As 2022 draws to a close, one almost feels guilty for being optimistic.
War in Ukraine. Terrible energy and economic challenges in Europe. The cost of everything from food to fuel to mortgages is going up. The value of many investments and real estate in multiple markets is going down.
But for 2023, and possibly many years thereafter, Alberta is the place to be.
And it’s not just because of higher commodity prices.
Because there has also been a quantum and long overdue change in how people think about the necessities of life, and where they come from. Like oil and gas.
Which will change the fortunes of Albertans for years to come.
While continuing initiatives to diversify Alberta’s economy are great, the primary driver of the wealth creation and employment remains based upon resources.
As the world emerged from the pandemic in early 2021, I wrote on these pages:
“Oil. Natural gas. Agriculture. Minerals. Forestry. The things that built Canada and Alberta. The bread-and-butter industries that urban dwellers and millennials don’t understand; the essentials of life that are taken for granted because there has never been a shortage… Post-pandemic, Canada will be forced back to the basics. Blessed with a disproportionate share of what modern civilization cannot live without, Alberta’s economy will rise once again.”
However, things are materially different than just two years ago.
For the past 15 years there has been a determined effort to put us out of business.
It was so bizarre I wrote a book about it in 2019 titled: From Miracle to Menace – Alberta, A Carbon Story. The energy that built modern society was declared to be its greatest threat.
But not only are resources prices rising, so is the IQ of the millions of people who have directly and indirectly affected our fate.
Because the world has decided to quit persecuting Alberta oil.
This will be the biggest improvement of all.
And why 2023 and beyond will be much better than just higher commodity prices.
For years Alberta ebbed and flowed with resource prices. As oil and gas prices and sales volumes increased, everyone did better. Even those not directly involved in the oilpatch benefited or suffered because of the enormous impact of production royalties on provincial government revenue, spending, debt and taxation levels.
The boom of the 1970s was driven by OPEC and oil prices.
The recovery of the 1990s was powered by natural gas.
This century started off strong thanks to massive oil sands investment.
All of the above ended in late 2014.
But it wasn’t just lower commodity prices. There was also a full court press by the western world to put Alberta out of business.
The North American shale gas revolution which began in 2005 eventually collapsed Alberta gas prices and reduced production volumes. From 2001 to 2008, Alberta’s benchmark AECO spot price gas routinely approached or exceeded $10 per gigajoule (GJ).
Then prices started falling as parts of the U.S. that used to import gas started producing it. Ten years later, gas averaged only $0.55 in June of 2019, a 95 per cent reduction. Volume also declined as important export markets in Ontario and the US Northeast were lost to massive quantities of U.S. gas much closer to consumers from the Marcellus Shale. Alberta gas output peaked at 13.8 billion cubic feet per day in 2000. By 2013 it was down 30 per cent.
In late 2014 OPEC abandoned supporting oil prices. So began a seven-year slump that only ended this year. Alberta’s benchmark bitumen blend – Western Canada Select – fetched US$85.56 in June of 2014. The first collapse was in November 2018 when it went as low as US$5.97 because production exceeded takeaway capacity. Then in April of 2020 it hit an all-time basement of US$3.50 because of pandemic lockdowns.
This was, as everyone knows, just awful.
In May WCS peaked at US$101.17, the highest price in 14 years. Alberta’s benchmark AECO gas tagged $6.53 GJ in June, also the highest value since 2008.
Combined with increased production volumes from oil sands, these are the headline numbers people get excited about. Alberta-based producers made so much money that after third-quarter financial results were released, they earned a personal attack from the federal government.
Steven Guilbeault, minister of Environment and Climate Change and former environmental crusader, posted a video about producers making a lot of money without investing in emission reductions.
A CTV News report read, “The federal environment minister is calling out Canada’s oil companies for failing to put cash behind their promises to tackle climate change. Steven Guilbeault says the country’s major oil players have promised to do something about greenhouse gas emissions, but instead have funnelled most of their record-breaking profits to shareholders. This is at least the third time in the last six months Guilbeault’s frustration has spilled over as oil company profits soar.”
