“You come from capitalist nations. You know what the market does. For any commodity it goes up and down, up and down”—Saudi Oil Minister Ali al-Naimi*
Contrary to the expectations of many analysts, OPEC (read Saudi Arabia) decided it would not reduce its 30 million-barrel-a-day production quota in order to prop up oil prices.
Oil prices dropped by 40%. Oil companies lost $67 billion in market value in two days. And we’re firmly locked in a downward trajectory.
Why did the Saudis do it?
Eighty percent of the Saudi government’s revenue comes from oil production. This decision hurts them more than it hurts us. Why did they do it?
Some say the Saudis are retaliating against Russia for supporting the al-Assad regime in Syria. Others say the Saudis want to teach the US a lesson by crushing US shale production.**
Saudi oil consultant, Mr Al-Husseini, says this is nonsense. It’s just business—a market decision designed to curb high-cost production wherever it lies, Brazil’s offshore fields, the US shale oil plays and Canada’s oil sands.”**
Mr Prentice’s plan
Oil and gas revenue (taxes and royalties) makes up 21% of Alberta’s budget. Oil prices tanked right after Mr Prentice took office creating a $7 billion hole in the budget. His by-election promises of 230 new schools, multi-million dollar flood relief plans, hundreds of long term care beds and a chicken in every pot are in jeopardy.
Never mind says Mr Prentice, here’s why Alberta will survive the 2015 crash.
Moody’s likes us: Mr Prentice boasts that Moody’s gave Alberta its highest rating because it likes Alberta’s low tax regime, strong financial assets and a strong balance sheet.
Moody’s is an investment service. It rates government investment risk like Michelin rates restaurants. A Michelin 5 star rating means the food is good, not that the restaurant can balance its budget.
Similarly a triple A rating from Moody’s means Alberta is a good credit risk and can borrow more money than say, Detroit. It’s not remotely relevant unless Mr Prentice intends to fill the $7 billion budget hole by borrowing until Moody’s downgrades Alberta to junk bond status.
Albertans must tighten their belts: Mr Prentice says “We will be making some tough decisions, and the impacts will be felt in this province. However…we are in it for the long-term (god I hope so!). The job of building this province is not finished, (no kidding!) and the long-run advantage of advancing long-terms solutions is now before us (what?).***
He concludes with a flourish: “…Albertans are resilient, and there is no province better positioned to weather the storm of which I speak”. Actually there is. It’s called Saskatchewan. It too has a triple A rating from Moody’s and oil royalties only account for 11% (not 21%) of its total revenues, making it less vulnerable to plummeting oil prices.****
Stripping away the Churchillesque language, Mr Prentice is saying that government services will be slashed and we’ll have to suck it up. So all you old, sick and frail people, toughen up. And you young people, figure out how to teach yourselves.
Alberta’s bitumen must reach tidewater: Mr Prentice says continued investment in schools, hospitals and roads is contingent on our ability to “seize opportunities in the Asia-Pacific Basin”. He stresses that tidewater access—east, west, north or south—is essential because it gives producers access to world prices (which, you may have noticed, have tanked).
One tiny little problem: Mr Prentice cannot make it happen and Prime Minister Harper just gave notice that he’s washed his hands of the whole thing. So now what?
There will be no change to Alberta’s tax structure: The 10% flat tax on personal and corporate income and the absence of a sales tax is a sacred cow. End of discussion.
Somehow none of this is very comforting.
A new vision
After countless booms and busts (what Saudi Oil Minister al-Naimi quaintly calls “ups and downs”) Albertans are tired of checking with OPEC every time they need a new school or hospital.
Unfortunately 30 years of symbiotic existence with energy companies warped the government’s sense of self. It cannot distinguish itself from industry. It’s become industry’s mindless cheerleader. Its premier says idiotic things like: “Alberta is a price taker.” Alberta is a government. The government is not a player in the energy marketplace.
OPEC’s decision to maintain production gives Mr Prentice an opportunity to remake government. Instead of protecting Big Oil from OPEC, Mr Prentice should protect Albertans from Big Oil by revamping Alberta’s revenue structure and diversifying our economy so that Albertans will never experience another crash like the crash of 2015.
Just because OPEC set up the rollercoaster doesn’t mean we have to ride it.
