The world is suffering under a glut of cheap oil.
Did I say "suffering"? Oops. I mean, rejoicing in a glut of cheap oil. Hallelujah!
Have you filled up your tank lately? Gasoline in town is less than 90 cents per litre. Good news for one and all.
Unless your economy depends on resource production, low oil prices mean lower costs for everything from food to clothing to home electronics. Low oil prices mean cheaper shipping and cheaper manufacturing. We all benefit.
Except Alberta's economy does depend on oil and, unfortunately, with the liberalization of trade and the globalization of manufacturing, Alberta's economy is also the keystone to our economic health as a country.
In decades past, it used to be "as Ontario goes, so goes Canada."
If Ontario's economy was hurting, then the rest of the country suffered as well. But for the past decade our economic well-being has been more about our oil producing provinces. The low price of oil means that Alberta may actually slip into recession which will be a major drag on the economy in the rest of the country.
I was listening to Alberta Premier Jim Prentice being interviewed on The Current on the CBC last week. He came across as quite thoughtful in his discussion about the Albertan economy and its dependency on oil.
For years, Albertans have enjoyed many advantages over other provinces. There has always been a certain smugness they have about not having sales taxes. An attitude saying Alberta is the best place to be.
Many Albertans and others credit this to the hardworking, "can do" attitude that the people of the province have. But let's face it Alberta's prosperity is simply a result of geology. There is lots of oil in the ground.
Albertans don't work harder than anyone else. They are not brighter or better. They do not have better business acumen. They simply have a lot of oil. And oil has allowed Alberta to have advantages no other province can afford.
In a world that is hungry for oil, Albertans have been living off the profits from selling to others. They even managed to pay out their provincial debt. With oil at $105 per barrel, Alberta has had no problem affording its lifestyle.
But at $48 per barrel? Not a chance.
As Prentice points out, the decline in oil prices represents something in the ballpark of a $10 billion dollar hit to the provincial treasury. Further, his government estimates that even if oil prices start to climb again, the effects of these low prices will show up in decreased revenues for the next two or three years.
Indeed, the Conference Board of Canada has recently released a report predicting that the price of oil might push the Alberta economy into a full recession. It will certainly do so if the price stays below the $50 per barrel mark for much longer.
Prentice is betting that won't happen. His government has forecast oil prices around $63 per barrel for the next year. Still, that represents a $6.5 billion dollar hole in provincial revenues.
There is no easy fix. As the premier observed: "This is not just about shaving down salaries of the top Sunshine List employees. I could terminate the employment of every single employee of the Government of Alberta, leaving aside health care, and it would not fill a six- to seven-billion-dollar hole."
He went on to point out Alberta's economy is far too dependent on oil revenue. The present downturn has wiped out 15 per cent of the province revenue. Protracted low prices will require Albertans to make major adjustments. Maybe even introduce a sales tax.
Simply put, having the lowest tax burden in the entire country is only manageable if oil prices remain high. Alberta is far too dependent on the billions that oil brings in.
So while oil is now and will remain for the foreseeable future a major component of the economy, Prentice feels the province must start diversifying its economy and finding more reliable sources of income. That is a discussion the premier feels Albertans should have.
All of this can be echoed by our provincial government's economic plans. We depended for decades on the forest for our livelihood. We have untapped mineral resources which provided a second stream of revenue.
However, both are resources which we must export leaving us open to international prices and market forces. Cheaper sources will always win out.
Pursuing natural gas might sound like a winning proposition but it simply exacerbates the situation.
We need to get into the business of diversifying our economy. Finding our economic advantages we can exploit. Investing in our youth and citizens. Investing in education.
If not, we might find the world one day has a glut of natural gas and when the prices tank, so will our economy.
