Albertans must keep in mind that there are three concurrent and independent elements preventing Alberta from deriving the full potential out of its energy resources.
It is generally said that good things come in sets of three. The Latin expression “omne trium perfectum” conveys the idea that things that come in threes are more complete. The expression has an optimistic ring, but not for Alberta’s energy.
The expression is relevant in light of the appointment of Alberta’s Economic Recovery Council. The Alberta government recently appointed to the Council 12 prominent Albertans among business people and economists. The group is headed by Jack Mintz and includes former prime minister Stephen Harper.
The goal of the council, according to Premier Jason Kenney is to “provide advice and policy recommendations on how best to confront this unprecedented economic crisis, and recover from it in the long term. This will include strategies to accelerate economic diversification.”
News reports have correctly named two sources for the current crisis: “the COVID-19 outbreak and slumping energy prices.” But they overlooked a third one.
The pandemic propagation of COVID-19 (the virus that has up to the time of writing killed one Albertan, sent 25 to hospital, and infected over 300) has brought on a health crisis. The high virulence of COVID-19 pushed government virtually to shut down a significant portion of the province’s economy. The federal government and all other provincial and territorial jurisdictions have done likewise.
According to optimistic scenarios, the health crisis may settle in 4 to 6 weeks – perhaps sooner – bringing its wide disruptions to an end. The duration and depth of the disruptions will determine how quickly and by what means Alberta can recover from the damage.
The second driving cause is the most recent collapse of oil prices. A shocking over-supply of oil in the international markets sent prices plummeting. It was induced by a price war between Russia and Saudi Arabia. Alberta oil companies’ stock have since lost as much as half in value, impairing cashflows, forcing more layoffs, and posing an existential threat to many of them. In addition, the annual provincial revenue could see losses of up to $7 billion a year, derailing fiscal plans.
However long the conflict between the oil-producing tyrannies continues to press prices down, its adverse effect is aggravated by the slump in world demand for oil that COVID-19 has prompted.
The third element at the root of Alberta’s economic troubles, which recent reports have overlooked, reaches back in years.
The double blockage of two provincial governments and the federal government, has harmed Alberta’s oil and gas industry for several years now. The blockage has provoked a constitutional crisis.
In a nutshell, Quebec’s and British Columbia’s constitutional mutiny has blocked the development of crucial infrastructure to move more Saskatchewan and Alberta oil and gas across provincial boundaries to international markets. In addition, the federal government is openly attempting to phase out the oilsands by blocking further development and by adopting harmful legislation and policy as obstacles to oil exploration, development and exports. Their combined effect has produced an enormous flight of capital and the cancellation of major new projects, sending even more Albertans to the unemployment lines.
Weeks from now, hopefully sooner, the conflict between the two oil-producing tyrannies may be settled. The same may be true of the COVID-19 shut down. As the number of infections levels off and economies regain some normalcy, the consumption demand for oil and gas will slowly start to rebound, in turn affecting oil prices upward to expected ranges.
In short, there is an end in sight to the two crises originating outside Canada. But the made-in-Canada political crisis that continues to hinder Alberta’s main industry does not in the immediate future offer much hope for resolution. On the contrary, since the last election the federal government has signalled a desire to double down on its destructive agenda for Alberta oil.
The Recovery Council is painfully aware of this third crisis prong and will likely formulate recommendations accordingly. We still await the Fairness Panel Report and its recommendations in just a few days.
In the midst of this perfect triad of storms, Alberta should combat the COVID-19 pandemic as though there are no attempts to choke Alberta’s oil industry, and it must combat the attempts to choke Alberta’s oil industry as though there was no COVID-19.