*Daily Oil Bulletin, Dec 10, 2014
**Globe and Mail, Dec 13, 2014, B8
***Daily Oil Bulletin, Dec 1, 2014
Albertans must tighten their belts, but not Prentice. All 12 of Premier Jim Prentice’s senior staff earn more than $103,000 a year. He is Redford in a nicer pantsuit.
John: I take your point and would add that plummeting oil prices impact almost all Albertans. EOG just closed its Calgary office and fired 150 employees. Encana has been laying off people all year. CNRL expects the “trough” (as Mr Prentice calls it) to be prolonged. The fact that Alberta is so dependent on the energy industry creates hardship across the board when oil prices nosedive.
Nowadays, $100,000 per year is only upper middle class. If that’s all that government officials are getting paid, that’s great.
With respect to the article itself, it disingenuously suggests that the Moody’s rating has little to do with the state of the economy. This is manifestly untrue. The Moody’s rating is based on perceived ability to repay, which is based on the economy.
Prentice’s statement that “we’re going to be okay because Moody’s rated us highly” is largely a non sequitur, but even more disingenuous is the statement that “It rates government investment risk like Michelin rates restaurants.” This is totally false.
Jackson: Prentice referred to the Moody’s report in response to questions from the Opposition asking how he intended to fill the $7 billion hole in the budget. What Prentice failed to mention in the Assembly was that Moody’s also said that if oil prices stay low for a prolonged time, tax and royalty revenues will drop and budget goals may not be met. That’s my point. Regardless, Prentice’s reference to Moody’s is inapplicable in this context.
Is this the point in time when we get the scholarly speech on the value of economic diversification, followed immediately by the naming of yet another ‘Royal commission’ to look at diversification and make recommendations on how to shift our economy? Tthe Royal commission will have an easy time of it pulling the report and recommendations – there are several past iterations sitting in a dark and dusty closet somewhere under the Dome……somebody once observed…..’anybody can govern when the money is flowing in, let’s see how well the PCs govern when the money has dried up’.
Jim: I don’t know why each successive premier feels the need to reinvent the wheel…perhaps it’s simply a stalling tactic to give the impression that the government is doing something when in fact it’s just hoping that things will bounce back. One of the best government reports I’ve seen on the need for economic diversification is the biue ribbon panel report called Shaping Alberta’s Future. It was completed in May 2011 for Stelmach and went into that dark and dusty closet you refer to. Sadly it says: “We may be tempted to hope that energy busts are a thing of the past and start counting on boom times lasting forever, or at least returning more frequently…This would be a mistake…Decisions made, priorities and prices set elsewhere have a huge impact on our economy.” And yet here we, right back to where we started this conversation.
I think back to the creation of Alberta Energy Company, and it’s interests in not just Syncrude oil, Suffield gas and pipelines such as Cold Lake, but also coal and lumber (MDF). AEC was very successful right out of the gate, as it should have been with the market advantage it had, and for Albertans who bought shares at $10 when they were issued, they received a very sizeable ROI. The lure of oil & gas is just too powerful, and look what happened to AEC. The government of the day had a good thing going, yet they failed to sustain it.
Jim, the AEC story is a perfect illustration of how Alberta lurched right after Klein took power.
Sheila Pratt wrote an excellent article for Alberta Views on the topic. She said Lougheed set up AEC in 1975 to build a more diversified economy from our finite resources. AEC was owned 50/50 by the government and the people. The company, as you say, did very very well. Then within a year of Klein taking power it was sold because Klein believed that government has no business in business. What’s really mystifying is how a government can preach “market freedom” while at the same time handing out corporate subsidies in the form of ridiculously low royalties and a 10% flat tax.
Pratt quotes David King, a cabinet minister in Lougheed’s cabinet who said: Klein’s followers (I’d include Prentice in this group) “are market fatalists: whatever the market delivers is what we must take, and that is the best Albertans can expect.”
I wish Prentice would follow Harper’s lead and just eliminate the word “progressive” from the Conservative party’s name. The party has strayed so far from Lougheed’s legacy it no longer deserves to keep it.
Here’s the link to the article: https://albertaviews.ab.ca/wp-content/uploads/2014/08/Peter%E2%80%99s-Principles-Sheila-Pratt.pdf
Instead of a name change, perhaps just tweak one letter, creating the ‘pregressive’ conservatives…
Jim: how about “regressive”? Either or both of the dictionary definitions fit:
(1) becoming less advanced; returning to a former or less developed state
(2) in reference to a tax–taking a proportionally greater amount from those on lower incomes.
