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By David Yager
April 17, 2019
As anticipated, Albertans ended their four-year experiment with confessed socialism when the United Conservative Party under Jason Kenney won the April 16, 2019 provincial election. For most folks in the oilpatch and much of the private sector there was a sense of relief, not unlike discovering a prior medical diagnosis of a terminal aliment was in error.
For most of the past four years the NDP government has made Alberta’s terrible situation worse. After oil prices collapsed in late 2014, the timing of electing a majority NDP government in May of 2015 would prove punishing. Intoxicated with the full power of public office, Rachel Notley’s new administration immediately forged ahead with the extensive list of things the NDP had long vowed to repair while ignoring the rapidly deteriorating Alberta economy. No need to revisit this here.
With access to Alberta’s strong balance sheet and AAA credit rating (it was in 2015, only AA today), what the NDP could not fund with royalties and higher taxes it borrowed. The province intentionally expanded government spending as a so-called “shock absorber” for the deteriorating private sector. And bragged about it.
By election day the NDP had effectively divided Albertans into two distinct camps: the private sector which was left to struggle with market forces plus all the new NDP taxes and policies, and the public sector which was in many ways insulated from the downturn thanks to other peoples’ money. The stubborn support by so many for more of the same from another NDP government indicates this was truly class warfare at its worst, a problem not likely to go away soon.
For an experienced politician from the federal arena, UCP leader and new Premier Jason Kenney was hounded by more non-economic issues than he deserved. When you bring together two political parties that used to hate each other you inherit a lot of baggage, divergent views and a certain amount of resentment about the leader, the process, the players and the policies. What was called a merger was actually an anti-NDP marriage of convenience. We’ll see how long it lasts.
Fortunately, the determination of so many to replace the NDP and reverse the trajectory of the economy overwhelmed all the other issues. Much of the controversy surrounding UCP and its players was of greater interest to the media than voters once they were safe in the privacy of a polling booth.
Kenney campaigned on many of the proven themes that galvanize Alberta voters; we’re great and our enemies are the NDP, Ottawa, B.C., Quebec and anyone and everyone opposed to oil sands and continued fossil fuel development.
The idea that Alberta is going to turn off the taps to B.C. to punish its citizens for the bad behavior of its provincial government is wonderful campaign rhetoric that is unlikely to ever happen. This would hurt Alberta producers and refiners.
A referendum on what Albertans think of equalization would not bring the rest of Canada to its knees but it might help capture the attention of those on the west coast and in central Canada. These are fellow Canadians who can affect our lives through indifference to our economic circumstances or are opposed to pipelines because it sounds like a good idea that seemingly has no direct effect on their lives. Like the famous line from the 1976 movie Network, “I’m mad as hell and I’m not going to take this anymore”.
Kenney’s commitment to review the regulatory approval processes for routine oil and gas activities ranging from project approval to drilling licenses is welcome and long overdue. These are within the purview of the new government and can for the most part be executed in short order without new legislation or even convening the legislature. The opportunities to quickly make this industry more efficient and more profitable are real and exciting.
The UCP pledge to cut the corporate tax rate sends a desperately needed signal to the world’s investment community that the province has rejoined the global capital markets that Alberta has depended upon for the 72 years since Leduc to provide the funds to build the province into what it is today.
The reality, however, is that Alberta’s prospects have changed more than many Albertans’ believe or understand. Every party campaigned on more pipe, more production, more upgrading, more petrochemicals and more oil jobs. No political party was honest or transparent about the public spending reductions necessary if the province does not get back on the path of production expansion and the investment, jobs, taxes and revenue that goes with it.
While the new UCP administration and economic platform is a massive improvement, there are major factors well beyond the borders of Alberta that have affected and will continue to affect the province’s future.
The most obvious problem that still doesn’t get talked about enough is Alberta is the largest oil and gas producing jurisdiction in the world that is landlocked and requires the cooperation of other governments to get product to market or tidewater. Albertans can quite rightly be angry that the federal government won’t use its legal authority to overrule provincial governments in B.C. and Quebec when they decide to obstruct market access. That Ottawa is trying to pass legislation to make market access issues worse through bills C-48 and C-69 is a major flash point.
But unfortunately, outside of yelling louder the options for Alberta are more limited than they should be. There are also governments, politicians, judges and regulators in Washington, Montana, Minnesota, Michigan and Nebraska that continue to block improved market access for Alberta oil. It is sad indictment of our country that Donald Trump is greater supporter of Alberta’s economy than many of our fellow Canadians.
But all is not lost. Trans Mountain is not dead. Enbridge Line 3 is only delayed a year. Keystone XL again has the support of the Trump administration as it tries to use federal power to overrule recalcitrant states determined to block pipelines. LNG Canada is trying to proceed. Chevron has indicated Kitimat LNG is still alive. The light at the end of the pipeline may not be a train.
If all these projects actually proceeded, you wouldn’t know this place. Alberta could be back in the chips – comparatively speaking – and any really tough decisions about the size and cost of the provincial government could kicked down the road as they have for 25 years since Ralph Klein. Oil and gas could come to the rescue yet again.
Unfortunately, there are two other forces at play that never existed before that will affect Alberta’s future.
The first is the irrational, disingenuous and increasingly fact-free movement to quickly end the use of fossil fuels because of the threat of climate change.
This is not to say climate change is not a problem, or the science behind fossil fuels as the main cause is not correct. That ship has sailed. After decades of climate alarmism and fear-mongering, there are tens of millions of people in the western world who are convinced climate change is a huge problem and oil, gas and coal are the primary cause. That’s all that really matter nowadays.
