March 27, 2023

How Alberta’s Economy Has Changed Despite High Oil Prices | CBC News

Lloydminster Mayor Gerald Aalbers need only look out the window to gauge the temperature of the local economy.

From his City Hall office, Aalbers – which has the unique distinction of Lloydminster straddling the border of Alberta and Saskatchewan and serving residents in two provinces – has a direct line of sight to Highway 16. The highway is a major east-west corridor. heavy trucks and half tons on their way to the oil fields in the surrounding area.

But despite a sharp 2022 rise in crude oil prices (as high as $120 a barrel earlier this year before falling to the mid-$80s this fall), and while Canadian oil companies are boasting record earnings and all-time high production levels , traffic on the highway has only increased modestly, Aalbers said.

“We’re seeing traffic pick up earlier in the morning and a little bit more traffic throughout the city,” Aalbers said.

“It’s good because it means wells are being drilled. It reflects general optimism in the industry,” he added. “So I think we’re gaining some momentum, but we’re not accelerating by any means yet.”

“Not accelerating yet” might be the perfect way to describe the strange economic reality Canada’s oil country will face in 2022.

While the industry itself is doing better than it has in nearly a decade, and energy prices are higher than they have been in several years, experts say there is no sign of any kind of economic boom in the surrounding area.

“If I had told you two years ago that oil revenues in Alberta would hit record highs … you would have expected Calgary and Edmonton to boom and so would the rest of the province. And that’s not happening,” said Charles St.-Arnaud, chief economist at Alberta Central, the province’s credit -cooperatives’ central bank.

For example, in 2014, when oil prices last rose, many communities in Alberta and, to a lesser extent, Saskatchewan felt like gold rush towns. Hotel rooms were booked solid, local bars were buzzing with oilfield workers flush with cash and cash, and people from all over the country were streaming west in search of work.

But St-Arnaud, who recently published a report called “Where’s the Boom?” said that many things are different this time.

The industry itself is doing very well – total Alberta oil production reached an all-time high in the first half of 2022, averaging 3.6 million barrels per day.

Thanks to high commodity prices, the total value of the province’s oil production between August 2021 and 2022 was a whopping $140 billion, up 75 percent from the same period in 2014. In the first six months of this year, Canada’s top four oil sands producers alone reported profits of more than $21 billion, more than triple their profits for the same period last year.

But after nearly a decade of depressed oil prices, producers have been under pressure in 2022 to use their windfall profits to pay down debt and focus on returns to shareholders rather than investing in their own operations.

In 2022, oil producers reinvested only about seven percent of their revenue in their operations, compared to 25 percent in 2014, St-Arnaud said. The nature of these investments has also changed, as companies abandon capital-intensive projects aimed at increasing production to smaller projects aimed at improving efficiency or reducing greenhouse gas emissions.

The result is fewer workers and less financial side effects. According to Statistics Finland, overall employment in Alberta’s oil and gas sector is only 75 per cent of 2014 levels, while employment in construction in the spinoff sector is only 80 per cent of what it was.

Likewise, salaries in the oil sector no longer exceed other sectors in the same way as before, St-Arnaud said.

“You don’t have to offer sky-high wages to attract workers because you don’t need that many workers,” he said. “One thing I’ve noticed is that our wages in Alberta were about 10 per cent higher than the rest of Canada – consistently since the late 2000s. However, the gap has started to narrow in recent years.”

“The numbers no longer add up”

Duane Sulyma, a rigger who has worked all over Grande Prairie and Rocky Mountain House, Alta. Lloydminster and now Kindersley, Sask., said oilfield work isn’t as lucrative as it used to be, and workers are feeling the pinch of inflation.

“When I started in 2012, it was wild. I bought a new house, I bought a truck, I bought everything I ever wanted,” Sulyma said. “But the numbers don’t add up anymore, and the cost of living has gone through.”

He added that after the last eight years of low commodity prices and then the COVID-19 pandemic, many former oilfield workers have had enough of the instability and have decided to leave the oil and gas industry altogether.

“Nobody with a city job wants to come here, work for a year, get laid off and then have to struggle to find another city job,” Sulyma said.

St-Arnaud is convinced that the oil industry has changed forever. And while this may come with some downsides, it also means that going forward Alberta’s economy will be less sensitive to oil prices.

“That’s the thing if there’s no boom — the bust is smaller,” she said. “It’s not that oil is no longer positive for our economy, it’s just not as positive as it was.”

Steady growth is better for the community: the mayor

That’s not necessarily a bad thing, said Sandy Bowman, mayor of rural Wood Buffalo, which includes the oil sands community of Fort McMurray.

As Canada’s best-known boom town, Fort McMurray struggled between 2010 and 2014 to keep up with demand for housing, roads and other infrastructure as workers from across the country flooded into the community.

“Strong, steady growth is what you want to see. These ups and downs that we experience can be tough on everyone — not just the employees, but the community itself,” Bowman said.

Even getting a coffee from a Tim Horton’s drive-thru in Fort McMurray took almost 20 minutes on average back then, Bowman said. Now it only takes 11 minutes on a “bad day” to get a double, he said.

Although the major airport expansion completed in 2014 remains “underutilized” and the buzz of sawmills and other construction noises have subsided, Bowman said Fort McMurray’s economy in 2022 is healthy. Local residents work and collect wages, and life goes on.

“There’s still a lot of opportunity and a lot of ‘help wanted’ signs around … the industry just isn’t expanding like it used to,” Bowman said.

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