That works too Susan, I left the ‘pr…’ on at the front because I thought that too much change might alarm them… 🙂
Good thinking Jim. They have difficulty with change. Look what happened when Laurie Blakeman introduced Bill 202…dysfunction and chaos.
Once again, I am struck by the fecklessness of this government (and seemingly, of endless prior governments.) This “richest Province in Canada” has an abysmally poor record when it comes to social services. Ontario, where I relocated from 8 months ago, has great subsidised childcare for everyone who needs it, all-day Junior and Senior Kindergarten in every school (4 and 5 year olds) an adequate system of long-term-care beds for seniors (NOBODY is labelled a “bedblocker” as is done here) great hospitals (I never saw a leaky ceiling, or windows that when closed allowed the curtains to be blown around – the hospitals are well-staffed with trained personnel, and the physical plant of every hospital is well-maintained and safe for everyone. Are there some problems? Yes, there are. Do I disagree with some of the decisions made there? Yes, I do. But I will tell you that, for a reasonably healthy, normal person in her early 60`s, the state of the Alberta healthcare system is really frightening. I found it hard to believe when I first moved here in April that things as they are were as they are…. WE CAN DO BETTER!
Caroline, you’re so right. My parents, sisters and nieces and nephews live in BC–Vancouver, Victoria and up Island. We talk a lot about healthcare and while some disturbing stories have popped up now and again, they’ve never experience the same level of healthcare problems (excessively long waits for cancer surgeries, the inability to find a doctor when their regular doctor retires, etc) that we experience here on a regular basis. We can do so much better. And we must.
I suppose Albertans can cry themselves to sleep in a corner because the big bad oil market isn’t nice to them. But Albertans should remember that they gave Canadians the Reformers, who seem intent upon destroying this country.
Anonymous: yes, we have a lot to answer for.
Great youtube clip by the way…
*The Youtube from ‘anonymous’ is unavailable to the rest of us!*
Great blog, Susan and, as always, great comments that come from your followers!! I am sending it on!
Thanks Jane! I’m not sure why you can’t see the youtube clip. It shows up at my end and I don’t know how to fix it so I’ll tell you what it is. It’s Harry Nilsson and his band singing Coconut in gorilla suits. You remember the song. A woman is calling for the doctor because she has a headache and he says “put the lime in the coconut and drink em all up…and call me in the morning.” We’re going to need a HUGE lime and an even bigger coconut to get through this headache!
I’ve tried out the video with Chrome and Firefox browsers and they work A-OK for me. Perhaps Jane is making a political statement?
Anyhow, does this one work?
No I do not think so. The problem could very well be IE10 🙂
Anon: This one works on my computer, not sure about Jane and Carlos though. I must say it’s nice to listen to “Early in the Morning” when all this PC/WR “unification” baloney is flying around outside. Thanks!
Susan you are so right – Unification baloney
This works for me as well. What I meant is that maybe Jane has IE10 and that has quite a few compatablity issues.
There is a petition going on and I would like to let you know the site. If you agree please do sign the petition and PLEASE send the address to famili members and friends. We got Alison down, we can also get this one even faster.
Here is the news
and here is the site
If you feel outraged like I do PLEASE do something. Sign this petition and write a letter to Danielle Smith and cc the other leaders and our people Jim
Carlos, I think the reason you were having trouble posting your last comment was because it contains links to other sites. I’ve posted it and would encourage readers to check out the Recall Danielle site. It includes a link to a radio interview with Angela Kokoff. She quizzes Danielle on her decision to cross the floor. Danielle says she quit the WR because (1) her party wouldn’t get behind her when she tried to push it to be more “socially mainstream” and (2) Prentice adopted all her policies and she wanted to support him, not tear him down. Angela says (1) if your party deserted you you should have stepped down as leader and (2) it’s too soon to join Team Prentice, so far he’s all talk and no action. As you’d expect, Danielle has no answer to either of these very good points.
Thanks for sending me the petition Carlos. My husband saw it earlier in the day. It had 200 signatures; by the time I signed it there were over 2000 signatures. If this petition takes off it will put both Smith and Prentice in a real pickle.