Climate change alarmism is irrational because the narrative has been developed that this problem can be solved without the direct participation or economic suffering of fossil fuel consumers, which is every living human being on the planet. The Intergovernmental Panel on Climate Change (IPCC) reminded the world last fall that to prevent future extreme weather events mankind must cut carbon dioxide emissions by 45% from 2010 levels by 2030. By 2050 the world is supposed to carbon-negative, meaning we’re taking more CO2 out of the atmosphere than we’re putting in. There is rarely any mention of what everyone is going to have to live without or what it will cost.
The few brave lefties that talk out loud about grounding airplanes and parking cars and stopping international travel and trade are dismissed as a radical fringe, but that’s what it will take to meet the IPCC targets.
Climate change alarmism is disingenuous because the politicians who claim they are “doing something” are disclosing neither the true cost nor the effectiveness of their programs. What the IPCC is proposing is the largest global economic disruption in history that will cost trillions and affect billions. The message from Ottawa is Canadians can “fight climate change” by paying carbon taxes while most enjoy government rebates larger than the cost of the taxes paid. That you’re supposed to save the world by releasing less CO2 into the atmosphere by burning less gasoline or not flying somewhere warm in the winter is never mentioned.
And climate change alarmism is fact-free because none of the proposed solutions take a global perspective. All the forecasts from the supermajors (BP, Shell, ExxonMobil) or respected agencies like the International Energy Agency in Paris or the Energy Information Administration in Washington foresee fossil fuel demand and GHG emissions rising for the next twenty years because of a growing global population and economic wealth (see David Yager, EnergyNow October 2018). What we’re doing and what we’re supposed to be do are totally different.
No matter what economic misery Alberta is subjected to in the name of climate change, every other major oil and gas producing jurisdiction in the world is running hard to keep up with growing demand. If Alberta doesn’t supply the product somebody else will. Yet somehow people have been convinced a useful climate change mitigation strategy is to sue big oil producers like ExxonMobil for the crime of selling people the products and fuels that nobody appears prepared to live without.
The current climate change narrative took years to develop. While Kenney’s campaign commitment to fight back with more and better information through UCP’s pro-industry “war room” is welcome, knocking some sense into people who fill their cars up with refined bitumen to drive to an oil sands or pipeline protest using directions from their plastic smart phone is going to be extremely challenging. Facts no longer matter.
The other aspect of climate change that is having, and will have, an impact on Alberta is the fossil fuel divestment movement and its more sophisticated derivatives such as the Task Force on Carbon-Related Financial Disclosures (TCFD) (see David Yager, EnergyNow February 2019). These initiatives started years ago when climate activists launched a long-term plan to make it morally reprehensible to own shares in oil, gas or coal companies. This was accompanied by pressuring financial institutions such a mutual funds, pension funds or banks to either restrict or quit providing capital to fossil fuel companies.
The TCFD initiative is attempting to persuade fossil fuel, pipeline or other companies to disclose today their future business risk caused by climate change. This started in the U.S. and Europe and affects a board range of businesses. Railway companies, for example, are supposed to tell current and future investors when their tracks are close to oceans or other bodies of water that will rise because of climate change, thus causing business disruption. Carbon resource companies are supposed to find some way to disclose how their current business model may be rendered unsustainable because of reductions in product demand because of non-carbon alternatives, restrictions on production or higher carbon taxes. Basically, they are be asked to report today how they will manage being out of business in the not-too-distant future.
This is accompanied by an ESG or Environmental, Social and Corporate Governance movement requiring disclosure about non-operational issues such as emissions, gender equity or other forms of “social license”. All this is meant to direct capital towards “sustainable investing”, the implication being fossil fuels are not sustainable because they are dangerous. Like tobacco.
What is remarkable is how quickly and broadly these influences on capital flows have grown. Alberta was built entirely on funds from other places because when the industry started out, Alberta had few people and no money.
It is well known that since 2014 there has been much more capital flowing out of Alberta than into it. This includes cash flow generated from oil and gas production in Alberta seeking higher returns in friendlier jurisdictions.
If the new UCP administration can even persuade capital to quit leaving, this alone will be a material improvement. But to duplicate the good old days, Alberta must return to net capital inflows.
The question in the title is, “What’s Next For Alberta?”. It is clear the oilpatch and business community will be much more comfortable with the UCP than the NDP it replaced. This is a welcome change and may be the most significant piece of really good news in four years.
But as the election illustrated, there are a great number of Albertans who don’t see any need to revisit their expectations of what they should receive from their provincial government even though the macro-economic environment under which the province must operate is dramatically different.
After being audited for his personal expense claims which included a cup of tea and a package of chewing gum, in 2005 disgraced former Liberal cabinet minister and Royal Mint CEO David Dingwall told a government inquiry, “I’m entitled to my entitlements”. He apparently referenced “entitlements” twenty-seven times.
There’s a whole bunch of people unfazed by Alberta having the highest per capita public spending among all the larger provinces, public debt marching towards $100 billion and annual interest costs approaching $3 billion. After all, we’re entitled to our entitlements.
Alberta’s plan A is more of the same. If we don’t get pipe and fossil fuel opposition grows unabated, what is our plan B?
David Yager is a Calgary-based oil and gas writer, author and energy policy analyst. Except the information about the Alberta election, the article was adapted from Yager’s recently-released book From Miracle to Menace – Alberta, A Carbon Story. More on the book at www.miracletomenace.ca
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