Little panic in Calgary's oil patch even as prices plummet
Calgarians have seen this movie before, it doesn't always have a bad ending
So I've asked around. Oil prices are plummeting, surely the panic here in Calgary is palpable. It seems, not so much.
When CBC Calgary sent a reporter to a recent pipeline conference to ask about the ongoing price drop, all we came back with was a collective shrug of the shoulder.
Perhaps we've just become inured to this kind of thing. In the early 1980s, the price of oil bottomed out and a lot of lives in Alberta bottomed out along with it.
Someone I knew at the time described the layoffs in the downtown offices of at least one major oil company as being done by the floor. Imagine — it didn't matter what you did, only what floor you happened to work on.
The value of peoples' homes was also evaporating. Many were underwater on their mortgages and paying interest rates in the teens that are unfathomable today.
Many of those who had moved here from away went home. The rest stayed, knowing boom and bust were part of the Alberta bargain.
They are also part of the "Alberta advantage," as the old Ralph Klein campaign slogan goes. At least the boom part is.
But that's a problem, according to Ron Kneebone, an economist at the University of Calgary.
He recently described the so-called Alberta advantage as "relying on something you cannot rely on."
Take the long view
The oil industry, though, as well as the government here and in Ottawa, seem to believe you can rely on it — eventually.
In other words, the energy industry may be cyclical, but over the long term the advantage is very real.
Consider that over the past 20 years, Alberta has led the country in job growth. It has the third highest GDP in Canada and is on track within the next couple of years to leapfrog Quebec and move into second place, behind Ontario.
Will this recent drop in oil prices affect that trajectory?
Oil prices are plummeting. Far faster and further than most economists predicted a few short months ago.
In July, oil classified as West Texas intermediate (WTI) was trading at $105. Since then, that benchmark has fallen off a cliff and no one is sure where the bottom is.
The current WTI, in the low- to mid-$80s might only be the beginning. First Energy Capital of Calgary set off an alarm bell when it labelled a possible further drop into the $60 range a worst-case scenario.
But it then went out of its way to stress it does not believe that worst case is going to happen, and in fact is forecasting average prices in the mid-$90 range for the rest of the year.
At this point, all we really know is that each time the price of a barrel of oil drops by a loonie, the Alberta treasury loses close to a quarter of a billion dollars over the course of a year.
Then again, the loonie/petro dollar is going along for the ride; its fall is providing a softer landing, at least in the short term, since energy producers get paid in U.S. dollars.
A volatile industry
Governments, of course, are inclined to obsess about the short term, especially those fighting to stay in power.
New Premier Jim Prentice appears more worried today than even a few days ago, though he's far from pushing any panic button.
In an interview Thursday with CBC News about the free fall in oil prices, he spoke about how "significant dollars and significant implications" will require "considerable care."
In other words, money might not flow as freely in Alberta, which can be tricky when you're campaigning for byelection votes.
Still, one of the reasons the oil industry seems relatively sanguine about its prospects is because it operates on a much longer horizon than government or the markets.
Frankly, a brief slowdown will allow many to catch their breath and get caught up on current projects.
At the same time, a sustained atmosphere of low prices (pushed along by OPEC), along with perhaps weakening overall demand, is clearly a concern.
There is a temptation to see this current situation as an Alberta story, but that would be a mistake.
Bloomberg published an editorial in late July that was very much along the lines of one I wrote for CBCNews.ca a few weeks earlier.
The basic premise was that much of the economic growth Canada has seen in recent years has been in Alberta.
I suggested it was creating an imbalance. And so, I'd argue, did the governor of the Bank of Canada when he referred then to Canada's "two-track economy" as a reason for holding firm on interest rates.
But if the Canadian economy is too reliant on Alberta's prosperity, then what happens with the price of oil matters a great deal.
Earle Gray, a former editor of Oilweek magazine, recently opined that "the oil sands prop of the Canadian economy seems likely to collapse," and went on to lament how government "has leaned so heavily on it."
Seems a rather dire prediction when so many others here seem relatively unconcerned.
Perhaps that stoicism is indicative of the unpredictable nature of a volatile industry, subject as it is to the whims and political imperatives of countries with very different agendas.
Yes, some here are perplexed, some concerned and others are merely nodding their heads knowingly.
We've seen this movie before and we think we know how it ends. Of course, we'll only know when the credits roll.
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