Alberta Economy

[CliffFletcher]

Thought I'd start a new thread to keep the Layoffs thread from getting derailed, and let the Provincial Election thread die its natural death.

In response to peter12's post in the Layoffs thread:

Honestly, these times make me think about that Louis C.K. bit about the American economy, and how they almost needed the recession (not that it helped) just to show them how entitled and opulent things really were. Not that that will ever happen. With burgeoning sectors in Saskatchewan, North Dakota, Texas, you will almost certainly see the same brain drain that affected the province in the early 90s take place to some extent all over again. The money goes elsewhere. It always has.

What do you see as the pathway forward?

I do think this is a bucket of cold water not only on individuals who rely on the energy sector, but on the whole province. 2004 to 2015 was not the new normal - it was an unusually long boom. We need to start recognizing booms for the temporary phenomena they are, rather than base our planning on the assumption they will continue indefinitely.

In 1975, Peter Lougheed had the foresight and honesty to recognize that energy booms are a temporary thing, and we need to plan not only for the periodic busts, but for the final bust when the oil is all gone or the world runs on something else. But sometime in the last 40 years, busts became a taboo subject in Alberta. The bigger the booms, the more manic we became, and the more myopic. Nobody wants to be the one to say the parade has to end some time.

One thing I'm surprised about is how our social and institutional memory of the prolonged 80s bust evaporated. I'm not that old (mid-40s), but I remember it. I remember trading in the family car for a used Datsun compact and squeezing all 5 of us in it. I remember the start of my work career as a summer student at a major, when wave after wave of layoffs demoralized the place. I remember graduating in an environment where anyone with ambition left Alberta. And I remember the bumper stickers that read "Please God let there be a another boom and I'll promise not to piss it all away this time."

Isn't there anyone over the age of 55 in the Alberta energy industry who remembers those times? Now that I think about it, when I worked downtown I rarely saw people over 50 on the streets or the offices. Did they all retire early? Become consultants who worked from home? Get swamped by people from out of province who think Alberta has always been paved with gold? Surely there are some in management at least.

Maybe this city got too rich, and too young, too fast. I've been amazed in the last 10 years or so to see so many high-end bars and restaurants patronized by 20-somethings. In the 90s, a bar or restaurant could be high-end, or it could be aimed at young adults, but it couldn't be both. That wouldn't make any sense. If you were in your 20s, even if you were lucky enough to have a professional career, it didn't pay well. Too many Boomers occupying everything but the lowest entry-level positions (which used to pay like entry-level positions). I actually feel sorry for people in recent years who walked right out of university into jobs making $70,000+. They have no experience of anything different, and can't call on the experience of living on $30,000 to recalibrate their expenses and lifestyle.

If oil prices stay depressed for years, we'll be returning to the 80s in this province. Except we won't have natural gas to offset oil prices and prime a turnaround. And with so many eggs in the oil sands basket, a modest recovery of oil prices won't have the effect it did back when conventional oil played a bigger part in the economy.

On the bright side? Maybe there's enough money and brains in this province to spin off other industries. Software development. Chemical engineering.

[PsYcNeT]

Originally Posted by CliffFletcher

One thing I'm surprised about is how our social and institutional memory of the prolonged 80s bust evaporated. I'm not that old (mid-40s), but I remember it.

Overall, that was a very good OP. Would read again.

Noting this particular question however, it's fairly evident that there are a few types of persons who succumb to this:

1) people too young to remember

2) people that did not live in Alberta at the time (which is now a not-insignificant portion of the workforce)

3) those who believe the bust was all on the Feds/Trudeau/NEP

Point 3 is obviously the most dangerous, since it's pretty evident that the narrative has been warped over time to lay the blame almost entirely on a singular event. It's my observation that those who hold this view believe that if they can keep a similar event from occurring (say, by keeping right-wing governments in power at all times), that a major bust will never happen again.

[Ozy_Flame]

Originally Posted by CliffFletcher

Maybe this city got too rich, and too young, too fast. I've been amazed in the last 10 years or so to see so many high-end bars and restaurants patronized by 20-somethings. In the 90s, a bar or restaurant could be high-end, or it could be aimed at young adults, but it couldn't be both. That wouldn't make any sense. If you were in your 20s, even if you were lucky enough to have a professional career, it didn't pay well. Too many Boomers occupying everything but the lowest entry-level positions (which used to pay like entry-level positions). I actually feel sorry for people in recent years who walked right out of university into jobs making $70,000+. They have no experience of anything different, and can't call on the experience of living on $30,000 to recalibrate their expenses and lifestyle.

