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Keith Brooks

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It's Time to Wean the Economy Off Oil

Posted: 12/24/2012 5:29 pm

It's becoming clear that the promise of oil-induced riches isn't a sure thing, despite the oil lobby's mantra over the last few years.

The conventional wisdom has held that the world needs our oil and that it would be foolish to leave such wealth in the ground. Forget the downsides of the rampant development of the oil sands -- the Loonie's transformation into a petro-dollar and the resulting loss of manufacturing jobs, Canada's withdrawal from the Kyoto Protocol and our tarnished international reputation, the displacement of and disruption to First Nations, and the environmental impacts to land, air and water. It's a small price to pay for an economic boon.

What the oil lobby glosses over, though, is that this boom, like every other boom, could go bust.

The U.S. has discovered some massive oil reserves of their own. So much so that America's hopes for "energy independence" look like they will be realized. And this will have a massive impact on the viability of our oil industry. America is practically the only buyer of oil sands crude. If they don't want it, there is a big issue.

In addition, America's oil is driving down prices, and threatening the profitability of Canadian producers. Many of Alberta's oil sands projects are among the most expensive sources of oil in the world. By some estimates, new projects need $80 per barrel in order to break even. Others believe that the average project needs $113 per barrel if they hope to be profitable.

But prices are currently well below these levels. North American oil sells for less than the global price. Canadian oil is even more discounted and is currently selling for less than $50 per barrel, or $40 less than Texan oil. Given these economics, it's very likely that many projects are currently losing money -- and will continue to.

Canadian projects "are particularly susceptible to delay and cancellation" and that's exactly what's happening. In addition, governments are scaling back their plans to balance budgets, pointing to depressed oil prices as the main culprit.

This price pinch is expected to last for some time. And it could get even worse. According to a recent study from Harvard University, it's quite possible that oil prices will collapse sometime around 2015.

If this seems shocking, it's because the oil industry and their cheerleaders skipped history class. Because we've been here before.

In the 1970s, oil prices rose to unprecedented levels which fueled a boom in Alberta. There was a massive migration, as 4,000 people arrived in the province each month to get a piece of the action. Fortunes were made and, for a while, it seemed as if the boom would know no end.

But, in 1982, prices collapsed. And as unpredictably as it began, the Alberta oil boom was over. Ultimately oil prices did recover. But the bust was incredibly painful. In the span of two years, unemployment in Alberta rose from 4 to 10 per cent. The province led the nation in housing foreclosures, bankruptcies and suicides.

How, you ask, can we avoid this tragic situation from repeating? We should learn from history. Instead of putting all our eggs in the oil sands basket, instead of digging up Alberta at a break-neck pace, we should be more balanced and strategic in our approach. And we should develop a plan to wean our economy off oil.

The changing economics of the oil sands should be the wake-up call we need. To be sure, this situation will intensify the calls for new pipelines to alleviate the pinch. But this would only provide temporary relief.

What we really need is a more fundamental change. If we don't, I think we're headed for trouble. As Mark Twain said, history doesn't repeat itself, but it does rhyme.

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  • TheHarperGovernment

    The good news is that Alberta does not have to impose a one-child policy until 2020. #cnooc #nexen #cdnpoli

  • Anita Sharma

    @ammoe1993 These deals with CNOOC and Petronas have certainly had our newsrooms engaged in heated debate for months...

  • robert lavigne

    Jack Mintz cheerleads the CNOOC deal .. umm how about a good read first Jack ..?? or were you in on the discussion ..?

  • Brett R. Harvie

    Looks like the #CPC & @pmharper struck an appropriate balance on the Nexen/Progress decision. #cdnpoli

  • *CaptainRon*

    Looks like #Harper will secure himself a 'lifetime job' in the oil fields of #China in #Canada #Nexen

  • Bryan Borzykowski

    I want to talk to that person or persons who sold all that Nexen stock an hour and a half ago. #callme

  • Nathan Rotman

    Why future restrictions on foreign takeovers. Protect Canadian jobs and environment now. #nexen #cdnpoli

  • Danno

    Hey Harper! You seem to have forgotten you are Prime Minister of Canada. Not Israel. Not China. C-A-N-A-D-A #PnPCBC #cdnpoli #Nexen #Cnooc

  • TheHarperGovernment

    We have been concerned for sometime abt SOEs but were utterly unprepared and just winged this one. #cnooc #nexen #cdnpoli

  • Vassy Kapelos

    When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments - Harper #cdnpoli #cnooc #nexen

  • Nancy Leblanc

    Harper not commenting on details of Nexen takeover, i.e., the undertakings. How can we be assured it's a good deal then?

  • Chris McLeod

    Harper's decision on Nexen and Petronas prove that our country and our economy is in sound hands with the Conservative Party. #CdnPoli

  • Carrick Irwin

    I think all #Canadians should divest in #Nexen as of this moment. #cdnpoli

  • Andrew Coyne

    It's just embarrassing to see someone who knows better spool out this gibberish. #nexen

  • Joe Fantauzzi

    That time the Tories, after slamming the opposition as "socialists", sold off parts of the tar sands to a communist regime...#cdnpoli #nexen





 

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