Been to the gas station recently? Notice anything funny? Maybe it’s that gas prices haven’t been below $0.90/L in the past, I don’t know, 6 years. This looks good, as many of us purchase gas everyday and saving money is great. But the sudden fall in oil prices is not good for the Canadian economy as a whole as we try to climb out of what has now been several years of recession.
Alberta, Canada’s most prosperous province of late, is struggling, and the rest of the country has been following suit. Oil has been the most precious commodity keeping us afloat and now prices have plunged.
Though there is unquestionably a large amount of oil in Northern Alberta, it is not of the same quality as that found in Middle Eastern countries. Overseas, the quality of oil is such that it is much cheaper to extract then most places in North America. In Northern Alberta, drilling projects cost companies a significant amount to put in place. The economic viability of these projects is thoroughly assessed before beginning the project, and in many cases extraction of the oil may simply not be worth it. Another problem with Alberta crude oil is that it is very bitumen-heavy, unlike most Middle Eastern oil. Extracted Alberta oil is more expensive to refine, which drives up the cost per barrel of oil even more. Nevertheless, the world’s dependence on oil thus far has been such that our worse-quality crude was still extremely profitable.
Until now. The theory goes that the emergence of shale oil gas as an energy source has OPEC (Organization of the Petroleum Exporting Countries) oil producers, and in particular Saudi Arabia, a little worried. By wildly decreasing oil prices, shale projects and more expensive drilling projects in North America become economically unviable. How can they afford to do this? Yes, Middle Eastern oil is of higher quality and cheaper to extract. But they have other costs as well. It looks as though Saudi Arabia has conserved enough funds from when prices were high that they can afford to produce at such a low price, driving out other non-OPEC and North American players like Canada. The question now becomes, how long they can sustain producing at such low prices before their economy suffers too?
By this theory, high oil prices should come back. Maybe not for a while, but they should come back. Nevertheless, right now jobs are being lost—employees are being let go left and right. Alberta has taken a hit, and the Canadian economy is definitely suffering more then it has in the past few years.
Even if this is temporary, which it very likely is, the recent drop in oil prices highlights Canada’s ridiculous dependence on natural resources. Stephen Harper, take the fluff out of your ears. Oil is not everything. We need to diversify our economy so that when one commodity suffers, the whole country isn’t thrown overboard. The manufacturing sectors in Ontario and Quebec have been in decline since everything is now made in China. In addition, long, drawn-out battles on pipelines such as Keystone and Enbridge’s Northern Gateway have not helped. We need to shift towards a service-based economy, which will create more jobs, and to invest more money in research and innovation. American companies like Facebook, Google, etc. may have offices in Canada, but their research and development offices are based in the United States. In the long run, clawing funding away from research is just clawing away jobs.
This is not to say that we should not continue to take advantage of the oil sands. It just means that we should explore other, more sustainable opportunities to create jobs and support our economy.
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