Alberta still finds itself stuck on oil

After 50 years of trying to diversify its economy, Alberta is still stuck on oil

A popular bumper sticker in Alberta reads: “Please God, give me one more oil boom. I promise not to piss it all away next time.” But the saying is more than just tailgate reading. It can be found on T-shirts and is often said in living rooms during economic downturns and election cycles, including the most recent one that vaulted Jason Kenney and the United Conservatives to a majority government.

Albertans always hope for another oil boom along with rising global oil prices, and Kenney is promising to fight more forcefully for the province's energy sector and new pipelines, but there is rising concern among economists, analysts and policy experts that the enthusiasm for diversifying the economy will wane as a result.

“Oil prices rising are good news for the treasury, but they can be a detracting factor in losing focus on diversification,” said Ken Kobly, chief executive of the Alberta Chambers of Commerce.

Kobly said he's frustrated that his province has, for decades, taken a start-and-stop approach to encouraging economic diversification. Alberta has a history of prioritizing diversification during recessions and losing patience when oil — and the provincial economy — rebounds.

“The frustration tends to mount when you hit another recession,” he said. “When oil prices do rise, we need to stay focused and we need to recognize that as oil prices rise, all of our attention goes toward oil and gas. In my lifetime, I've seen that rodeo four times.”

Despite nearly 50 years of diversification efforts, the province's treasury is still dependent on non-renewable resource revenues for a balanced budget. This time around, however, as oil prices rise and a new premier takes office, the province can't afford to take its foot off the pedal.

Every Alberta premier since the early 1970s has oscillated between two different approaches to encourage job growth in industries outside oil and gas. They have either directly invested in or subsidized specific industries — as Peter Lougheed, Don Getty and Rachel Notley tried — or cut corporate taxes in a bid to lure companies to relocate — as Ralph Klein did in the 1990s and Jason Kenney is promising to try again.

Yet employment rates in Alberta still rise and fall with the price of oil and investment levels in the energy sector, as does the financial well-being of the economy in general. The province's Heritage Fund — a savings account from oil and gas royalties — is smaller today in inflation-adjusted dollars than it was in the 1980s due to the province scaling back its savings beginning in 1987 and also because of spending during the Great Financial Crisis and a long-running downturn in oil prices.

It's not lost on Albertans that Texas and Norway have had more success diversifying their economies and reducing their treasuries' dependence on energy royalties.

A January 2018 report from the Dallas Federal Reserve points to growth in Texas's financial and business services sectors as evidence of more employment outside of oil and gas.

“The diversification of the Texas economy since the 1980s toward service-providing industries, together with greater linkages of financial and business services, likely helped insulate the Texas economy from the latest oil price drop,” the report noted.

Norway's offshore oil production peaked in 1999 and has been steadily declining. However, it established a sovereign wealth fund with oil payments in 1990 — 14 years after Alberta established its savings fund — and has been adding to it since, effectively turning the country's physical oil reserve assets into a financial asset worth more than US$1 trillion.

The value of Alberta's Heritage Fund was $17.6 billion at the end of 2018.

Alberta was hit significantly harder than Texas by the oil price collapse of 2014 and has not experienced an economic rebound, whereas Texas is enjoying a dramatic surge in oil production from the Permian basin.

The province's most recent recession is a result of a structural change in the energy market in addition to a cyclical downturn in oil prices, said Mary Moran, chief executive of Calgary Economic Diversification.