Alberta must ‘double down’ on heavy oil
'We cannot afford to dabble'
The turbulent global energy scene is characterized by dramatic technological change, rapid shifts in both supply and demand, and growing social opposition to the production and transportation of virtually all forms of energy, from bitumen to wind farms.
Alberta is a very small vessel on this stormy sea, with only one person in 2,000 worldwide living in the province. This means that Albertans cannot determine prices or control markets, but nor can they afford to sit back and wait for good things to happen. The challenge is to determine what we can do to help ourselves, and then to act with speed and determination to shape our own destiny to the best of our ability.
First, we need to focus. To the extent that we have a competitive advantage it comes from hydrocarbons and, more specifically, heavy oil. If Albertans are to find a global energy niche, it will be through heavy oil. Although gas played a hugely important role in Alberta’s past prosperity, it will not be our ticket to the future for today gas is everyone’s game. With respect to renewables, it is sheer hubris to believe that a small provincial economy can become a global leader in this highly competitive field. We will be, quite appropriately, adapters and adopters of technological innovations created elsewhere.
However, as global energy production continues to shift to heavier oil, Alberta is well positioned if we can demonstrate to skeptical markets that heavy oil production can meet increasing environmental expectations. While individual entrepreneurs will go wherever their interests and investors may take them, including renewables, when it comes to public investment we cannot afford to dabble, to spread the risk by spending a little bit here and a little bit there. We have no choice but to double down on heavy oil.
Second, our massive energy reserves will be just stuff in the ground unless markets can be found. The Alberta government must therefore be a vigorous and constructive player outside the province, promoting the development of a Canadian energy strategy, co-operating continentally as Americans move towards a broader energy strategy, and aggressively pursing diversification as new Asian markets open up.
It would be a tragic mistake to believe that because we have what the world wants and needs, international markets will beat a path to our door. There are lots of doors out there, many better positioned geographically than we are. If Alberta is to succeed, we will have to do a lot of the beating.
Third, Alberta will have to get its financial house in order if we are to have the capacity to support research and development, and the capacity to build the economic and social infrastructure that is so essential for the attraction and retention of human capital.
Alberta is a good place to live, and it could be a great place, but only if we are prepared to invest in our communities. And this capacity means provincial financing that is less dependent on volatile energy prices. Albertans must be prepared to do what other taxpayers do – rely on income and consumption taxes for day-to-day operations and social programming. Resource revenues should be earmarked for long-term investments to ensure that Alberta thrives in the very different energy world to come.
For too long the management of public finances in Alberta has followed the lyrical advice in “Good to be Alive,” Jason Gray’s hit song: “Live like there is no tomorrow, love like [we’re] on borrowed time.” If we continue down this path, if we spend every resource dollar we earn to benefit today’s taxpayers, then we are surrendering control of our future to uncertain markets. We will not be a global energy player. If we live like there is no tomorrow, we could very well be right.
Alberta has huge potential, but delivering on that potential depends on whether we can focus, engage the world, and be fiscally responsible, using today’s wealth to build for tomorrow rather than paying today’s bills. This is not an impossible dream, but it is not yet today’s reality.