Alberta needs a government that recognizes the coming transformation in the energy sector, says Gil McGowan, president of the Alberta Federation of Labour.
Contrary to what you might have heard, Alberta’s current economic malaise has little to do with government policies or “foreign-funded” environmentalists.The real problem is that the global oil and gas sector is in the midst of a fundamental transformation.The first dimension of this transformation has to do with the United States. As a result of the fracking boom, U.S. oil production has more than doubled in 10 years, turning the U.S. into the world’s largest oil producer, surpassing both Saudi Arabia and Russia.This change has upset the world’s oil supply-demand balance, creating global supply gluts which have driven prices down and led to investment cuts and job cuts in all oil-producing jurisdictions around the world, including the U.S. itself.It has also allowed the U.S. (the world’s biggest oil market and Alberta’s biggest customer) to become more self-sufficient — a change that undermines Alberta’s business model.It’s important to understand that this is not just another boom-bust cycle.In response to Saudi Arabia’s ill-fated attempt to drive U.S. competitors out of business by flooding already glutted markets with cheap oil, oil companies have figured out how to produce more oil, at lower costs, while employing fewer people (thanks largely to automation).Employment prospects in exploration and extraction will never be the same.If all of this wasn’t disruptive enough, Alberta faces two other big challenges: one local and one global.The local problem, as all Albertans know, has to do with pipelines.In October last year, Alberta oil production officially exceeded the takeaway capacity of our existing pipeline network. The result was a catastrophic plunge in the price of bitumen, which was only reversed after Premier Rachel Notley introduced mandatory production caps.The standard narrative is that these problems can be solved if we can get a pipeline (maybe two or three!) built to tidewater. But, while pipelines like TMX would undoubtedly help, they won’t change the bigger global trends.That leads to the final, and most important, dimension of the energy transformation: like it or not, the world has started the process of moving away from fossil fuels.As recently as last month, the Canadian Association of Petroleum Producers pointed to projections from the U.S. Energy Information Administration suggesting that global demand for oil will continue to increase until 2040. UCP Leader Jason Kenney has echoed this view.However, both CAPP and Kenney use the EIA’s “business as usual” scenario and ignore the organization’s projections about what would happen to global oil demand if the world meets its emission reduction targets under the Paris Accord and if renewable energy technologies accelerate their rates of adoption.Under this so-called “sustainable development” scenario, global oil demand will peak as early as 2026 and fall by as much as 30 per cent by 2040, setting off dramatic price drops.Given all that happened in 2018 on the climate change front — wildfires, floods, heat waves, the new UN report concluding that we only have 12 years left to avoid climate change catastrophe — the chances of the world continuing to do next to nothing on climate change are slim.We also have to consider what would happen if China makes good on its promise to become the “General Motors” of electric vehicles and if American voters turf Donald Trump for a “Green New Dealer” in 2020.What all of this means is that the “business as usual” approach that Jason Kenney and CAPP are banking on is not likely to be on the menu for much longer.The good news for Albertans is that we currently have a government that at least tacitly acknowledges that our economic future is going to be defined by change — and is responding by pivoting towards the downstream within the oil and gas industry (partial upgrading, petrochemicals, etc.), where prospects for growth remain stronger, while at the same time, promoting diversification beyond oil and gas.The Notley government is also working with oilsands companies to aggressively reduce emissions so that Alberta can be the last heavy-oil producer standing in an increasingly carbon-constrained world.The bad news is that we have an opposition party poised to take power that refuses to acknowledge that change is happening, let alone make any plans to deal with it.In the coming election, Albertans have a clear choice. We can choose candidates who acknowledge that change is coming and are willing to prepare for it, or we can choose candidates who stick their heads in the sand and think that tax cuts for the wealthy and spending cuts for everyone else will somehow bring back the “good old days.”For the sake of our jobs and our economy, it’s essential that we choose the energy pragmatists over the energy dinosaurs.Gil McGowan is president of the Alberta Federation of Labour, representing more than 170,000 unionized working Albertans in both the public and private sectors. He was also co-chair of the government’s energy diversification advisory committee that consulted with industry and the public about value-added diversification within Alberta’s oil and gas sector.