By Steve Lafleur
and Kenneth P. Green
The Fraser Institute
Ever since oil prices began declining from historic highs, it’s become fashionable to claim that Alberta – and Canada – bet it all on oil and lost. It’s an “I told you so” narrative for those who view natural resources as a curse, rather than a blessing. But while the large drop in resource prices is a blow to Alberta’s economy, oil and other natural resources still underpin thousands of jobs and contribute billions to the public treasury.
While Alberta’s economy has taken a hit and many people have been laid off, Alberta’s economy is still relatively strong compared to most other provinces. As University of Calgary economist Trevor Tombe recently noted, average weekly wages in Alberta are still $200 higher than the national average. And despite the recession, Alberta’s unemployment rate hasn’t slipped below the national average. Even in bad times, Alberta benefits significantly from its natural resources.
The real “resource curse” is the way governments’ squandered revenues from resource development. Indeed, the Government of Alberta increased program spending by roughly 100 per cent between 2005/06 and 2014/15.
Remember, extracting oil is almost like mining cash – albeit, the denominations are now smaller. Claiming that pulling oil from the ground is a poor strategy isn’t much different than claiming that picking up a $20 bill on the sidewalk is foolish because one can’t count on reliably finding twenties on a regular basis. Indeed, the Alberta government collected more than $100 billion in resource revenue between 2005/06 and 2013/14. Even in 2015-16 with resource prices way down, royalties are projected to hit $2 billion. Most provinces would be thrilled to receive an annual cheque of that size. The fact that the province can’t balance the budget even with significant resource royalties every year highlights the extent of Alberta’s fiscal mismanagement. Failure of the provincial government to spend within its means isn’t a failure of the oil industry.
Albertans aren’t the only ones who benefit from the oil sands. Natural Resources Canada noted in 2010 that oil and gas companies made up 20 to 30 per cent of the TSX, and accounted for five per cent of Canada’s GDP. A recent report by Philip Cross, former chief statistician for Statistics Canada, found that “every dollar of resource output generates $2.32 of economy-wide GDP.”
And yet, the notion that we need to move past oil is part of the reason policymakers haven’t been able to build a political consensus around building the pipelines required to safely maximize the value of our oil resources. Canadians sell Western Canadian Select oil at a deep discount to the United States because of the cost and difficulty of getting our product to market. Keystone XL was supposed to alleviate that challenge, but was arguably scuttled for political reasons. Energy East could also improve market access to American refineries, yet faces a political and regulatory gauntlet. Another option is expanding the Trans Mountain Pipeline to help move crude to China, diversifying away from our reliance on the U.S.
Unfortunately, the Government of British Columbia is pushing back against the project. The last option, the Northern Gateway Pipeline, has been nixed by the federal government’s tanker ban, meaning that options to reduce the WCS discount are running low. But oil is a long-term game: the World Bank still expects oil prices to reach $88/bbl by 2025.
Rather than glibly noting that Alberta is doing less well due to low oil prices, the focus should be on how to get more value for our natural resources, both now and in the future. Even at low prices, oil remains a great benefit to Alberta and the national economy. Particularly in a tough economic environment, policymakers can’t afford to ignore the crucial role played by the oil and gas industry in Alberta. Canada’s provincial and federal governments should embrace the need for a competitive oil and gas industry – today, and when world commodity markets return to higher prices.
Steve Lafleur is a senior policy analyst and Kenneth P. Green is senior director of the Centre for Natural Resource Studies at the Fraser Institute.