Tar sands oil is now trading at $6.6/barrel.
This is going to be a disaster for the Canadian petro-provinces. While much of this price collapse has been driven by OPEC, the COVID-depressed gasoline demand is here to stay for at least a few months.
This is going to be a disaster for the Canadian petro-provinces. While much of this price collapse has been driven by OPEC, the COVID-depressed gasoline demand is here to stay for at least a few months.
If the pitch stays in the ground it'll be good for the environment which ultimately is good for people too. Just on longer time horizons.
This is only fair to Alberta, considering how much they’ve contributed to Canada’s GDP over the last two decades.
Is contributing to GDP something you get "credit" for? Or put another way, does someone living in Toronto get any benefit from this increase in GDP?
As someone living in Alberta your comment answers a question we ask each other frequently: Do people outside of Alberta understand the benefit they've enjoyed from energy revenues over the past 20 years?
Your comment suggests NO, but I'm not sure where you are located.
Canada has a massive transfer payment process from "Have" provinces to "Have Not". This is not something as academic as "overall GDP increase" but is BILLIONS of actual dollars that Alberta has contributed during all the good times that were then redistributed to other Canadians, just like people living in Toronto. Not to over-emphasize the point, but I'm talking cold hard cash literally taxed from one province and given to the others, with the Federal government taking their vig during the transfer.
If you're not Canadian it's unlikely you are aware of the direct positive impact this has had on the entire nation. If you are Canadian and unaware of the relative value of transfer payments... well, this accounts for a huge amount of the alienation the Western prairie provinces are feeling.
This is an issue outside of the debate around where our energy comes from. The reality is a huge part of the entire country's expenditures has been financed by oil and gas revenues for a large part of the past 20 years.
So this is....not that big an amount? 4.4% of a fairly small budget relative to the total country.
Further, Alberta has had a large net inflow of young, productive workers from the rest of Canada. If there was no oil, these workers would mostly go work and be productive elsewhere, increasing local tax revenues.
Alberta did contribute wealth to the rest of the country. But Albertans tend to both overestimate this contribution and also ignore that they benefit from young workers trained and educated by provincial budgets elsewhere.
Source for equalization percent: https://en.m.wikipedia.org/wiki/Equalization_payments_in_Can...
(Alberta is not the only province to pay into equalization)
Can you provide examples of equivalent work at the same pay level these young workers would engage in if not for O&G?
Obviously, a COVID-19-triggered recession would not create an employment boom to replace oil jobs.
(FTR: I support the immediate shutdown of the tar sands, but we need a job replacement/retraining strategy...)
The maritime provinces have a very high average age in part because many workers left for alberta. This cuts the tax base.
That was my point. The workers do get a higher wage in Alberta, but most of this benefit is spend within Alberta or taxed there. Good for workers, good for Alberta....but not obviously a win for the rest of Canada.
And again, Alberta didn’t have to pay for 18 years of schooling and child health care for these workers: that was paid by the home province.
The average Albertan's salary is (still) much higher than that of workers from other provinces. Thus, each Albertan pays (on average) more federal income tax than workers from other provinces. Whether a province is "have" or "have not" is based on comparing the average federal income tax collected from that province compared with the national average.
The equalization payments is the income tax that gets partially redistributed - it is not a transfer from Alberta to other provinces.
For a given salary, the average income tax (combined provincial and federal) paid by someone in Quebec (or any other province) is much higher than that paid by someone in Alberta. Add to that the provincial sales tax (not paid by Albertans) ... and you get a situation where people outside of Alberta see Albertans as spoiled rich whiners as they: 1) earn a higher salary and 2) pay less taxes.
Meanwhile, Albertans (with their lower unemployment - still today) see "their" money wasted to these undeserving lazy Easterners ("lazy" = collecting money from EI). Politicians of all stripes contribute to fanning the flames. And, in spite of all this, we are generally considered to be a nice bunch, eh?
People in Quebec also get way more services for that. Like under $10 a day daycare.
I think most Canadians recognize Alberta as a have province from the perspective of transfer payments, but that may change quickly if oil prices stay at this level for long making Albertans net recipients of transfer payments. I'm less sure that most Albertans realize just how badly managed benefits from oil resources have been used in the province. I'm talking Alberta Heritage Savings Trust Fund compared to Norway (Government Pension Fund), or even Alaska (Alaska Permanent Fund). It's bad even when you consider the high price of oil sand extraction, never mind the higher clean-up costs.
