As one of the vast migratory herd of Saskies that came west several decades ago in search of opportunity, I clearly remember crossing that very real border. Leaving the motherland in search of greener pastures wasn’t easy, but there were upsides, one of which was obvious within 3 feet west of Alsask. The surrounding terrain looked the same – endless rolling crop fields – but the road changed from a frost-heaved, cratered, patches-on-patches mess to what felt like a billiard-table. It was like a miracle for those of us that had spent our entire lives pounding suspensions out of vehicles on what should have been idyllic journeys through the SK countryside, but were anything but.
It was instantly clear that Alberta was the land of everything; great roads, great jobs, both hustle and bustle, and a boundless sense of optimism. Oh, how long ago that seems.
Those baby’s-bum smooth highways came at a price, as did everything else in the province that seemed bigger, better, newer, and less dusty than Saskatchewan’s version. It was easy to see where the wealth came from; there were more pumpjacks per mile in AB than there were Pilsner cans in the ditches in SK.
That was then. Now, AB’s golden goose has multiple tire tracks on it and is in a full-body cast. Federal assassins keep trying to get into its hospital room to suffocate it with a pillow. And Saskatchewan seems to have a lot more wind in its sails.
Danielle Smith wrote an excellent article in the Calgary Herald the other day, laying out some of the stark realities of Alberta’s financial situation. She chronicles chronic overspending, from parties of both stripes, and is brutally frank in an assessment that will please almost no one (except curmudgeons like myself, apparently): “We are a financial disgrace… Yes, we have given a lot to the rest of the country. Yes, the fiscal imbalance needs to be remedied. But for what? So irresponsible politicians here can continue to spend like there is no tomorrow?… There will be no tomorrow for Alberta if we don’t get our act together.”
I agree on multiple fronts: yes, the wealth shift from Alberta to the rest of Canada has been unbalanced and often ungratefully received, and it would be great to see that addressed. But the fact that it should be does not mean that it will be, nor does it mean that politicians have some sort of license to spend recklessly.
She offers a solid three-part plan, and notes at the end that “there will be another resource boom, perhaps our last.” Given the way the world is chasing capital away from hydrocarbons, I agree on that front also – global demand is not going away, there will be another price boom, and we need to handle it wisely. So, what does that mean?
First of all, it’s worth envisioning what it might look like. A huge spike in oil/gas prices would lead to, among other things, greatly increased cash flow for oil sands operators, but probably not much in the way of further oil sands development – the challenges are just too big given the current climate in Ottawa (ask Teck, who’d spent over a billion on an oil sands development but chose to walk away when it was obvious that Ottawa’s ENGO-beholden arm of the cabinet would treat the project like a cat treats a mouse (don’t email me telling me that that same cabinet supports TMX and LNG exports; even they know that cancelling either of those would start a western Tea Party)).
Second, we’d likely see a large increase in Montney/Duvernay drilling that would glut pipelines again (and rapidly fill up any LNG terminals that exist). Third, we’d see scattered renaissance across the WCSB as smaller, older fields attract capital again. To enable these developments, we’d also see increased ancillary services; some of the tired survivors of today will live to see another upturn.
But we’re not likely to see booms as we had in the past. Technology and drilling/completion efficiencies mean we just don’t need as many people as we used to per BOE. And for the companies that survive and thrive, there is pressure for oil/gas companies to provide returns to shareholders and get off the growth-at-all-costs treadmill. Development will be modest compared to what’s gone before. Windfall profits might just largely flow back to shareholders or debtholders, with moderate growth here and there.
This last aspect, returning profits to shareholders, is what will happen to Alberta also. Any windfall profits will generate windfall royalties, particularly since the royalty rate goes up with prices. And that’s where Smith’s piece is dead-on: Will we treat a boom as another spending spree, or use it to fortify for the future? Will we use it to get the orphan well problem firmly under control? Will we implement policies that ensure we continue to develop our resources in new ways – additional value-added/new markets/repurposed infrastructure (hydrogen for example) that capitalize on the staggeringly huge energy resource we sit on?
