workable economic or fiscal blueprint going forward.  
  • Now is the opportunity for a public discussion about how to fix the chronic deficit problem.  Cost cutting is necessary, but new revenue options are needed too.
  • The negative comments from May and Blanchet will not soon be forgotten.  Whether intentional or not they gave the flagging Wexit movement a shot in the arm.
  • Severely normal Albertans might now hope that the federal government makes it crystal clear that Canadian energy resources do indeed have a future in the country.