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Calgary & Alberta Economy

My thoughts regarding CBBarnett's post:
Post great recession, the O&G industry got back on it's feet. Oil returned to around $100/barrel and stayed there until the latter half of 2014. Capital spending and most importantly foreign investment raised 'all boats' as you put it. Companies were hiring for projects to expand capacity. A lot of those jobs were consulting positions and not payroll, but yes they were good paying. Companies were banking on having new pipeline infrastructure coming on line to support increased capacity.
After 2014, the price of oil fell. Capital spending was cut along with a lot of jobs. New projects shelved. Foreign investment evaporated as companies did not view oil sands as a good place to invest any longer. The environmental group lobby targeting the oil sands while the U.S shale oil business boomed, hurt us. What happened to global demand for oil & gas between 2014 and 2020 (pre-COVID)? .... it increased!
So Canada still has tremendous supply but cannot get product to market efficiently. We have 4% of the global market. If we want more than that share, then we need to increase capacity, and we need the infrastructure to support that. Increasing capacity will require more projects, and more jobs, producing more oil for global consumption. More exports allows Canada to pay for more things .... like rising debt or infrastructure projects. It all sounds pretty simple but unfortunately, it is made to be very complex. All we need is some vision which is sadly lacking in this country.
 
I think the best case is stabilization. Oil and gas 'sustainment' spending (maintenance and projects to replace declining resources) will never be as much as earlier expansion and resource proving periods for labour, but will still be lucrative for a long time. Even with increasing demand, there is little point expanding as high prices inevitably mean a rush to market, and a downward price trend. If the investment banks who don't want to take a 3rd wash on shale limit that growth, the downside is that the oil sands are basically the same problem except with longer time scales. Heck Trans Canada wasn't even able to get competitive bond financing for Keystone XL

A big thing for the oil sands growth was the going concern problem. To stay valued on the stock market for their current production, companies needed to have proven resource in the wings, or else the company would be judged to be in terminal decline and their stock price would fall. Until shale oil came on scene in a big way, that meant all of the majors had to have oil sands or deep water plans since so much of the world was closed to private oil and gas investment. In a world without shale, Alberta would easily be on a path to oil sands 8 million and living it up during the greatest boom. Without shale, the USA has to for strategic reasons authorize pipelines. Without shale, all competitors are also high cost.

Heck, if we turn back the clock even more, without shale gas proliferating in the USA, Alberta raises so much revenue over the past ten years that there is probably $300 billion to plan for eventual transition (up from around $45 billion at the start of the gas crash).

Alberta made the choice to preference wage and population growth, back when active political talk was about whether we should authorize more than a few mega-projects at once. We could have planned and geared growth to then current capacity, but we would both be poorer, and far fewer in number today if we had.
 
Will be interesting to see what is proposed

ca.finance.yahoo.com

Kenney says ambitious, long-term Alberta economy reboot plan coming Monday

GRANDE PRAIRIE, Alta. — Premier Jason Kenney says his government's blueprint to reboot Alberta's distressed economy will be announced Monday in Calgary."It will be a bold and ambitious plan to make strategic investments to get people working right now when we need it most, but also to invest
ca.finance.yahoo.com ca.finance.yahoo.com
 
Hoping for massive infrastructure investment for the cities and for the north. A Buffalo Narrows (SK) -> Fort McMurray -> Peerless Lake -> Peace River highway would go a long way towards strengthening connections in the north, and also realize the vision of more than one way in and one way out of Fort Mac.
 
Hoping for massive infrastructure spending on (public) transportation, health care, higher education and culture. Expecting further corporate tax cuts and grants/loans for the O&G and agricultural sectors, maybe lowering the minimum wage.
 
I am not sure what exactly can be done. The slack in the economy is in places where infrastructure stimulus doesn't cut it. Normal recessions are caused by a decline in business investment creating slack that can be replaced by spending a lot of money in the industries where the slack exists. The slack we have is in retail and consumer services, some in oil field services. A lot of the other slack is structural - until day care and after school care is back to 100% a lot of people cannot work at all or at the hours they had before. And even then, consumer spending is totally screwed up.

This is from the USA but there is no reason to believe it is not true in Canada:
1593376914902.png


People with more disposable income are not spending the same. Which makes sense: a fair amount of the spending is driven by restaurants, personal services, and new clothes for work. People at the top of the income ladder spend way more on travel, and when they're travelling they spend way more than when they are at home. What stimulus measures would be equitable that would encourage high income people to spend more money on services? I can't think of one. Should we have a hotel spending tax credit? An airline ticket tax credit? A mani/pedi tax credit?

As for the oil and gas and associated industry, what can be done? Unfortunately a possible good thing is likely out due to timing -- if it was two years from now, we would possibly have the commercial scale (albeit just a few wells) tests of lower temperature geothermal loops and direct from reservoir hydrogen production proven, and could pile money into launching those industries to get well services back to work productively. Even then, you have regulatory issues that if you accelerate for electricity we could run into problems like what happened with the green energy act in Ontario with too many last mile transmission projects going in.

Four interesting things I would look for flavours of in a innovative stimulus and transformation:

For infrastructure, I just don't think there is slack capacity there right now to really open the taps. Of course, if we realize this isn't a short term problem could do something interesting: fund projects but mandate that 50% of the labour be people that were retrained through a massive program akin to Women Building Futures. Create the capacity, induce the slack, fill the slack.

