The Death Of The Canadian Oil Dream, A Firsthand Account
We’ve spent quite a bit of time over the past 12 months documenting the trainwreck that is Alberta’s economy.
Most recently, we brought you "This Is Canada's Depression: Surging Crime, Soaring Suicides, Overwhelmed Food Banks" and "For Canadian Repo Men, Business Has Never Been Better", but you can review the story in its entirety by revisiting the following posts:
- Canada Crude Contagion: Calgary home Prices Drop Most In 2 Years
- "Canada's Biggest Oil Casualty To Date: Calgary's Nexen Shutters Oil Trading Desk"
- "The Canadian Housing Bubble Has Begun To Burst"
- "Canada's Oil Patch Confidence Crashes"
- "Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk"
- "The Stage Is Set For A Massive Housing Market Correction in Canada's Oilpatch"
In short, Alberta is at the center of Canada’s oil patch and has suffered mightily in the wake of crude's seemingly inexorable decline.
Going into last year, Alberta expected its economy to grow at a nearly 3% clip. That forecast was reduced to 0.6% in March and further to -0.6% in the latest fiscal update. Oil and gas investment has fallen by a third while rig activity has been cut in half.
The fallout is dramatic. Food bank usage in Alberta is up sharply and so, unfortunately, is property crime in places like Calgary where vacancy rates in the downtown area are at their highest levels since 2010. Suicide rates are on the rise as well while the outlook for unemployment continues to darken with each passing month of “lower for longer” oil prices.
Below, find excerpts from an excellent account of the malaise penned by Jason Markusoff who writes about Alberta, lives in Calgary, and has spent 12 years reporting for the city's largest newspapers.
* * *
From "The Death Of The Alberta Dream," by Jason Markusoff as originally published at Macleans
Late last year, Brandon MacKay listed his Kawasaki dirt bike for sale on Kijiji, the online classifieds site. It was the only treat the 25-year-old had given himself in three years living in Fort McMurray. The rest he’d spent on supporting and visiting his wife and kids in Pictou County, N.S. But in crafting the ad for the bike—$4,400 or best offer—MacKay did what any sales agent would advise against: he revealed his desperation to sell. “I lost my job and am in need of money for my wife and kids for Christmas.”
Energy companies are preparing for a grim 2016. Analysts predict budgets will get slashed further, and that more energy firms may have to cut staff, having already laid off thousands. Ongoing oil sands construction projects will continue to wind down with little to replace them, hitting both the residential and commercial real estate sectors hard. For instance, in nearly one-sixth of all the office space in downtown Calgary, the fluorescent lights now shine on empty cubicles, and it’s forecast to get worse. Reports of the symptoms pop up almost daily: more insolvencies, more business for moving trucks and repo crews, even a noticeable uptick in suicides. The Calgary Stampede itself has been forced to lay off staff, as its offseason event bookings dried up. In November, the Alberta unemployment rate came within one-tenth of a percentage point of the national average, the closest it’s been since 1989. Those trend lines are expected to cross over next year, making it more clear to Canadian job-seekers that the Alberta dream is in decline.
The rest of the country isn’t immune from those ominous grinding sounds coming from Canada’s longtime economic engine. Canadian GDP dipped into recession territory in the first half of 2015 on the oil shock, and though the country managed a rebound in the third quarter, Alberta’s troubles—as well as slumps in other oil-rich provinces like Saskatchewan and Newfoundland—have left a gaping wound. The energy sector had long driven Canada’s trade surplus, papering over weakness elsewhere while soaking up large numbers of unemployed and underemployed people from regions like the Maritimes and hard-hit southwestern Ontario.
But even average growth seems a ways off, as troubles keep filtering through the province. In Alberta’s southeast, Medicine Hat drew international acclaim in the spring of 2015 after it became the first city in Canada to eliminate homelessness, having pursued an ambitious five-year agenda to put people into subsidized housing within 10 days of them landing in emergency shelters. After so much progress, Medicine Hat’s Salvation Army shelter is back to averaging 17 clients a night, up about one-third since 2014—too many to promptly find them all affordable housing. Local demand for donated clothing and household items also rose by more than a quarter over the last year, says manager Murray Jaster. But donations slumped too, and he had to reduce staff.
