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FIELD TRIP : ALBERTA’S DRAGONFLIES – the continuous rise of a provincial powerhouse

Montreal, 06 August 2012

Dragonflies are big in Alberta.  They are big enough to challenge your windshield on the TransCanada Highway at high speed.  They come straight at you and manage to veer off at the last second.  Amazingly none smashed in.  They are powerful enough to rule the air in their own decided way.  Just then, you know you are in a robust country.

Large and robust pick-up trucks also rule the roads.  They are increasingly driven by young workers surfing the oil boom.  Alberta pays the highest weekly wages in Canada and has the lowest unemployment rate.  It is on a roll:  Production of crude oil is expected to double to 6 million barrels a day by 2030.

It is also a boon for the rest of Canada.  More than 10,000 workers have come from Newfoundland in the past two years only, far exceeding the 6,000 remaining fishermen in the province.  Equalization payments from Alberta to Ottawa were close to $15 billion last year, of which approximately $7 billion ended in the coffers of Quebec.  It is estimated that about 35,000 new jobs were created by the oil industry  in Alberta.  That is quite a relief for the Eastern provinces struggling with growing health care costs, shaky pension funds, stubborn entitlement programs, budget gimmicks and tepid growth prospects.

Now the dragonflies are moving to British Columbia.  Mining and oil activities have picked up in a province that saw its forest industry dwindle in the last 10 years:  Over 70 lumber mills closed down, shedding some 30,000 forestry jobs.  China’s demand has recently perked up the industry a bit, but then 99% of accessible old growth forest has already fallen to the chainsaws.  Port Alberni, which gave birth to the BC lumber industry just before Victoria was founded 150 years ago, is now a pale self image.  It is struggling.

The stakes are now moving on to the oil pipelines in the province.  The TransMountain pipeline, currently linking Edmonton to Burnaby, will see investments of $4.1 billion in the next few years to increase capacity from 300,000 barrels a day to 750,000 barrels a day.  This means one super oil tanker a day will pass through the harbour of Vancouver, as opposed to merely one a week today.  Local beachgoers are getting a little nervous about this.

On the table of negotiation is the projected Gateway pipeline from Edmonton to Prince Rupert.  This is the next big oil project in the province   Fights about the spoils have recently made the headlines news.  Yet there is a lot of economic momentum behind this project and Greens might just have to compromise and bow to the combined political forces of Alberta and Ottawa.  The rise of Alberta as a major international oil player hinges on those pipelines as they would not only consolidate significantly higher volumes, but also fetch higher international prices!

In the 1970s the rest of Canada did not need Alberta’s might.  This time around, the deck of cards is in their hands.   Oil is taken seriously there: The Oil Sands Review lies next to The Economist and Times magazines in most local newsstands.  The Canadian Petroleum Hall of Fame, created in 1997, is as busy as it could be.

Dragonflies will continue to rule.


André Du Sault, MBA (LBS), MPA (Harvard)

PS: sources  from  the Globe and Mail, Vancouver Sun, BC Business magazine.

Posted in CFO & treasury, Country visits, Strategy & globalisation, World economy.

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  1. Citlali says

    Question 2: two measures are neeedd i) A more aggressive GHG reduction target, coupled with access to out-of-province offsets to keep the costs down; ii) Get a CCS facility built rather than just talking about it. Question 3: Measures listed above will help with access to foreign markets particularly America’s. The offsets are useful insofar as they can cost-effectively bring down the lifecycle emissions of oil sands exports to equivalent levels other US imports. This way, the GHG intensive nature of Oil Sands production, relative to substitutes, is no longer a point critics can dwell upon this helps with things like XL approval and compliance with state-level LCFS regs. Additional measures are neeedd like renewable energy subsidies. Alberta has great wind resources and the best solar resources in Canada. A few cents on rate-payer bills can finance the deployment. Critics will have a very hard time pointing fingers at Albertan oil sands if they see solar panels and wind turbines dotting the landscape. Additionally, given Alberta’s clout in Ottawa, they are also well positioned to influence the Federal Gov’t (and therefore the rest of Canada) to bankroll part of the cost. In America, the Feds pay 30% of the capex of renewable energy projects plus generous accelerated depreciation treatment, but the states who add the state level subsidy to get the projects over the investment hurdle garner most of the positive publicity.

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