Alberta's Perfect Storm, part 1

What a mess we're in. However did it get so bad? Didn't we all promise not to piss away the boom? Why is this happening? Well, in the interest of exploring those questions, I would like to mention some things I felt key to Alberta's present predicament.

In 2014, oil prices were twice what they are now. For the first time in 20 years, the Flames had an exciting offence. The Stampeders had the best football team I had ever seen. However, the Flames were no longer selling out every game; they weren't selling out any. Meanwhile, the Stampeders were watching their attendance drop game after game. In other locales, like Nashville North, patrons showed up drunk and left sober, the bar staff left to stand listless before empty tip jars. Clearly, something was wrong in Calgary. It was no longer its exuberant self. No more were blue collar folks blowing hundreds of bucks a night on beer; people weren't doing much of anything at all.

While the premiership of Alison Redford continued on its path to collapse, the province was turning a corner. The country's booming real estate markets across Alberta hit a wall. It became apparent that the price of oil had hit a wall of its own, and the PC dynasty that had run Alberta for two generations finally expired.

Alberta had been through busts before. But a number of factors conspired to make the present one the worst we had faced since the 1930s.

Alberta's economy had always rested on two pillars: farms and fossil fuels. The first of these fuels, coal, was responsible for the settling of communities from Crowsnest to Canmore to Grande Cache, to Hanna, to Drumheller. Oil, of course, had and has the most prominence. But it should be remembered that the fuel Ralph Klein wielded to slay the province's debt was not coal or oil, but Natural Gas.

This is the first problem. In the 1990s, Natural Gas had been worth $8-$9 a unit (US!); for over a decade now it has been worth only about a $1.50. When you consider that the Canadian dollar increased in value from $0.61US to almost parity (and sometimes better), it means the slide in price of Natural Gas in Canadian dollars, and adjusted for inflation is simply huge - at worst being in excess of 90%. The outlook for its price recovering to 1990s levels does not look favourable. Indeed, Natural Gas is so plentiful it could very well be given away for free, despite being considered the fossil fuel of the future.

Alberta's coal industry faced a different problem. In a world saturated with oil and gas, it simply no longer possessed any economic rationale. The Grande Cache coal mine first went under, was bought for $2, and was recently closed again. Coal simply pollutes too much, and powers too little. Even the coal producing regions of China, the world's leading consumer of the stuff, have been hard hit by the collapse in demand. Simply put, coal is obsolete.

Then there is oil. Certainly not obsolete, oil's problem is better described as a catch-22. The easily and cheaply accessed sources of oil being depleted forced massive investments in oil resources in places such as Alberta. However, the prices which made these investments profitable made oil too expensive to fuel the world's economy. Even today's price of $41US is high by historical standards. This has encouraged people to adopt alternatives, the most prominent of these being Natural Gas, which in spite of its popularity remains incredibly cheap. However, countries like China, Denmark and Germany have become leaders in renewable energy, and the bright future of those systems should give members of the Wildrose Party pause.

However, is $41US fair? I cannot think so. Oil should be selling for a higher price today. However, there are strategic reasons behind the current price of oil. Oil is the most important substance in the world. Its price can be manipulated to grow economies, and it can be used to devastate them. In the 1980s, the price of oil was deliberately depressed by the Arab States and the USA to fight Iran and the Soviet Union. At that time Alberta experienced its greatest recession. I believe something similar is going on today, with targets again being Russia, Iran, and also ISIS.

The other part of the oil problem Alberta faces is that our primary customer is the United States, a country that has desired energy independence since the 1970s. Thanks to fracking, among other technologies, the Americans are realizing this goal. Keystone XL failed to be authorized because it made no economic sense - hence the present emphasis on the smaller and more expensive (and more politically sensitive) Energy East and Northern Gateway pipelines. Now, how permanent our loss of the American market will be can only be guessed at; fracking wells supposedly possess a short lifespan. What I have read, though, would imply the Americans should be able to supply themselves into the early 2020s.

As we have seen, fossil fuels, the second pillar of the Alberta economy, and its biggest, was subverted by a number of global effects. In the next instalment, I will explore the human dimensions of Alberta's current bust. In part 3, I will examine the things that give me hope.

Again, thanks for reading.