In 21st century politics, old habits die hard.
Alberta’s treasury is also doing great. After reporting a budget surplus for the first time in years, the second-quarter budget update read, “The 2022-23 first quarter revenue forecast has dramatically changed, with West Texas Intermediate oil prices expected to be US$22 per barrel higher than estimate in Budget 2022, and resource revenue up $14.6 billion.”
Revising its Budget 2022 estimates, for 2022/23 Alberta now forecasts resource revenue could reach $28.4 billion and provide 37.4 per cent of provincial revenue. This is a percentage of total government revenue not seen since 2000/01 or 2005/06.
Oil prices are likely to remain steady due to geopolitical events including replacing Russian production, restrained capital spending, and policies in the U.S. and Canada that hardly give producers the confidence to aggressively invest in new supplies.
Gas prices will firm up permanently when LNG Canada starts exporting 1.8 billion cubic feet of natural gas in 2025. This is over 10 per cent of total Canadian output. Other LNG projects on the west and east coast are in the works.
But the most significant change is the political and economic engagement of a generation of Canadians confronting problems it has never seen – wars, shortages, inflation and rising interest and mortgage rates.
Statistics Canada reports that of Canada’s 38 million people in 2021, 15 million, nearly 40 per cent, were aged 15 to 44, born in 1977 or later. This includes the so-called “millennials,” those born from the early 1980s to the late 1990s.
Nobody of this age would remember the high energy prices and gasoline shortages of the 1970s, the double-digit interest rates and inflation rates of the 1980s, unemployment rates of 10 per cent or more from 1982 to 1985, or falling housing prices.
Alberta did particularly poorly in the early 1980s as oil prices collapsed, banks went broke, and house prices sank to the point that homeowners walked away from their equity and sold their houses and mortgages for $1.
Another factor affecting policy is urbanization. Today over 80 per cent of Canadians live in towns and cities. It was only 60 per cent in 1951 and 13 per cent in 1851. This means that more people than ever don’t know where anything comes from, not helpful for resource producers like Alberta.
These are the voters who were easily persuaded that climate change and fossil fuels were bad, wind and solar electricity were good, and politicians who campaigned for climate change policies and against fossil fuels had their best interests at heart.
With urban voters, fuel came from a gas pump, electricity from a wall socket, and food from the grocery store. What else did they need to know?
That has all changed as billions of people have been introduced to a troubling new world where the essentials of life aren’t always cheap and readily available.
Or that developed countries previously thought to be past military conflicts and territorial expansion are killing each other with weapons supplied from all over the world.
The travesty affecting Europe is disturbing for many. Europe has always been a stable, safe and fascinating place for an exotic vacation. History. Exotic food. Great wine. Art masterpieces. Fascinating architecture.
Today Europe is serious trouble over energy and the economy.
It seems like just the other day when it was very fashionable for important people from all over to trash Fort McMurray and Alberta’s massive oil sands.
Banks and institutional investors singled out Alberta bitumen for special persecution. Export pipelines west, south and east were opposed or cancelled.
Now all this hostility is directed towards Moscow.
This spring the federal government assured the International Energy Agency in Europe that Canada could increase oil output by 300,000 barrels per day to offset Russian crude.
“We’ll take it!,” they said. Nobody cared about what type it was or where it was produced.
Countries are rapidly reversing their views about fossil fuels out of necessity. Coal is making a big comeback. New supplies of non-Russian oil and natural gas are important.
Sanity has returned. Regrettably, at a terrible cost.
But that changes everything for Alberta.
What could go wrong? There will be an election next year. We’ll save that for another column.
David Yager is a Calgary oil service executive, energy policy analyst, writer and author. He is president and CEO of Winterhawk Casing Expansion which is commercializing a new methane emission reduction technology. His 2019 book From Miracle to Menace – Alberta, A Carbon Story is available at www.miracletomenace.ca.