Alberta is certainly contributing to the Canadian economy, but the heavy reliance on fossil fuels to do so isn't a long term approach to take and the province seems highly reluctant to pivot to better industries.
Fun fact, Albertan politicians wanted to nuke the tarsands[0] in the 1950's and the plan got way further down the road than it ought to have. They thought it would liquefy the oil and they could just pump it out.
If there will be a silver lining to this pandemic, it will be people realizing how precarious their ongoing existence is. Maybe people will be more willing to drop the entitlement, accept reality and do what needs doing.
1. Even ignoring equalization payments, federal corporate taxes from oil and gas companies and federal income taxes from high salaries they paid their employees have contributed more to federal revenues, which gets spent across the nation, not just in the province it is collected in.
2. For the past few decades, oil prices and the value of Canadian dollar have moved in tandem. It makes sense when you consider that even though oil is not a huge part of Canada's GDP, it is a huge part of its exports. At its peak, high oil prices brought the value of Canadian dollar above US dollar a few years ago (I think it got as high as 1 CAD = 1.3 USD at one point). The current crash sank Canadian dollar to less than 70 cents US. Anyone earning a salary in Canadian dollars enjoyed the higher purchasing power (for imported goods, vacations, and cross-border shopping) in the good times.
In the oil bust in the first half of the 1980's people would sell their homes for a dollar just to get away from the mortgage because it was completely underwater. I fear we may see those days again in Calgary. I was born there during those days, which I don't remember, but I do recall the stories people told of it while I was growing up.
It's not a great way to run your economy.
>It's not a great way to run your economy.
Sure, but what other way do they have to run their economy? Without monumental government effort to keep prices stable grain (and grain derived products) isn't much better.
Just because you've destroyed the ring, you can't really go back to the Shire, but Alberta's choices in the 21st century are either a return to agriculture, and mass emigration, or a transition to exporting professional services.
[1] Ironically, while the price of oil plummets, the spot price for beef is up 20% since the start of this crisis... Although, the price of beef futures is dropping a bit.
[2] Edit: I'm aware that agriculture employs a small number of people (1.5-2% of the population, but so does oil extraction - only 0.3% of the population directly works in the tar sands - everyone else supports them.) Like any other industry, it has a large supporting industry of suppliers, truckers, etc. It's not nearly as lucrative as oil, but it's a living.
Alberta needs to look to Norway and Dubai for how you diversify away from oil in earnest.
Norway does have one advantage over some other producer countries though in that a lot of the oil business here is on the service side and has customers all over the world so it is less dependent on Norway's own oil producers.
Of course this comes with its own risks, oil demand, currency fluctuations, embargoes, etc.
Another difference is that Norway was already a sophisticated mixed economy before the oil came along and the state had the foresight to keep the bulk of the oil revenue out of the internal economy so that while it contributed, and still contributes, a substantial fraction of GDP it has relatively little effect on inflation in the country.
On the subject of agriculture, that is also quite different from Canada. Norway has relatively little arable land, most of the country is granite upland so farms tend to be small, at least in comparison to prairie what producers, very often family run. We can't grow much wheat because the climate is not congenial so most of the local corn production is rye and barley. The state supports farmers here partly to maintain a degree of self sufficiency in food but also to prevent depopulation of the inner and northern areas; farmers and their families create a demand for schools, mechanics, doctors, dentists, shops, etc. I doubt that any of that will translate into Canadian conditions. And the current right wing government has been reducing the degree of self sufficiency in recent years.
Armchair quarterbacking I know, but the trouble seems to be that when Alberta has any money at all, oil is the most profitable thing to invest in so that's where the money goes. Investing in uncorrelated assets would level out some of those crazy swings.
Then again, most Albertans I worked with kind of liked the crazy swings. As I'm a bluenoser that was during a boom time of course, so I've no idea how they feel about it during the lows.
That's not how mortgages work in the USA — or any other country I've heard of! Usually, the way a mortgage works, is that you owe the lender the money, and the house is the collateral asset. Divesting yourself of the asset usually requires you to pay off the balance of the mortgage on sale.
This is why OPEC is doing this. They're trying to put American and Canadian firms out of business. They saw the COVID opportunity, and they seized it.
Waiting for Saudi oil to go away is magical thinking.