Merry Christmas, Prince George drivers. Your Christmas present can be found at your neighbourhood gas station, which is likely selling gasoline for less than a buck a litre.
When was the last time you saw people with smiles on their faces as they filled up their F150?
It's funny how people just pay without too much complaining to buy their groceries but lose their noodle when gas prices rise by five cents a litre and cheer lustily when it drops by the same amount. Perhaps it's because they resent the oil companies and their billion-dollar quarterly profits, even though those same companies employ tens of thousands of Canadians and are the foundation for the retirement of millions of Canadians, through stock held in their mutual funds.
Sadly, consumers won't see lower gas prices eflected in what they'll pay for food and consumer goods. As Arthur Williams explained in last Monday's Ask Arthur feature, diesel prices have not dropped likes gas, thanks to high demand and low production. Since most of those goods are delivered by diesel-powered trains and freight trucks, shopping won't get any cheaper, just because the gas is.
The price never drops, however, for the fees charged by "expert" analysts for their educated guesses of what the market for oil and gas will be three months, six months and a year from now. At the end of September, the price for a barrel of oil on the world market was about $95, down from $115 in June, with some analysts saying the price of oil could fall to "as low as $75."
Oops.
The price for oil is now barely above $60 and there is little indication it will be going up again soon. Saudi Arabia refused to cut production early this month, even as worldwide demand shows signs of slipping.
As further reporting by the Globe and Mail and others have pointed out, the Saudis want to keep prices low in the short term, because it throws cold water on developments like Alberta's oil sands. It's far more expensive to produce a barrel of oil from the oil sands and from the major new American projects also dependent on technically complex drilling methods, such as fracking, and it costs more to refine the raw product. At $115 per barrel, there's plenty of money to be made but when prices are half that much, it takes away the profits and all incentive to develop more projects and explore new drilling sites.
This is horrible news for Alberta. Its provincial government set its budget and expected revenues this year from the oil sands based on a price of $95 for a barrel of oil. For every dollar below $95, the Alberta government is out more than $200 million in expected revenue for the year, the Globe explained. That means there could be a massive $7 billion hole in the provincial budget if the price stays at $60 or falls even further.
Not even former premier Alison Redford could blow money that fast.
Globe columnist Jeffrey Simpson has been harping on the Alberta government for years to adopt a provincial sales tax. Hardly a tax-and-spend liberal, Simpson's justification is based on fiscal responsibility. A sales tax gives governments a source of revenue that's much more reliable than energy development. Simpson argues that sales tax money is good for operating costs while oil sands revenues should be saved in a massive fund for a rainy day (like when oil prices fall $35 below what they were forecasted) and the proceeds from that fund can be used for capital expenses, such as building new schools, roads and hospitals.
Albertans brag about no sales tax as the "Alberta advantage" but it's only an advantage if oil prices are high and the oil sands are busy. If oil prices remain low for an extended period of time (some experts are predicting they will but experience shows how ridiculous those predictions are), the Alberta advantage will become the Alberta albatross around the province's neck.
The lesson for Christy Clark and the B.C. Liberals is don't bet the farm on LNG. Alberta could have some tough times in store for a long time because of their misplaced faith that energy revenues could never go down.
Prince George drivers should appreciate their good fortune while remembering that there's not much cheering east of the Rockies.