I think this is the most noticeable because of the sustained boom during the 2000's. Expectations around salary, career prospects and lifestyle were ballooned because of the severe labor shortage back then. Kids could walk out of university with even the most liberal of arts degrees and waltz right into a job with a big O&G company that would find something for them to do. I seem to recall a poll done at Haskayne School of Business about 2-3 years ago that said kids expect to make north of 65k+ starting salaries pretty much because they spent three or four years in post-secondary.

I'm not sure what their parents or professors are telling them, but those jobs are now reserved for the cream of the crop freshies out of school who know petroleum engineering, chemical engineering or software development (and maybe finance). And even now they're scare.

Then you hear stories about people getting transfered to Dubai or Qatar and making a quarter-million per year, then wanting to come back and make the same thing here. No dice unless you've backscratched your boss into sublime euphoria.

As much as I hate to say it, this province is experiencing that reality check for people to re-align with normal expectations of what a real job market and economy look like - we got so, so, so, so, so lucky in the last 15 years. It's time to recognize we are no longer in that era.

[burn_this_city]

This is a 1-3 year trough brought on by a cheap debt shale oil bubble. Salaries will probably level off for a few years before climbing slowly again. I realize the herd mentality makes this seem like its a permanent paradigm shift, but I'm not buying that yet.

[Flash Walken]

Originally Posted by burn_this_city

This is a 1-3 year trough brought on by a cheap debt shale oil bubble. Salaries will probably level off for a few years before climbing slowly again. I realize the herd mentality makes this seem like its a permanent paradigm shift, but I'm not buying that yet.

The point isn't whether things go back up again, the point is that the province needs to shield itself economically from the bust periods.

If a steadier economy means slowing the extraction of resources (through any number of means), then so be it.

Slow, deliberate expansion of resource extraction is in the best interest of all Albertans, and Canadians. Peter Lougheed knew this to be true.

[polak]

Hopefully this spurs some diversification in our economy.

It won't. Any talk of any sorts of investment in anything besides Oil seems to get shot down immediately, especially if that comes at cost to the O&G industry...

But we can hope...

[Bill Bumface]

If it's a longer trough, where we get double screwed is with housing.

Somehow, the government thought that people would spend less $ per month on housing if they changed loan terms.

40 year mortgages got rolled out, people still could afford the same monthly payment, so prices rocketed. Zero down because common. People saw prices going up and up and everyone wanted to be a landlord, further driving up prices.

Now you have a large part of your population with mortgage debt out of whack compared to much of the world, and even if prices come back down to earth or stagnate, everyone who bought their first house during that period is screwed on a relative basis.

[burn_this_city]

Originally Posted by Flash Walken

The point isn't whether things go back up again, the point is that the province needs to shield itself economically from the bust periods.

If a steadier economy means slowing the extraction of resources (through any number of means), then so be it.

Slow, deliberate expansion of resource extraction is in the best interest of all Albertans, and Canadians. Peter Lougheed knew this to be true.

We already saw signs of that before oil prices tanked. Companies shelved major projects and began to examine a staged growth strategy with incremental expansions. People also forget the sustaining capital is still a massive chunk of money that will be spent annually regardless of the broader health of the industry.

The percentage of the economy that is O&G is less than it was 30 years ago during the dark ages. Slowing the extraction sector unnecessarily is both foolish and counter productive. Things aren't going to get back to the 2004-2008 boom again, they didn't after the recession and they won't again after this one.

[Frequitude]

Originally Posted by burn_this_city

We already saw signs of that before oil prices tanked. Companies shelved major projects and began to examine a staged growth strategy with incremental expansions. People also forget the sustaining capital is still a massive chunk of money that will be spent annually regardless of the broader health of the industry.

I'll add to that that companies also started to focus on how to modularize oil sands development. We've mostly got that nut cracked for in-situ now but its going to be tough to figure it out for mines. Mines, by nature, realize significant benefits through economies of scale.

[Regorium]

Originally Posted by polak

Hopefully this spurs some diversification in our economy.

It won't. Any talk of any sorts of investment in anything besides Oil seems to get shot down immediately, especially if that comes at cost to the O&G industry...

But we can hope...

Just as a thought, what do you think the actual contribution of O&G to the Alberta economy is? (in terms of percentage of total GDP)

As a comparison, what do you think a highly diversified province actually looks like? ie. Do you think Ontario or BC or another province has a better model that Alberta should follow?