Yesterday on @Tyee
excerpt: “…every seven days Norway adds another $1 billion to its bank account.”
Evidence of the results of Norway’s democratic control of their resources and oversight of corporations that exploit petro-resources
vs our AB joint-venture gov’t between PC’s and petro-corp’s, since Klein’s gang decided corporatism, i.e. negotiating with corporations over public policy like royalty rates was more efficient than democracy serving the citizenry and the public good.
Comparisons, analysis here:
excerpt: We collected less than one-fifth the tax and royalty benefits Norway did in 2012. Ouch.
By Mitchell Anderson, 31 Mar 2014, TheTyee.ca
Credit to Mark Lisac for coining ‘joint-venture’ as the best label to describe the AB variant of corporatism that Klein’s gang implemented in AB. Klein as environment minister had managed to get us enviro’s engaged in extensive corporatist negotiations. As Premier it became the dominant governance and public policy negotiation mode across all sectors.
Chapter 9 of Mark Lisac’s book The Klein Revolution succinctly sets out how it was launched with detailed accounts.
Corporatism: undermines legislatures by moving public policy debates into extra-parliamentary forums, undermines role of opposition parties, elected representatives see themselves as representing groups (e.g. vested interest groups) rather than citizens and the public good.
Harper’s open contempt for parliamentary democracy was not displayed as dramatically by Klein gang, but they accomplished pretty much the same agenda as Harper. Business councils, industry trade groups like CAPP, AFPA and so on get to negotiate directly with government. Decisions held off until sham public consultations are conducted and then decisions announced that were in the bag$$$ at the outset. Stelmach got cement boots for a half-hearted attempt to reboot a bit of Lougheed’s approach… i.e. PC’s taught a lesson by petro-industry and #yyc petro-elites for not following the playbook.
Sam: excellent sources, thanks. A friend sent me a CBC interview (link below) with four commentators who set out the various positions very well.
Andrew Nikofuruk (journalist) said Alberta and Canada acted like adolescents who’d landed a huge inheritance. They threw it away instead of having an adult conversation about how to manage it. Norway had this debate and decided to go slow and save its oil revenues instead of letting it corrupt the government and destroy the democratic process.
Tim McMillian, head of CAPP, talked in platitudes. He said the drop in prices is not new and wandered off into a discussion about Canada having a long tradition from the days of the fur traders of building on our resources (?) He adopts an altruistic tone and says that Canada should help countries like India, China and Africa want out of “energy poverty”; conveniently forgetting that “Canada” and “Big Oil” are not synonymous.
John Moore, a Toronto radio talk show host, had some great lines. He said the government blew it by betting so heavily on one sector. He says Alberta turned the NEP into its own version of the “Irish potato famine” and completely ignores the fact that there was a global meltdown in energy prices at the same time.
Tasha Kerridan writes for the National Post. She’s a proponent of the free market. Build those pipelines ASAP! Go fast and go big in order to exploit the window of opportunity. The price drop is a natural fact of the market. She completely misses the point that it’s one thing for the market to go over the cliff. It’s quite another when our government goes over the cliff with it.
Here’s the link: http://www.cbc.ca/player/News/TV+Shows/The+National/ID/2638934627/
This is one of those issues that in the near future is going to be the greatest absurd of Alberta history. With the possible merger of the PCs and the WRs this is to continue forever unless of course the so called Progressives of this province wake up, which I doubt will ever happen.
Our future, if any, looks like a backwater province that missed the boat due to extreme ideology of its leaders. They will be gone, just like Klein is and the consequences are for someone else. We are just now paying the price for Klein’s idiotic policies.
Carlos, I wholeheartedly agree with your characterization that this is “absurd”. Mr Prentice is a master at political spin when it comes to explaining how Alberta landed in this mess. In response to a question from Danielle Smith in the Legislature he said the “circumstances that we are entering in are new. They’re untested.” Untested??? Did he sleep through the last four “busts”? Just for the record they happened in 1985/86; 1997/98; 2000/01 and 2008/09* In other words, the fact that the government is going to hack social services to the bone isn’t the PC’s fault. The PC’s interpretation of the “free market” is one that requires the government to subsidize Big Oil at $100 a barrel, subsidize Big Oil at $40 a barrel and subsidize Big Oil every price point in between. If that means that Albertans suffer, so be it.