To Jaster’s point, there is much his province used to have that now seems gone. Most noticeable is Alberta’s eroding status as the Promised Land for so many Canadians from other parts of the country. Over the last decade, net interprovincial migration by 18- to 44-year-olds, the key working demographic, swelled Alberta’s population by 200,000, according to a report by a rather envious Business Council of British Columbia. (That province netted fewer than 40,000 over that stretch, while all other provinces were net losers.) The momentum has shifted. While 1,200 more Canadians still moved to the province than left it during the third quarter of 2015, that was the smallest gain since 2010—when the province was recovering from the 2009 oil price collapse—and less than half the average of the last 50 years.
“Seeing that there’s no real light at the end of the tunnel right now, more [companies] are turning to job cuts,” says Wendy Giuffre, the president of Wendy Ellen, a human resources consultancy. “It seems that there’s another wave right now. I think people were kind of hopeful things were going to pick up sooner, but it’s not looking too promising.”
Statistics Canada’s payroll survey shows Alberta shed 63,500 jobs over the year leading up to October. That doesn’t account for lost potential—the Canadian Association of Petroleum Producers estimates 40,000 jobs that were expected to be created never materialized.
It’s no secret that Alberta’s economy is closely linked to the peaks and craters of oil prices—nominal GDP (not adjusted for inflation) swings in tandem with crude prices. It’s why Fort McMurray is like a wounded beast these days. MacKay’s neighbour got laid off this fall. “I watched the bank come and take his truck,” he recalls—it was that or not feed the kids. Home prices in November were 20 per cent below last year’s average, with even townhouses and duplexes losing $100,000 in value. According to reports, a number of people who used to regularly donate to the city’s food bank have become clients.
What happens in the oil fields directly affects one of Canada’s largest business cores. Elevator trips to Beaver’s small ninth-floor Calgary office have gotten lonelier. Nearly one-third of the office space in the 32-storey highrise is listed for lease or sublease. The asking rate to rent downtown Calgary’s “Class A” office space is down nearly 42 per cent from last year, the result of “a complete lack of demand,” according to a report by real estate advisers Jones Lang Lasalle.
The hollowing out of Calgary offices has decimated the corporate lunch crowd. Regulars who would come to Jalapeno’s Mexican Grill three times a week now visit once, or not at all, owner Doug Hernandez says. “We’re not making any money; we’re just floating right now,” he says. “The problem would be when I’m not wearing my lifejacket anymore. Then I’d drown.”
Much more in the full article here
(9 votes)
»
- Login or register to post comments
- Printer-friendly version
- Send to friend
- advertisements -
I've visited Alberta in summer and thought it was beautiful and the people there were top notch.
I'm very sorry for this downturn thats affected both us and them. But not for the people behind the evil.
Here are some signs of a coming recession.
1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.
http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell
2. Factory orders continue to drop
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Iron ore prices tumble
http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30
6. Baltic dry shipping index tumbles
http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
Where is the wisdom passed down by our elders, about how to be frugal and why to stay out of debt and live within your means. This stoppage of the flow of wisdom will be painful for some.
Wisdom is earned by being a fuck up.
Some of today's fuck ups will be warning the youth twenty years from now.
And, after the bail-in's, they will be like my grandparents who told me to never trust a bank, never get too deep in debt, and quietly hold some gold and silver at home.
I think John Wayne described that as:
"If you are going to be stupid, you had better be tough."
Rampant, widespread cognitive dissonance prevents most knowledge from being passed down.
Its ok. Alberta just voted in their first NDP government. (Bernie Sanders on steroids.) So soon there will be free unicorn steaks for everyone and nobody will fall through the cracks. Just write checks and increase the debt. That is the answer to everything. Oh and get rid of that nasty oil business and farming too. That is our commitment to global warming.
Don't forget the plan to illiminate coal.
Cheap electricity for the masses is bad think didn't you know.
Squid
canada largely escaped the 2008 crash, largely because of their stage in the economic cycle, plus they had resisted sub prime. So this time they're getting double damage as everything comes in together
that's not really true... what really happened were all those swaps with the FED. As well all major banks were given a credit line equal to their total share value. CMHC received 40 billion and were not looking to foreclose.
FED did it with a lot of western countries, but it was hush hush... that's were a lot of money printing went, to prop the system up... it would look bad if Canada went bust.
that's why Bernanke could not disclose where all the money went.
Yep your dead on, exactly the same as Australia.
I'm just waiting for the crash when reality of the commodity bust finally dawns on the sheeple.
Didn't Zero Hedge report on something like $16 trillion from the FED to European Banks about three years or so ago?
