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Like Rocky, Alberta has comeback potential

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Alex Carrick

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Alex Carrick is Chief Economist for Reed Construction Data. He specializes in economic forecasting and statistical services.

Economists

This article sets out some rapid-fire observations about Alberta’s economic prospects in light of Canada’s strong gross domestic product (GDP) showing of late and rapid growth in emerging nations.

The following are some rapid-fire observations about Alberta’s economic prospects in light of Canada’s strong gross domestic product (GDP) showing of late and rapid growth in emerging nations.

Alberta is just as dependent (actually more dependent) on natural gas extraction and exploration as on Oil Sands work.

The price of natural gas per million cubic feet, on an energy-equivalency basis, should be 1/6 the price of a barrel of oil. Instead, it’s only currently about 1/20.

Natural gas industrial usage throughout North America has dropped with the recession. But the other factor in the price equation has been the opening up of supplies, particularly from Shale fields.

This has been made possible by new technology allowing horizontal drilling, as opposed to straight down vertical drilling.

However, there are a couple of issues with respect to shale natural gas. 1) Environmentalists want studies done on the impact of such drilling on below-ground water table reservoirs. And 2), according to some experts, these fields deplete at a faster rate than traditional sources.

As for the oil sector, the fact that global prices have recovered about half of their peak to trough drop is very encouraging.

Furthermore, it is hard to see how the price of oil can do anything but keep going up in the short to medium term. Just think about the surge in car-buying demand in China and India. More cars are sold in China every month now than in the U.S.

Also, the Ed Stelmach provincial government has promised to make changes to its royalty regime to bring back more investment. This is in reaction to the concessions made to energy firms by Saskatchewan and B.C.

Yes, Alberta will recover much of its former glory as world recovery continues, but there are some problems to confront.

There are tough new auto emission standards coming into place for 2016 in both Canada and the U.S. (100 kilometres on six litres or less of gas on average over an automakers’ total fleet). To the degree that these goals are realized, there may be some cutbacks in the demand for oil.

Environmentalists will be increasingly attacking the scarring of the land and the polluting of the waters around heavy oil extraction and processing plants. The industry has answers for this, but will have to become more effective in communicating its message.

BP PLC’s embarrassment in the Gulf of Mexico is perhaps changing the perception of Oil Sands production vis-à-vis whether or not it is adequately and relatively eco-responsible.

There are likely to be increasing costs for Oil Sands projects due to carbon taxes or cap and trade systems as they are introduced in the United States and Canada.

There will also be the old problem of attracting workers. Many skilled construction types have returned to their home provinces and have found them to be more prosperous than when they left. Some of these regions are offering good job prospects in resource areas.

Saskatchewan has become a “have province”, as has Newfoundland.

In summary, in the next up cycle, Alberta’s oil and gas industry is not likely to have as easy a go of it as during the early part of the past decade.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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