On Alberta, and Canada, after the end of the oil advantage

The collapse of oil prices worldwide has hit many oil-exporting economies hard. Here in Canada, Alberta has been hit particularly hard. A recent CBC post illustrating a Facebook post
which went viral underlines the issue.

An oilpatch worker's widely shared social media post accuses Justin Trudeau of ignoring Alberta's economic pain and pleads for help during the economic slump.

Since Lloydminster's Ken Cundliffe posted the letter on Jan. 10, it has been shared thousands of times.

"Since you will not acknowledge what the low oil prices have done to our own people, I will," wrote Cundliffe, an operator with Husky Oil. "It's hard to say in words how scared and desperate people are becoming."

The letter paints a dire picture of layoffs and unemployment insurance running out for many, alongside a jump in theft and suicide rates.

"Alberta has not taken an equalization payment for over 50 years and has done more than its fair share in supporting the East in that time. Now that the Alberta economy is struggling due to low oil prices, why do you refuse to acknowledge the problem?" he wrote, questioning why the Liberal government has given away "BILLIONS of Canadian taxpayer dollars to other countries."

"Please start helping our own people through these tough times," the letter urged.

Some might disagree with the angst, but the scale of the collapse is real. Jason Markusoff's article in MacLean's, "The death of the Alberta dream", outlines the scale of Alberta's issues.

the great oil rout of 2014-15 seemed, at least at first, to be following a similar pattern to other busts. Some big oil sands projects get delayed, rig and well activity shrivels and Employment Insurance rolls spike, leading to knock-on effects: Calgary towers thin out, the real estate market softens, and cuts spread to everything from shops to restaurants. Yet past plunges were reliably followed by a bungee-like snap back in growth, as oil prices regained their upward momentum. It’s a pattern a generation of Albertans has come to expect, after the 1998 Asian financial crisis, the 9/11 terrorism shock and the 2008 financial crisis.

But the broad optimism of early 2015 has gradually given way to dread. This feels more like the awful 1980s, with no swift recovery to come—not in a world glutted by oil, as Saudi Arabia battles to squeeze out higher-cost producers like Russia and the United States. Before Christmas 2014, as prices thudded from above US$100 per barrel to below US$60 for the first time since the Great Recession, oilpatch observers wondered how soon US$80 oil would return. Instead, the OPEC cartel’s decision to keep pumping, and the surprising resilience of U.S. producers, have pushed oil down to below US$40.

Energy companies are preparing for a grim 2016. Analysts predict budgets will get slashed further, and that more energy firms may have to cut staff, having already laid off thousands. Ongoing oil sands construction projects will continue to wind down with little to replace them, hitting both the residential and commercial real estate sectors hard. For instance, in nearly one-sixth of all the office space in downtown Calgary, the fluorescent lights now shine on empty cubicles, and it’s forecast to get worse. Reports of the symptoms pop up almost daily: more insolvencies, more business for moving trucks and repo crews, even a noticeable uptick in suicides. The Calgary Stampede itself has been forced to lay off staff, as its offseason event bookings dried up. In November, the Alberta unemployment rate came within one-tenth of a percentage point of the national average, the closest it’s been since 1989. Those trend lines are expected to cross over next year, making it more clear to Canadian job-seekers that the Alberta dream is in decline.

The rest of the country isn’t immune from those ominous grinding sounds coming from Canada’s longtime economic engine. Canadian GDP dipped into recession territory in the first half of 2015 on the oil shock, and though the country managed a rebound in the third quarter, Alberta’s troubles—as well as slumps in other oil-rich provinces like Saskatchewan and Newfoundland—have left a gaping wound. The energy sector had long driven Canada’s trade surplus, papering over weakness elsewhere while soaking up large numbers of unemployed and underemployed people from regions like the Maritimes and hard-hit southwestern Ontario. Many economists predict a gradual rebound, but nothing head and shoulders above national growth rates, as had been typical for Alberta. “Average growth” is an unfamiliar term in Alberta, and will take some getting used to.

But even average growth seems a ways off, as troubles keep filtering through the province. In Alberta’s southeast, Medicine Hat drew international acclaim in the spring of 2015 after it became the first city in Canada to eliminate homelessness, having pursued an ambitious five-year agenda to put people into subsidized housing within 10 days of them landing in emergency shelters. After so much progress, Medicine Hat’s Salvation Army shelter is back to averaging 17 clients a night, up about one-third since 2014—too many to promptly find them all affordable housing. Local demand for donated clothing and household items also rose by more than a quarter over the last year, says manager Murray Jaster. But donations slumped too, and he had to reduce staff. When he’s out along the Trans-Canada Highway that dissects Medicine Hat, Jaster has noticed more hitchhikers than he’s seen in years—people looking to take the long road home, or perhaps to wherever in Canada the jobs may be. “Man, we’re a have-not province all of a sudden,” Jaster says. “Who can believe it? I can’t.”

As Toronto Star writer Antonia Zerbiasias noted in her "Ottawa’s focus on Alberta oilsands is killing manufacturing jobs in Eastern Canada, economists say", many of these returning migrants won't find jobs at home. The high Canadian dollar of previous years, sustained by high oil prices, may have inflicted Dutch disease on the Canadian industrial sector.

In his report, Coulombe and his co-researchers determined that our petro-currency was responsible for 42 per cent of job losses between 2002 and 2007. That translates to at least 140,000 manufacturing jobs gone as a direct result of the oilsands development.

It didn’t get any better after that. Our manufactured exports dropped another 12.6 per cent between the second quarter of 2007 and the first quarter of 2011.

If Dutch Disease is allowed to spread, Coulombe and other economists warn, Canada’s ailing manufacturing sector will face still more job losses, while consumers, farmers and non-oil producing industries will feel increasing pain through inflation and gas prices at the pump.

The long-unprofitable oilsands, which require the expensive and water-intense extraction of tarry bitumen, suddenly became economically feasible.

That increased oilsands development boosted crude exports. By 2006, oil became our biggest export, displacing autos and auto parts. The loonie surged against the weakening U.S. dollar. That made our manufactured exports — long dependent on a low Canadian dollar — more expensive. And that cost factory workers jobs.

Over the past year, alarm bells have been sounding.

As noted by the CBC in relation to the Atlantic Canadian province of Nova Scotia, the returned workers have nothing to look forward to but lower incomes and higher levels of unemployment. Some local companies have taken advantage of the returnees to alleviate worker shortages, but this cannot be a general solution.

What next? I, personally, am not sure I want to know.