Oil prices took another nasty spill this week, closing at a six-year low of $126 (U.S.) a barrel. In past eras, Alberta’s economy was inextricably linked to petroleum prices. Every time oil tumbled, it brought down the province with it.
But this time it’s different. Despite petroleum prices in freefall, Alberta is expected to lead the country in economic growth. Investments made twenty years ago in education, infrastructure and new energy technologies made all the difference.
“We took some very brave actions as a province,” Premier Wong says. Her party won a landslide victory in 2029 on a controversial platform that included a 3-per-cent sales tax. “During the downturn of 2015, enough Albertans were convinced that we had to get off the boom-and-bust roller coaster.” The province narrowly avoided a recession that year. Saudi Arabia was flooding oil markets to recapture its share of the global supply and that was enough to drive oil prices to below $50 a barrel – although only temporarily.
Growth started to pick up in the summer of 2015, but the downturn was enough to spur provincial leaders and businesses to actively pursue policies to strengthen and diversify the economy. The first thing the government did was ramp up spending on education and infrastructure, which most economists agree are the best investments of public dollars.
Recognizing the importance of its universities and polytechnics, Alberta set out to create some giants. Today, both the University of Calgary and the University of Alberta are solidly in the top 20 global schools for applied research, surpassing Toronto, McGill and UBC years ago. This didn’t happen without enormous leadership and fund-raising efforts at both universities. It also required the provincial government to reorient its spending priorities toward education.
Infrastructure was another cornerstone. Rather than cutting, the province actually increased spending on capital projects. Borrowing costs back in 2015 were at record lows and with Alberta’s triple-A credit rating, it just made sense. As well, because of the downturn in oil sands and commercial activity, construction costs were lower.
The Premier was all smiles today at the ribbon-cutting of the high-speed rail system, which was twenty years in the making. With a population of over 6.2 million today, Alberta faced enormous stress on roads, schools, hospitals and postsecondary infrastructure. “We can’t ignore these problems and hope they solve themselves,” she said.
The third pillar of success was diversification within the energy sector. Hydrocarbon extraction is still king, but enormous strides were made in alternative energy development. In 2027, Alberta became the first jurisdiction in North America with electricity to be 100 per cent free of carbon emissions or hydroelectric dams. It managed that with substantial research in geothermal technologies.
Today, not only does Alberta generate all of its electricity with heat trapped beneath the Earth’s surface, it sells this technology around the world. Countries such as China, Germany and India have beaten down the door to Alberta’s geothermal engineers and scientists. Geothermal energy research is now a major knowledge-based economic driver in the province.
“They said it couldn’t be done,” said Premier Wong of Alberta’s geothermal electricity systems. “But this province was built on taking marginal resources and making them global giants.” She points to the early days of agriculture and the oil sands, both of which the experts said would never be economically successful in Alberta.
Steps taken during the downturn of 2015 were politically risky. Albertans have always been leery of public spending and balanced budgets are an article of faith in this province. Spending more at a time when petroleum royalties were falling seemed counterintuitive. But the nature of public finance is to ramp up government spending during the downturns, and curb spending when the economy picks back up – which is precisely what the province did during the boom of 2017.
Today, with a flood of low-cost oil driving global prices down, Alberta has nothing to worry about. Resource royalties account for only 8 per cent of the provincial government’s revenues, down from over 25 per cent two decades ago. Soft oil prices are still felt. But rather than causing an economic convulsion, it’s more of a hiccup.
This column originally appeared in The Globe and Mail on December 19, 2014.