But Alberta Premier Alison Redford and Ontario’s premier-designate Kathleen Wynne communicated a sense of being partners in pain, two relatively new leaders saddled with excruciating fiscal pressures, and infused with a desire to learn from each other’s troubles. Old debates over “Dutch disease” and climate change have not disappeared, but they are overshadowed by a shared fiscal dilemma.
Reflecting the new austerity, Ms. Redford told her Ontario counterpart about her province’s foray into results-based budgeting – a process that, she said, “challenges every dollar government spends, while ensuring that programs and services deliver results for Albertans in the most-cost effective way possible.”
In a Toronto speech, she emphasized, once again, that all Canadians have a lot riding on Alberta’s economic future. A long-term structural decline in the energy industry would touch everything from regional equalization payments to jobs for underemployed workers from other regions.
This week, federal Finance Minister Jim Flaherty expressed concern about the impact of oil price woes on his own budget planning. A clearer picture of the oil patch malaise will emerge in the coming week, amid a raft of energy company earnings – reports on corporate health that now carry national resonance. Like it or not, Canadians’ standard of living is directly linked to Alberta’s success in selling its energy to the rest of the world.
“Canadians have not developed an acute appreciation of the extent to which our fiscal situation is dependent on the Alberta growth factor and the natural resource revenues,” Mr. Emerson says.
He is particularly aware of what’s at stake, as part of a talented collection of policy wonks who produced a blueprint for how Alberta could get off the dizzying roller coaster of oil and gas cycles and propel itself toward sustainable economic growth.
The Premier’s Council for Economic Strategy, which reported in May, 2011, after 2 1/2 years of study, charted a path to divert more of the province’s non-renewable oil and gas bounty to such things as advanced technologies, water renewal and clean energy. Diversification has always been an elusive dream in Alberta, but the mood was buoyant when Mr. Emerson, the council’s chairman, presented the plan. The energy economy was booming and there was time and money to put this strategy into place.
More than 20 months later, he is growing pessimistic that, given competing claims for dwindling revenues and capital budgets, the exercise will bear results. “I wouldn’t say it is too late, but it is getting late,” says Mr. Emerson – although Alberta officials insist the report will be part of the input for the province’s Economic Summit to be held Saturday.
Michael Percy, professor and past dean of the University of Alberta business school – and a former provincial MLA – is most alarmed over the transportation bottlenecks that isolate Alberta from key markets, including the United States. “The IEA did say that every barrel of oil produced in Alberta will be required, it just didn’t say how we would sell it,” he says.
Capital markets, particularly foreign investors, echo this frustration. Crescent Point Energy Corp., once an energy sector darling, has seen U.S. investors fall from 35 to 22 per cent of its shareholder base in the past year. Oil sands companies say similar factors have kept their stocks depressed, owing in part to a coolness from south of the border that dates as far back as 2009.
“There has been a loss of faith in the economics that are being presented by the producers here,” said John Rogers, vice-president of investor relations with MEG Energy Corp. Pipeline problems are largely to blame. “They think we have a lot of trapped oil up here in Alberta,” he said. “They think we’re just on the wrong end of the pipe. They think [price] differentials are absolutely going to slaughter us.”
Still, he holds out some hope, since investors tend to flock to a deal – and in public markets today, the oil sands presents plenty of potential bargains.
Of course, any economic fallout from the energy crisis could, in time, be partly balanced by some recovery of manufacturing in Central Canada and the growth of, say, B.C. and Quebec mining or Newfoundland offshore energy. Premier Redford talked of the potential for value-added agriculture, as well as water and wind. But manufacturing, in particular, still faces competitive challenges and draws benefits from the oil and gas industry’s spinoffs. And none of these sectors is ready, or large enough, to fill the gap left by a stagnant energy sector. Saskatchewan, the other economic driver in the West, is another commodity-reliant province, much like Alberta.