Yes, they did, and Ron Paul had asked Shalom Bernake about it on a televised congressional hearing. Shalom said he was authorized to do so for any bank that had a branch office in the USA.
I believe Carney at the head of the Bank of Canada did the same stupid crap that Benanke did ... maybe no QE yet (but I bet that's coming).
All provinces receive a good part of their budget in 'transfer payments' from the Federal Gov. Some provinces get 50% when you include grants in lieu of taxes, federal salaries, 'other programs'...
Alberta was the last province paying into the system... after all the manufacturing jobs in Ontario went years ago due to 'free trade' agreements Alberta was the last man standing....
Now we are all fucked.
The only hope is that our debt to GDP ratio is not has high as some other G 7 nations so we can print... helicopter money should come soon in Canada so we can buy Chinese goods. It won't help anything.
The only hope is to follow the law that allows the Feds to create it's own money (without borrowing it) and thus no debt. Pick up the tab of the provinces. But that would mean withdrawing from the ponzi western network and will come under attack from the zios.
"The only hope is to follow the law that allows the Feds to create it's own money (without borrowing it) and thus no debt. Pick up the tab of the provinces. But that would mean withdrawing from the ponzi western network and will come under attack from the zios. "
I would like everyone to step back and digest just how STUPID the above quote is.
The system we have now is one where we must borrow money from investors and pay interest which "should" discourage the federal government from borrowing at all. You are supposed to spend ONLY what you take in via taxes. This, of course, is NOT working, they are still borrowing. This is a complete lapse in morality that one thinks stealling money from generations yet unborn is moral but we won't talk about that, instead we talk about interest payments...ok.
So, according to Mr. Omega, the solution is to stop borrowing money from investors whome you have to pay interest to which 'should' discourage the borrowing int he first place(and in theory doesn't increase the money supply because the money already existed) but instead to just....print. This is presented as a solution.
The power to print unlimited amounts of paper currency with no restraint rather than borrowing? Which will obviously skyrocket the money supply even worse than what we have today.
What could possibly go wrong....
Great idea Omega.
Squid
Squid
The fact that nations such as Canada, USA, China, Russia have to 'borrow' money from the FED (not a part of the US gov) or Goldman Sachs or other banks is in itself insane.
To think that some private banks who don't print money actually have more capital than nation states is pure insanity and that they can rig currency exchanges by their will and it is fine.
The fact that you accept the status quo as 'that's just way it is' is typical of people of people who are not really thinking too deeply.
The zio bankers yanked the power of money from nations... now it is time to take it back.
The 'investment' you write of is BS debt, and other ponzi scheme money made from thin air given to the chosen few to control resources. All made from nothing.... time to end that trick.
Money can only be created from value - creation of something.. not computer created at will by chosen ones to give or lend to other chosen ones.
"To think that some private banks who don't print money actually have more capital than nation states is pure insanity and that they can rig currency exchanges by their will and it is fine."
Damn RIGHT! Where DID they get all that money? They have no infrastructure, no industry, they make nothing, and have no taxpayers...where the FUCK are they getting all this fucking MONEY?
I KNOW it's ours! They STOLE it...from all of us. Lousy lying thieves and grifters, all of them...
thanks janet
Someone give him warren buffett's personal cell. I'm sure they could work something out. Possibly a couple billion payola to Warren to get the job creating pipeline back on track.
I'm originally from Alberta and have this to say about this article....
So what?
Its happened before and everyone survived. Its happening again and everyone will survive just like last time.
Squid
Even worse they're importing inflation like an SOB.
$8 for a cauliflower!
"The bank took his truck, better that then not feed the kids."
WTF....no your just too lazy to sell the truck and you let the bank take it, sory but your a pathetic, waste of skin, Alberta was always boom and bust, what did you save up?.You made more money then most canadians could even dreem of, and you went and wasted it on toys. Now we are suppose to feel sory for you, I hope not one dime goes your way. In fact you shouldnt get any unemplyment, as you should of already had considerable savings.With all your bad mouthing of ontario, you did out there I hope you dont come here either your not wanted.
Oil prices will be back and they will be hiring again.
That's correct. A global oil glut makes prices go up. You see when there's increased supply and falling demand, prices climb.
....did I get this right, YOU FUCKING MARXIST ASS!!!
This is what happens when there is no real demand for a product. You can't flood a market with expensive oil when someone else can extract it cheaper.
