How Alberta’s Economy Has Changed, Despite Skyrocketing Oil Prices

To take the temperature of the local economy, the mayor of Lloydminster, Gerald Aalbers, has only to look out the window.

From his office at City Hall, Aalbers — which, because Lloydminster straddles the Alberta-Saskatchewan border, has the unique distinction of serving residents of two provinces — has a direct line of sight to the freeway 16. The highway is a major east-west corridor frequented by heavy trucks and half-tons en route to the oil fields that dot the surrounding area.

But despite crude prices rising sharply in 2022 (reaching as high as US$120 a barrel earlier this year before dropping to around $80 this fall), and even as Canadian oil companies post record revenues and unprecedented production, traffic volume along the highway only increased moderately, Aalbers said.

“We are seeing traffic pick up earlier in the morning and a bit more traffic throughout the city,” Aalbers said.

« That’s good because it means wells are being drilled. That reflects some general optimism in the industry, » he added. « So I think we’re picking up some speed, but we’re not accelerating by any means yet. »

“No acceleration yet” is perhaps the perfect way to describe the strange economic reality Canada’s oil country finds itself in in 2022.

While the industry itself is doing better than it has for nearly a decade, with energy prices higher than they have been for many years, experts say any kind of resultant economic boom for the surrounding region has been conspicuously absent.

“If I had told you two years ago that Alberta’s oil revenues would be at record highs…you would expect Calgary and Edmonton to be booming, and the rest of the province as well. And it’s not happening,” said Charles St. -Arnaud, chief economist for Alberta Central, the province’s central bank for credit unions.

In 2014, for example, during the last oil price spike, many communities in Alberta and, to a lesser extent, Saskatchewan felt like gold rush towns. Hotel rooms were full, local bars were buzzing with oilfield workers full of money and bluster, and people from all over the country were flocking west in search of jobs.

But St-Arnaud, who recently published a report entitled « Where is the boom? » says a lot of things are different this time around.

The industry itself is doing very well – total oil production in Alberta hit an all-time high in the first half of 2022, averaging 3.6 million barrels per day.

And thanks to soaring commodity prices, the total value of the province’s oil production between August 2021 and August 2022 was $140 billion, up 75% from the same period in 2014. In the first six months of this year, Canada alone, the four largest oil sands producers reported more than $21 billion in profits, more than three times their profits in the same period last year. last.

But after nearly a decade of depressed oil prices, producers have been under pressure in 2022 to use windfall profits to pay down debt and focus on shareholder returns rather than investing in their operations.

In 2022, oil producers reinvested only about 7% of their revenues back into their operations, down from 25% in 2014, St-Arnaud said. The nature of these investments has also changed, as companies shift away from capital-intensive projects aimed at boosting production in favor of smaller projects aimed at improving efficiency or reducing greenhouse gas emissions.

The result is fewer workers and less economic spillover effects. According to Statistics Canada, total employment in Alberta’s oil and gas sector is only 75% of what it was in 2014, while employment in construction, a by-product sector, is only 80% of what it was then.

Likewise, wages in the oil sector no longer outpace other sectors as they once did, St-Arnaud said.

« You don’t need to offer exorbitant wages to attract workers, because you don’t need that many workers, » he said. “One of the things I noticed was that we used to have salaries in Alberta that were about 10% higher than the rest of Canada — consistently, since the late 2000s. But the gap has started to narrow in recent years. years. »

« The numbers don’t add up anymore »

Duane Sulyma, a rigger who has worked all over Grande Prairie and Rocky Mountain House, Alberta. in Lloydminster and now Kindersley, Sask., said an oilfield job isn’t as lucrative as it once was and workers are feeling the pinch of inflation.

« When I started in 2012, it was crazy. I bought a new house, I bought a truck, I bought everything I ever wanted, » Sulyma said. « But the numbers no longer add up and the cost of living has skyrocketed. »

He added that after the past eight years of low commodity prices and then the COVID-19 pandemic, many former oilfield workers are fed up with the volatility and have chosen to exit the oil and gas industry altogether. .

“Nobody who has a job in town wants to come here, work for a year, be fired and then have a hard time finding another job in town,” Sulyma said.

St-Arnaud is convinced that the oil industry is constantly changing. And while this may cause some inconvenience, it also means that going forward, Alberta’s economy will be less sensitive to oil prices.

« That’s the problem, if there’s no boom, the bust will be smaller, » he said. « It’s not that oil isn’t a positive for our economy anymore, it’s just not as positive as it used to be. »

Regular growth better for the community: mayor

That’s not necessarily a bad thing, said Sandy Bowman, mayor of the Rural Municipality of Wood Buffalo, which includes the oil sands community of Fort McMurray.

As Canada’s best-known boomtown, Fort McMurray struggled in the 2010-2014 period to meet demand for housing, roads and other infrastructure as workers poured into the community from all over the country.

« Strong, steady growth is what you want to see. These ups and downs that we’ve had can be tough on everyone — not just workers, but the community itself, » Bowman said.

Even grabbing a coffee at Tim Horton’s drive-thru in Fort McMurray took an average of nearly 20 minutes at the time, Bowman said. Now getting a double-double only takes 11 minutes “on a bad day,” he said.

While a major airport expansion completed in 2014 remains « underutilized » and the hum of saws and other construction noise has diminished, Bowman said Fort McMurray’s economy in 2022 is healthy. Local residents work and collect paychecks, and life goes on.

« There’s still a lot of opportunity and there’s a lot of signs of ‘help wanted’…the industry just isn’t growing the way it used to be, » Bowman said.