I was back east last summer - in Ottawa to watch my kids play in an ultimate frisbee tournament - when my aunt dropped by to watch a couple of games. Talk turned to the Alberta economy, the lagging price of oil and ongoing conflicts over pipelines. In particular, she expressed concern about Kinder Morgan Inc.'s TransMountain pipeline to Vancouver, and what might happen should the pipeline not be built.
Having watched Alberta's economy pick up steam recently, I was surprised by her concern. The province is doing quite well, thank you very much, Auntie - even without the three major pipeline projects in the works: TransMountain, Keystone XL and Energy East.
Canada's big banks all predict that Alberta's economy will lead the country this year, with economic growth of 3.1%-4.2%. The Conference Board of Canada predicts 4.3%. If anything, that growth rate is a bit too fast and, if it keeps up, it might lead to another round of inflation - particularly in the price of labour.
The northwest of the province in particular, around Grande Prairie, is extremely busy with fracking activity in liquids-rich natural gas plays. And that's happening even with Malaysia's state petroleum company, Petroliam Nasional Berhad (a.k.a. Petronas), having pulled out of the Pacific Northwest liquid natural gas megaproject.
Now, oilfield services companies in the region once again are reporting they can't find enough workers. But, it seems, word hasn't made it back East: one oilfield services representative I spoke with recently said he has not yet seen the influx of workers from the East that accompanied the previous Alberta boom.
The other storyline that has people wondering about Alberta's future is the move by several global oil and gas producers to pull out of the oilsands. Houston-based ConocoPhillips Co. and Netherlands-based Royal Dutch Shell PLC led the way, shedding more than $30 billion in assets between them.
However, two firms have expressed interest in both firms' assets in place - Cenovus Energy Co. and Canadian Natural Resources Ltd., both based in Calgary. These are companies with some of the most extensive experience in the oilsands, and they smell opportunity despite localized opposition to a marine terminal or pipeline.
By far, the most important factor affecting profits is the actual price of a barrel of oil. Suncor Energy Inc. now states its break-even price on oil is US$37 a barrel, and most of the other producers aren't far behind - they've driven their costs so low that they're now making a profit with oil at less than US$50 a barrel. What happens when it gets to US$55, US$60 or even higher?
TransMountain, or any other proposed pipeline, would earn oil and gas producers a marginally higher price for their product. Producers also want better trading prices, of course: they'd make more money.
But Alberta is doing just fine right now, dear Aunt, even without TransMountain or $60 oil. Thanks for your concern.
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