Even moreso this is a prime example of what fractional reserve banking does. They lend out money to everyone which causes hyper-competition and overcapacity. This creates a supply glut which causes the market to crash. All this collateralized property is then claimed by the banking system as assets for pennies on the dollar. The losses are written off against profits and the taxpayers are handed the bill in the form of reduced or zero banking profit taxes for years and even decades to come
If the banking system had not funded the US shale market with a debt glut, this never would have happened
"All this collateralized property is then claimed by the banking system as assets for pennies on the dollar."
Which works well, as long as those assets are seizable. However, this new type of economy we have has created 'assets' that do not, in fact, exist. When the grabbing time comes, there won't be enough widgets to pay out all the claims.
Many other assets in our economy are in the form of intellectual properties that are locked up in someone's head...also extremely difficult to 'seize'. Others are in the forms of supply-chains that CAN'T be seized, as they go through numerous other countries...
The thing is, these 'assets' deteriorate rapidly unless actively maintained, and during any protracted unrest that maintenance will NOT get done. The 'assets' will quickly become worthless before they can be seized by anyone.
The old "loan 'em into bankruptcy, then take their stuff" approach isn't going to work the way it always has.
No real demand for a product? BAhahahaha another deep thinker... Oil is the most critical commodity on the planet and any reduction in demand is going to represent a blip on the trend line. Sure, the worldwide economy is in the toilet now, but demographics tell you all you need to know about what future oil demand will look like, and study the decay line for ALL existing oil production to get a clue on what future supply will look like. Its not about who can extract it cheaper any longer. Its about where the oil is going to come from at any price to meet the demand, or even replace existing depletion rates. Here is a hint: There have not been any 'elephant' oil field discoveries of lower cost sweet crude for more than 30 years. Here is a second hint: Those big ass oil fields that have been supplying most of the cheap oil for the last 100 years are starting to run dry.
You may be able to offset some of that lost supply with higher cost, lower quality production like the tar sands, or deep water offshore wells. You may be able to reduce a small amount of consumption by rotating into renewables and using new technology to get higher efficiency. But there are not enough new reserves being discovered now to replace what we have used and lost forever. Reality is a bitch and its coming to all the bozos that think there is a glut of cheap energy out there that will last forever. The longer this low price regime continues, the more damage that is going to impact the ability to maintain future production levels, let alone meet the increase in demand due to population growth and higher standards of living across the globe.
Some people cant see beyond next week. Good luck!
"The energy sector had long driven Canada’s trade surplus,"
Canada has a trade surplus with the US but overall there have been record trade deficits under the past Conservative government.
http://www.tradingeconomics.com/canada/balance-of-trade
ZeroHedge recently posted an analysis claiming that the US could not be the swing producer.
A couple of points: (1) Canadian oil sands is the true swing high cost producer, see link
http://investors-corner.bnpparibas-ip.com/markets-strategy/crude-oil-mar...
(2) Hydraulic fracturers while still a higher cost producer than most, lack transportation cost to market and have improved efficiencies with sand overloading and carbon dioxide flooding. While these improvements don't necessarily translate into cost effective production at sub $30 oil, it is more viable than the original cost curve at $65/bl plus.
Another aside that I have been posting on Bloomberg for over 3 years. Because of the export ban, the oil market has been heavily skewed for decades with WTI selling below Brent. The reality is that the intrinsic value of $WTI crude is much higher than $Brent by at least $3 and possibly as high as $10 per barrel because of its ease of refinement. Hence, regardless of the overall market spot price of oil, WTI will eventually settle after the export ban was lifted at a premium to Brent and then track that market thereafter. When the restructuring of the industry after the demise of OPEC all shakes out, there will still be a significant demand and industry for US produced WTI domestic crude both in the US and globally.
While I was having to roll pennies together a few years ago to fill up my tank, these fuckers were out buying their 3rd, 4th and 5th homes. Fuk em! I'm off to the beach bitchez in my filled to the brim hemi with money to spare!
You searched those pennies right? I'd pay 8$ for a 1922 nmm, if you ever get that industrious again.
Good Grief, it's like nobody reads history anymore and repeats it. I've lived worked through 4 oil busts. It's what happens in that business. Those that know that history repeats itself, prepare for he next event irregardless of the the polyanna siren song of perpetual growth from the banksters and other such grifters. Go get a life, hunker down and go on the dole until you get a job, or not. Life has always been a crapshoot for those not able to vote themselves raises or sell-buy beneficial tax laws.
It'll get better, or not. No earthly guarntees in any Constitution, Bible, or manifesto.
it's different this time
Fuck you Saudi Arabia