Startups and technology: The government needs to throw caution to the wind and go in big on venture capital and start ups with the expectation of big losses. Match all startup and VC funding 1 to 1, for a much lower stake. If someone raises $1 million for a 25% stake, the government contributes another $1 million for a 2.5% stake for example, with rapid turnaround, and an environment of trust that just turns on the taps, not an environment of eligible costs. Wide criteria. The other option is a refundable tax credit for labour spend: if your startup is paying people, you get a meaningful percentage back, much like the Canada Emergency Wage Subsidy. Make the refund not yearly, but monthly at least. Create a clearing house for startups, and find a way where people with money can easily invest money into startups, almost like ETFs but for startups.

Retraining: The universities have demonstrated that they can scale up rapidly online training. Now is the time to double down. A new model, with lots of courses. Each course teaches a skill, and enough of those courses stack together for a competency certificate, and enough stack for a diploma. For retraining already skilled workers, higher level certificates stack into an eventual masters degree.

Business investment in research and development: Canadian and Alberta businesses don't spend enough on R&D, which erodes their productivity overtime. Then instead of deploying solutions they developed themselves, they have to import tools and talent instead at higher cost. We need to encourage them to spend more themselves. Refundable tax credits, or a match for partnerships with universities might be the way here. Again, a universal program is needed rather than trying to 'protect' the public purse on this one.
 
According to early reports, the plan will be focused on O&G, health care and transportation which are some of the few segments of the economy that are functioning right now.
No point in directing any money to the retail, hospitality, travel and entertainment sectors until more people are back to work and spending, and it is deemed safer. For example, the rest of the year is going to be a write off for entertainment ... no sports events, no festivals, no live theatre or concerts. Those jobs are not coming back this year no matter what you do for that industry. Not all of the hospitality jobs are coming back as restaurants and bars will be starved for business until more people feel it is safer to go out. As for travel, can anyone really plan a trip right now to anywhere other than within the province? I like many others, already cancelled plans for a summer vacation to the U.S. As one who likes to travel outside the province at least twice a year, I can't even think of where I want to go and what I want to do in the next 12 to 18 months. With all of the restrictions, self imposed quarantines in air travel and uncertainty of what it is going to be like at your destination; it would hardly be a holiday to look forward to. Most people like me will just say ... I'll 'staycation' until there is more certainty about the world.

Add up the damage to all those sectors, and that is a lot of revenue and jobs that will be lost for an indefinite period of time.
 
Update: The Alberta gov't just announced grants for small business to assist with the cost of COVID 19 protocols. That will help with the added cost this sector has endured. Not sure if it will do much to bring more customers in the door. There is still a large segment of the population that cannot spend (job loss or uncertainty) or are still scared about going out in public unless they absolutely have to ... with or without all of the safety protocols a business has provided for.
 
JonnyCanuck said:
Add up the damage to all those sectors, and that is a lot of revenue and jobs that will be lost for an indefinite period of time.
Click to expand...
The economist called the recovery economy the 90% economy which i thought was apt. Unfortunately we also have problems in oil and gas, which makes Alberta's reopening a 80% economy.

The Globe and Mail had a background preview of the announcement today. $500 million for 8 or 9 shovel ready projects. What a groaner. Logistics hubs and highway twining, which makes me think this suite of projects will be one of them, upgrades to Highways 36 and 41 to support high loads:
1593449581108.png


Unless they've really downplayed what they are going to do, I don't think what has been leaked is anywhere close to game changing. I bet they do a few things that they think will be game changing but which don't do a whole lot: immediately enact the planned corporate tax changes (doesn't cost much if companies aren't making money!); create a new tax holiday for investments in capital stock; and announce some wide ranging right to work style changes. Mostly polarizing things that don't address our current problems, that they can use opposition to to continue to build their narrative of UCP pro-economy, everyone who speaks out, anti-economy.
 
A mixture of meh, good and great today from the government:
  • corporate tax cut enacted on July 1, down to 8% (meh, since the cut would have already been accounted for in investment decisions, but a point was made that other governments announced cuts then pulled back which may have caused skepticism on whether the cut would happen)
  • VC funding of $175 million (good, but timelines will be important (doing that yearly would be great!, over 4 years it is more meh), and risk aversion may hold it back) edit: it is over 3 years
  • reform of sr&ed to a refundable credit for pre-revenue, pre-profit companies (great, but the details will be important here--will it be a high enough %, and what % will be in place for labour reimbursement)
  • infrastructure (meh, the lack of a 'tent pole' project announced today probably means there isn't a real positive return on investment project there, and the talk of corridors means it is probably boring work as per my speculation above)
Edit: here is the news release: https://www.alberta.ca/release.cfm?xID=727120D7B418C-DF0C-FB14-235849A8D5356268
 
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Kind of bold plan. Increase spending, decrease tax revenue (corporate taxes). This on top of reduced revenues from oil & gas and personal income taxes as more people are unemployed or making less.
Not sure how we as a province are going to pay for all of this but I have to believe that a PST is in our not too distant future.
 
Not really what I would call "bold" at all... Seems deliberately vague. Corporate tax cuts and road repairs? *yawn*
I'll eat crow if it works, but I'm not seeing any imaginative initiatives that are going to accelerate Alberta past the O&G and COVID crash.
 
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I've been banging this drum for a long time, but if the government is serious about diversification, and "culture/tourism" is one of the main pillars of this diversification effort, then there is a very clear solution: a massive investment in the expansion of Alberta University of the Arts.

Also, no one has noted the new restrictions on immigration. It seems crazy, if you're trying to attract new businesses to the province, that you would add restrictions to who they can hire. Availability of talent is probably Alberta's greatest challenge in growing new industries. We have a huge opportunity to attract business from the US given the destructiveness of the Trump administration on immigration (especially with the recent visa ban). On the whole, immigration creates jobs.
 
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