Provincial Finance Minister Doug Horner made it official Thursday: Thanks to falling oil prices, the government’s revenues are collapsing. Boom-and-bust Alberta is in danger of going bust and public spending is — again — being slashed.
It is an ominous sign.
Since the world economy went off the cliff in 2008, resources have kept Canada going. Americans may not be buying Ontario’s manufactured goods, but they have been buying oil — at prices that, thanks to Chinese demand and the production quotas of the OPEC cartel, have been sky-high.
For Prime Minister Stephen Harper this has been a godsend. Insofar as his Conservative government has any kind of industrial strategy, it is one based on oil and resources.
To that end, Ottawa has modified or eliminated environmental rules that resource companies fear might interfere with their business.
At the same time, it is pushing hard for pipelines to move tarsands oil more easily to Asia and the U.S.
Even Harper’s free-trade agenda is resource-oriented. Free trade with Japan is supposed to provide new opportunities for oil and gas exporters. Free trade with the European Union is designed to benefit livestock exporters.
The government makes no secret of its intentions. The unemployment rate in Canada may be 7 per cent. But that hasn’t stopped Ottawa from allowing resource firms to bring in cheaper foreign labour.
At the same time, the government has made it even harder for Canadian jobless and seasonal workers to obtain employment insurance — on the theory, presumably, that this will give New Brunswick fishermen a greater incentive to apply for jobs in the booming doughnut-shop economy of Calgary and Edmonton.
But now even Calgary and Edmonton are facing problems. China’s appetite for resources is no longer as insatiable as it was. More alarmingly, new sources of cheaper shale oil are coming on tap in the U.S.
The so-called break-even price for Alberta heavy oil, the price at which extraction is profitable, varies from $65 to $100 a barrel. But in recent months, Alberta’s heavy crude producers have been getting as low as $45 a barrel — in part because there isn’t sufficient pipeline capacity to move their oil to world markets, but also because these world markets are softer.
Suddenly, Alberta’s high-cost tarsands are losing some of their lustre.
Curiously, Alberta has much in common with the Venezuela that Hugo Chavez bequeathed to the world. Both rely on heavy oil exports to the U.S. Both are one-party states (Alberta more so than Venezuela). Both are utterly dependent on the price of oil and both have economies that, in different ways, have been deformed as a result of this dependence.
Venezuela faces a reckoning and so does Alberta. So, indeed, does Canada as a whole.
We are already seeing a decline in the Canadian dollar as a result of the resource slowdown. In the long run, this should be good news for Canadian manufacturers who export their goods. In the short run, it means all of us are a little poorer.
Where we don’t see any change is in the federal government’s approach to the economy. The Harper Conservatives remain dazzled by resources. They believe that if the markets want Canadians to hew wood and draw water, that’s what we should do.
But markets are notoriously fickle. This is a fact the entire country will have to face. Alberta is just getting there first.
Original Article
Source: thestar.com
Author: Thomas Walkom
No comments:
Post a Comment