[Muta]

I'm telling you, we really need to become NASA north. Let's start building the conditions for a sustainable space exploration industry, right here in this energy-focused city. Each and every one of us knows that this WILL be a major industry in the future... it's not a question of if, but when.

You all laugh at me now, but when SpaceX and NASA launch manned missions to Mars and other planets from just west of Calgary, you'll look back on this day, and this post, as the catalyst for it and you'll worship the ground I walk on.

[RubberDuck]

Originally Posted by polak

Hopefully this spurs some diversification in our economy.

It won't. Any talk of any sorts of investment in anything besides Oil seems to get shot down immediately, especially if that comes at cost to the O&G industry...

But we can hope...

You talk a lot about diversification. What are you doing to diversify the economy? Why aren't you putting your money where your mouth is and opening a business that isn't oil and gas related?

Oh you answered that...you are going to sit back and hope someone else does it.

[Flacker]

Originally Posted by Muta

I'm telling you, we really need to become NASA north. Let's start building the conditions for a sustainable space exploration industry, right here in this energy-focused city. Each and every one of us knows that this WILL be a major industry in the future... it's not a question of if, but when.

You all laugh at me now, but when SpaceX and NASA launch manned missions to Mars and other planets from just west of Calgary, you'll look back on this day, and this post, as the catalyst for it and you'll worship the ground I walk on.

Launching from the west of Calgary would mean failed craft would be directly over populated areas. Spacecraft launch to the east, to take advantage of earth's rotation.

Yes, I realize your response was likely of the tongue in cheek variety.

[polak]

Originally Posted by RubberDuck

You talk a lot about diversification. What are you doing to diversify the economy? Why aren't you putting your money where your mouth is and opening a business that isn't oil and gas related?

Oh you answered that...you are going to sit back and hope someone else does it.

Cause I'm two years out of school with no capital and a couple of unfinished ideas...

Some sort of incentive being brought forward for industry would be nice.

0% tax for tech companies. Boom. Solved. Where's my medal.

[PsYcNeT]

Originally Posted by Regorium

Just as a thought, what do you think the actual contribution of O&G to the Alberta economy is? (in terms of percentage of total GDP)

As a comparison, what do you think a highly diversified province actually looks like? ie. Do you think Ontario or BC or another province has a better model that Alberta should follow?

Estimates vary, but it's over 2% of Canada's GDP, so conservative estimates would peg it at ~11.2% of Alberta's GDP based on Alberta being ~18% of Canada's GDP:

http://www.statcan.gc.ca/tables-tabl...econ15-eng.htm

[Muta]

Originally Posted by polak

0% tax for tech companies. Boom. Solved.

Honestly, I'm on board with that idea.

[darklord700]

Why would you not want to develop O&G when it is right beneath our feet? Do you tell Wall Street to diversify away from financial in case there's another Lehman bros debacle? In life you have to milk whatever you have and bear the consequences. And if the consequence is a few lean years after two decades of immense prosperity, so be it because that's life.

[CliffFletcher]

Originally Posted by burn_this_city

This is a 1-3 year trough brought on by a cheap debt shale oil bubble. Salaries will probably level off for a few years before climbing slowly again. I realize the herd mentality makes this seem like its a permanent paradigm shift, but I'm not buying that yet.

What do you think is different between now and the 80s, when the Saudis were quite happy to open up the taps full-bore for 5-6 years?

[polak]

Originally Posted by darklord700

Why would you not want to develop O&G when it is right beneath our feet? Do you tell Wall Street to diversify away from financial in case there's another Lehman bros debacle? In life you have to milk whatever you have and bear the consequences. And if the consequence is a few lean years after two decades of immense prosperity, so be it because that's life.

Cause it won't always be below our feet and cause no one has any idea what the value of it will be 20 years. Could be worthless, could be gold.

You talk about uncertainty for O&G companies with an NDP government, well that's a ton of uncertainty for the citizens of Alberta.

[burn_this_city]

Originally Posted by CliffFletcher

What do you think is different between now and the 80s, when the Saudis were quite happy to open up the taps full-bore for 5-6 years?

They're already approaching the upper limit of their production. They'll probably top out at 11m bpd later this year. Their percentage of total global production is much less than it used to be. We're over 93m bpd right now vs 65m in the 80s, any further increase will be absorbed with demand growth or declines in more expensive shale oil production. They aren't the swing producer anymore, they've left it to the US.