*Daily Oil Bulletin, Dec 16, 2014
Well it looks like there will be no more questions from Danielle Smith and others.
After chewing up the PCs for months she must have been offered a nice job with the enemy. Talk about absurd. The lack of ethics and honesty is extreme. These people have only two commitments in their pathetic lives – markets and greed. We are slowly moving towards another economic collapse and these people keep making the whole situation worse and unstable. Harper made today some comments about Russia’s mismanagement of their economy and as an economist he pretends to be, he does not realize the seriousness of the instability of the Canadian economy as well as the world in general. Just like Prentice, who missed the last four busts you mentioned, Harper, repeating his failure to realize what was happening in 2008, is going to miss it again. In 2008 he was lucky because the coffers were full, now it is a different story as they have already spent every single contingent fund they inherited. Instead of paying attention to some of the dissent voices in the economic community, they choose to blindly follow their corporate masters and the Wall Street gurus who caused the first collapse in the first place and got financially rewarded for it.
Do you still doubt of a true revolution coming soon? I do not at all. I welcome it for the sake of those who will have to pay the true cost of our irresponsibility.
Carlos: Danielle Smith and Rob Anderson have taken political opportunism to a new low. The fact that Prentice is even considering letting them into his government tells me that he is no better. If he had any brains he’d say “thanks but no thanks” and reject them. He has absolutely nothing to gain and everything to lose by allowing the WR defectors to join the PCs. However I don’t think his ego will let him go there–wouldn’t he love to go down in history as the premier who wiped out the only effective opposition party Alberta has had in 15 years.
Whether this will trigger a revolution remains to be seen. It takes an awful lot to fire up the people. Other than the gay-straight alliance issue I can’t think of anything else that engaged the public’s interest on a nation-wide scale.
Troubling times indeed with the harshest critics jumping on board with Prentice – someone who proudly states he will do things right (new management) but says nothing about “doing the right things!”
Mr Prentice loves to tout Moody’s to justify Alberta’s inadequate revenue stream and the debt he now must take on (‘we are price takers”, implying that Alberta is powerless before OPEC and distracting from the realities we have known here for 100 years!!). Enron may look like a minor breach compared to Alberta’s decades of negligence in fiscal management for future generations:How about this for a triple BOTTOM line: financial, social AND environmental debt, all left to the public purse!!
The lead story in this week’s Economist (a bastion of right wing thinking but insightful nonetheless) is Sheikhs v Shale. The story says cheaper oil will depress the price of oil products like gasoline. People will spend what they’ve saved at the pump and thus boost economic growth. That may be the case, however as the Economist correctly points out, “there will, of course, be losers. Oil-producing countries [and provinces] whose budgets depend on high prices are in particular trouble.” Ummm yes, that would be us. And to make things even worse for Alberta, the Wildrose has magnanimously volunteered to help Prentice’s PCs avoid going into financial debt–unfortunately at the expense of Alberta’s social and environmental debt. Ambitious politicians led around by the nose by greedy businessmen have landed us in one heck of a mess.
Oh and one last comment about Moody’s. It rated Enron “investment grade scheduled for a downgrade” a couple of days before Enron imploded, so I take no comfort from anything Mr Prentice has to say in that regard.
Who really trusts Moody’s ratings? Only people that operate in that space of corruption. We all know how not too long ago they were caught with their hands in the cookie jar. They are all the same. Financial Services have been able to control their pathetic situation but the day is coming and that will be the end of this corrupt capitalist system. Oh I can already hear the voices – ‘Yes but it is the best we have’ – well I am sorry but that is not a reason to be corrupt and stinky and treat people like commodities. We can do way better than this, we just have to start behaving like real people with real values and ethics, that is why we believe in the rule of law. Remember Marie Antoinette? History repeats itself.
Claudette posted this comment on About Susan. With her permission I’ve reported it here.
December 16, 2014 at 10:06 am
Love reading these comments. Now I look forward to Susan’s reflections on mergers of all colours, stripes and leanings and what it means for Alberta politics and for democracy. Perhaps a wake up call?
December 16, 2014 at 7:54 pm
Claudette, “wake up call” is right. I’ve been thinking about the PC/WR discussions and what we can learn from that. Could be one heck of a blog if I can get my thoughts down under 1000 words! I’d love to hear what you and the others think 🙂