When two satellites collided in outer space in early February, the North American Aerospace Defense Command (NORAD) contacted the Alberta Emergency Management Agency to let it know that a school-bus-sized chunk of space junk was headed straight for Calgary. Authorities swung into action and were set to issue a warning when word came back from NORAD that the debris had fallen safely into the Atlantic. What a relief. The last thing Wild Rose Country needs right now is another disaster.
As it is, the once booming province is dealing with a sharp and nasty downturn precipitated by the collapse in oil prices. Finance and Enterprise Minister Iris Evans recently announced the provincial government will post a $1-billion deficit in the year ahead (after projecting a $8.5-billion surplus just six months ago), and 15,000 jobs are expected to disappear (5,700 were lost from December to January alone). Housing starts plunged an amazing 67% in January, compared with the same month in 2007 (and 51% over January 2008); and vehicles sales were off 25% from the year before. “The pace of the decline is the worry — it really fell off quickly,” says Dan Sumner, an economist with ATB Financial, an Alberta-focused bank. “A lot of this was due to the decline in oil prices. I think many thought it would stop at $70. I don’t think many expected it to fall to $30.”
Oilsands operators have slashed their capital spending budgets (by $3 billion in the case of Suncor), and that has forced all kinds of suppliers and contractors to put work plans on hold. Personal bankruptcies have also begun to creep up; they rose a stunning 98.1% in December over the previous year.
“Fastest to grow, fastest to contract,” says Sumner. The flow of East Coast workers to Alberta is also slowing, and that’s spreading the slowdown to distant corners of the country. “We’re seeing people that have very robust paycheques…that are paying taxes in New Brunswick, we’re seeing that start to subside,” New Brunswick Premier Shawn Graham said during a February trade mission to Alberta.
But while the province has now officially fallen into recession, many there seem to be assuming the downturn will be more or less temporary. “There is a general feeling that we just have to hold on until prices come back and we’ll be OK,” says Sumner.
A well-attended February debate at Calgary’s Petroleum Club sponsored by HorizonBetaPro ETF’s, a financial services company partly owned by oil titan Murray Edwards — a man who needs no introduction “unless you’re from Toronto,” according to the event’s MC — dealt with just that subject. Jeff Rubin, the well-known economist from CIBC World Markets, also spoke, and predicted current prices are temporary. His take is that ongoing depletion of production equal to four-million barrels per day will combine with delays among new projects to take total2010 production levels lower than where they were before the bad times hit. “Whenever this is over, we’re going to find that oil markets in the wake of this recession are going to be that much tighter than the markets that brought us triple-digit prices,” Rubin told a packed Petroleum Club. “Everyone is focused on demand destruction right now…[but] demand destruction is cyclical. The real legacy of this recession on future oil prices will be supply destruction.” In other words, the crunch could be short and sweet — and Alberta could be back in the saddle within the next two years.