The best part of Smith’s piece to me is the part that will piss off so many across all spectrums (being a curmudgeon isn’t as fun as it sounds). She notes: “Everyone — on both sides of the political spectrum — needs to suck it up.” Ah, nothing like the smell of napalm in the morning. But she has a good point. And by sucking it up, we can look at it in another way and not just as some sort of exercise in deprivation.
You know sometimes when you’re out shopping and you see someone drop something out of their pocket, or a cantaloupe escapes a shopping bag and rolls across the parking lot, or someone looks like they need help with their car? Almost all of us step up and do the right thing. I’ve had people that I’d have been terrified to meet in a dark alley point out that my cell phone is about to fall out of my pocket. Many of us have. Not all are like that, but at heart, most have a spirit of decency and the will to do the right thing.
When we’re faced with such situations, like do we give the poor klutz their wallet back, we don’t ask ourselves whether the person we could help is ideologically aligned with us. When I see someone drop a glove out of a pocket without notice, I don’t mentally size them up to see if they’re a communist or not before deciding whether to retrieve it for them.
But in the political world, we do. In the social media world, we do it with a vengeance, with venom. And that’s why Smith’s call is so sensible. We are stuck in a political sewage pit, best summed up by the very unfortunately dead David Foster Wallace (true way back in 2003 even, when he spoke these words): “95 percent of political commentary, whether written or spoken, is now polluted by the very politics it’s supposed to be about…the writer/speaker has certain political convictions or affiliations and proceeds to filter all reality and spin all assertions according to those…Opposing viewpoints are not just incorrect but contemptible, corrupt, evil…There’s no more complex, messy, community-wide argument; political discourse is now a formulaic matter of preaching to one’s choir and demonizing the opposition…since the truth is way more gray and complicated than any one ideology can capture, the whole thing seems to me not just stupid but stupefying…it’s childish and totally unconducive to hard thought, give and take, compromise, or the ability of grown-ups to function as any kind of community.”
Surely we can do better AB, can’t we? We are grown up enough to treat this like the serious situation it is. A potential windfall is not something we can afford to fritter away again, as a province. We can build a roadmap to follow if/when it happens. We can avoid the lottery-winner syndrome, where people who have never experienced wealth in their life find their lives ruined by a win and lose it all; “friends” show up out of nowhere; charitable causes ring your phone off the wall; temptation strikes hard; and at the end of the day it’s never enough anyway (except for the mega winners I suppose, the rarest of rare). A province should be able to do better than that.
It’s not easy cutting spending, and it’s not easy to be tight-fisted when the good times roll again and it feels like it will never end. It always does. The energy industry too should have an eye to what should be done if we are fortunate enough that it happens again.
We can and should use any windfall environment to accelerate well abandonments, deal with the known legacy problem areas, and work across industry and government to come up with mass workable reclamation programs. Abandonment liabilities are a form of debt, and we need to pay down those debts when the money is good.
As a side note, in addition to Smith’s suggestions, we should implement large-scale tree-planting programs. The benefits here are many; increased forestation is good for wildlife, good for the environment, good for the soul, and is a completely legitimate and sensible alternative to the greening schemes being hatched in Ottawa that will do little more than decimate Alberta economically and further increase western alienation (not to mention eastern alienation; Trudeau recently refused to indicate support for eastern Canadian offshore oil and gas, saying vaguely of Newfoundland that he’d “like to help the province” depending on “where the world was going” – Trudeau’s world is the UN world, and there is no natural resource help in that world).
It’s time for crisis planning. The COVID thing is definitely a crisis, and it is good to see the efforts that almost everyone is making to get it over with – people genuinely seem to be trying. Let’s apply the same inertia to the looming economic challenges, if and when we see another bout of high oil and gas prices.
Curmudgeons, if nothing else, can be entertaining. Find out for yourself, pick up “The End of Fossil Fuel Insanity” at Amazon.ca, Indigo.ca, or Amazon.com and be glad your brain doesn’t work that way. Thanks for the support!