The International Monetary Fund, Energy Information Agency, and International Energy Agency all have one thing in common. Yes, they all have long names, but more importantly, each have recently published oil price forecasts between $40-50 going into 2017.
These forecasts are complemented by March 2017 NYMEX futures contracts, currently priced at roughly $41 per barrel.
What’s more, on February 24th, Alberta’s legislator revised its own crude price forecast downward to $45 from $50. With Alberta bitumen reserves unlikely to generate much investor interest at this price, abandoned wells are only to become costlier, and sectoral unemployment only more rampant. As these effects weaken the broader economy, Trudeau’s liberals are taking decisive action on mitigating the economic damage.
The federal solution, thus far, has been to extend stabilization payments to provide relief to provincial governments. Really only palatable under times of economic duress, Trudeau’s liberals have extended offers to numerous provinces with stakes in the oil patch, and already has plans to supplement Alberta’s coffers with $250 million. Surely, a welcome sum against the projected $10 Billion deficit Alberta Finance Minister Joe Ceci announced Wednesday.
With the beginning of a new fiscal year on the horizon, Rachel Notley’s NDP government has shifted its focus on its $6.9 Billion infrastructure stimulus plan, which focuses on investing in transportation, health and education to improve the state of Alberta’s economy.
While admirable, it is a waste of the skills and acumen of laid off oil patch workers to retrain them to meet demand in these sectors. Once the energy industry improves, many retrained workers will find themselves still best qualified in filling these lucrative jobs, ditching their new education behind. This sentiment was highlighted by Saskatchewan Premier Brad Wall earlier this month. His argument was that the next best use of these workers would be to employ them in capping abandoned and orphaned wellheads, rather than look to shift them into different, unrelated industries.
In Alberta, the costs of abandoning and reclaiming wells is handled by the Alberta Energy Regulator. The AER is funded primarily by the oil and gas industry as a whole. If Alberta were to commit a fraction of its stabilization payments to subsidizing this fund, the province would reduce the cost on numerous struggling oil and gas companies, alleviate friction in the labour market and act as a catalyst for R&D in the energy sector. Something the IEA insists Canada should invest in anyways.
Many jurisdictions around the world have well abandonment policies much weaker than Alberta’s. Demand for these services will only rise as more wells get abandoned, and the cost for governments to reclaim these wells increases.
Positioning Alberta as a knowledge and industry leader in environmental reclamation not only is good for our nation’s ecosystems, but also will serve as an exportable skill to foreign markets seeking expertise. This will ultimately offer Canada another path toward economic diversification.