Canada’s struggling oil industry rode into 2020 on a small wave of optimism.
The Trans Mountain pipeline expansion project was finally approved last June and had survived a series of court challenges. Buoyed by the prospect of greater export capacity and higher production, Alberta Premier Jason Kenney presented a budget in February that bet on rising oil prices and higher employment. Alberta wasn’t back by any means, but it was heading in the right direction.
And then March happened.
Saudi Arabia launched an oil price war on March 10 – flooding the world market with cheap crude and crashing the price per barrel. And then, as the coronavirus pandemic spread and countries began locking themselves down, demand vanished as well.
Airlines have parked their planes. People have parked their cars. On Thursday, the benchmark Canadian heavy oil price fell by almost a third, to its lowest point on record. Stocks of Canada’s oil and gas companies have collapsed.
Workers and companies in every province are being hurt by the induced economic coma caused by the forced closure of non-essential businesses and the calls to self-isolate, but no patient was quite as unhealthy as the oil and gas sector before it began, or quite as important to Canada’s economy. It must survive.
Which is why Ottawa and Edmonton are working on a bailout deal for the oil and gas sector whose value is reported at $15-billion. The figure is massive for a single industry, given the $107-billion package for the entire country, but there is a reason for that: Oil is, by far, Canada’s top export.
For some critics, the proposed bailout raises the question of why Ottawa would assist an industry that is unlikely to exist in the same form by the end of the century, and whose products result in many of the greenhouse gas emissions that are contributing to global warming (remember that?).
But it is just plain wrong to think that Alberta’s oil and gas sector, which collectively employs 100,000 Canadians, should be left to suffer its fate. Would anyone say the same about the airlines, food manufacturers and forestry companies that employ so many people?
On the other hand, this is not the moment to solve the sector’s longer-term problems. Any help over the next months should be about the crisis at hand.
To that end, Ottawa’s plan, which hasn’t been officially announced but is expected soon, seems to be mostly on the right track, based on what has been reported to date.
The package will likely include mechanisms to provide more access to credit, which is always the right thing to do during economic crises. Companies, especially struggling small- and medium-sized ones, need money to keep operating when revenues disappear. There is nothing particular to the oil and gas sector about such a move, other than that its need has been exacerbated by Saudi Arabia’s price war.
Also on the table is a payroll tax reduction, which again is something that can be applied to businesses across the country, but which could be particularly important to the oil and gas sector at this moment.
But there is also talk of significant funding to hire laid-off oil and gas workers to clean up the abandoned wells that litter the province, something that companies and the Alberta government have together been lax about to the point of irresponsibility.
This part of the plan is problematic. It would amount to federal employment aid designed specifically for Alberta’s needs, fixing a problem of the province’s own making, and targeted to workers in one particular sector.
Alberta should feel free to do this on its own. But if Ottawa is going to fund emergency work programs, they must be available to all Canadians. It’s not fair that a laid-off restaurant worker in Halifax is eligible for $2,000 per month in emergency funding for four months, while the laid-off oil worker in Alberta is offered relatively lucrative work at taxpayer expense.
That said, there is no question that the fossil fuel industry has been hit with a double whammy, and needs particular assistance. And given the importance of the sector and the construction of the Trans Mountain expansion, there is every reason to believe that targeted assistance to keep the industry solvent will pay off in the coming decades, and benefit all of Canada.