Low oil prices mostly bad for rural Alberta

A disaster bordering on a catastrophe

Purchase Low oil prices mostly bad for rural Alberta

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CALGARY, AB, Feb 23, 2015/ Troy Media/ – Consumers, including those involved in crop production agriculture, are welcoming lower energy prices, particularly for gas and diesel. Large-scale commercial producers foresee saving tens of thousands of dollars in fuel costs at seeding and harvest times. To a lesser extent even greenhouse growers will see some energy cost relief, although an easy winter would benefit them even more.

But for the rest of rural Alberta, particularly those living in towns and villages, lower oil prices are a disaster bordering on a catastrophe. Industry cutbacks all boil down to huge losses in jobs and services in the energy sector.

Impact of low oil prices severe

The impact is more severe outside of the big cities simply due to the nature of the energy business. Whenever an industry downturn occurs, company head offices in Calgary tend to look after themselves and keeping their own jobs first – that’s just human nature. But that means cutbacks are going to be inflicted first on people and services in the rural areas and small towns where energy industry infrastructure is located and drilling occurs.

oil prices
Any downturn in the energy sector, including low oil prices, causes collateral damage to agriculture

To be fair, folks who work on contracts for energy companies in big cities are usually the first to get the axe. The difference is that 100 people losing their jobs in Edson has a greater impact on the local economy than 100 folks losing their jobs in Calgary. But all of that is cold comfort to the people affected.

Critically affected are oilfield service companies that generally operate in the countryside where the wells are located. As the economic backbone of many small towns, any cutbacks in their sector are quickly felt by local businesses. Add it all together and you can understand all the fear and angst in the countryside when a downturn occurs. Most have seen it all before.

Any downturn in the energy sector also causes collateral damage to agriculture, notwithstanding any savings in fuel expenses, because working in the oil patch in the winter contributes to the financial survival of many family farms and ranches. The extent of that off-farm support – which also includes working as nurses and teachers – is generally not well known or even reported but contributes millions to the well-being and survival of many farms and ranches.

Local energy industry service companies and well operators also provide employment to the sons and daughters of many farmers and ranchers. I suspect that such local energy industry employment is a lot more critical than any savings that could be achieved from cheaper fuel costs. Now add in land owner income from well site access, and it all becomes a significant contributor to the overall ag economy.

Nothing to do but tough it out

Whenever there is a downturn in the Alberta energy economy, talk turns to diversification and more agricultural development. But keep in mind that the agriculture sector suffers from more price cycles than does the energy sector. Agriculture also operates on tighter margins and is more severely impacted by weather calamities. In fact, billion dollar bail outs are fairly common in agriculture. But having said that, any strategic investments in agricultural development and research have proven to help expand the economic viability of the industry as they tend to respond better to market opportunities. It’s also the safe approach from a government perspective.

Unfortunately, the only approach open to those in the countryside and small towns affected by the energy industry crisis is to just tough it out.

Will Verboven covers rural issues for Troy Media.

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