Alberta Economy 2013: Five Trends to Watch

The start of the year is a good time to look forward and make predictions about what’s coming up. And as always, Alberta’s economy has some thrilling and chilling events in store. Here’s a Top Five list of trends to watch:

#5:  Improvements in the forestry sector. It’s been a miserable run of it for Alberta’s forestry producers over the last decade or so. If it wasn’t a high Canadian dollar, it was Mountain Pine Beetles, forest fires, trade disputes with the Americans, or sluggish prices. But the industry started to turn around last year, and 2013 is poised to bring even better days. Spurred on by a gradually recovering U.S. housing market, lumber prices are finally seeing some lofty highs. And most of Alberta’s modern, efficient lumber and pulp mills are now well-adjusted to the strong loonie.

#4: Strong retail activity. The final months of 2012 saw new records set for shoppers in Alberta. It seemed that no matter how much they bought, there was always something more to buy. With sales at just under $6 billion, Alberta has (by far) the highest retail sales per capita in the country. That’s likely to continue in 2013 as steady job growth and in-migration to the province will keep those shopping carts filled to the brim. Tempering the sales figures a bit might be some saturation for consumer durables like new vehicles and home appliances. As well, strong competition and “fight-to-the-death” price cutting among retailer bracing for the arrival of some big American chains may drampen overall dollar sales somewhat.

#3: Soft oil prices. Albertans are hyper-aware of three daily statistics: the day’s expected temperature, the hockey score, and the closing price of West Texas Intermediate crude oil. But that WTI price—curently around $94/barrel—is  sending some misleading signals for Alberta. In days gone by, the WTI price set a fairly reliable trend for the Western Canadian Select blend price (WCS), which normally sold at a discount of around $10-$20 per barrel. But thanks to more supply coming out of North Dakota and some backlogs in U.S. pipelines and refineries, the gap between the two prices has exploded. Now, WCS is selling at nearly a $40 per barrel discount! At that low price, many Alberta producers will be forced to tighten belts and reduce spending—possibly scaling back their drilling programs or capital investments in the oils sands.

#2: Provincial government’s tough decisions. Directly related to #3 above, the provincial government will be facing some enormously unpleasant choices in the 2012-13 spring budget. With oil prices slumping (and natural gas prices still in the basement), royalty revenues flowing to the provincial coffers have been hammered. The expected budget deficit this year of some $3 billion could bloom into something much larger—and after years of running embarrassingly high budget surpluses, Alberta could once again be in the red ink. The provincial government will be making some difficult decisions around spending, taxes, and borrowing, but the most recent statements from Premier Redford suggest that taxes will not rise. That means the axe may fall—and fall hard—on program spending.

And the #1 economic trend in 2013: Pipeline approvals and non-approvals. The issue of oil pipeline construction is shaping up to be the defining feature of Alberta’s economy this decade. Nothing is more critical to the future of Alberta’s oil industry at this point than the decisions made by far-flung politicians—and some of the fiercest and most contentious political wrangling will go down in 2013. Albertans used to worry about what happens when oil runs out. That has been answered: our oil resources will never, ever run out. Now, the much more frightening question is what happens if we can’t transport our oil to markets?

Here are some bold predictions (although they’re only my own). The Keystone XL will receive quiet approval; the Enbridge Northern Gateway project will not—at least not this year. Instead, Enbridge will focus on reversing its Sarnia-Montreal pipeline, enabling Alberta oil to access eastern Canadian refineries. Kinder Morgan’s Trans Mountain expansion from Edmonton to BC’s lower mainland ports will be approved by Ottawa, but it will not be pretty. Many in Vancouver will curse Alberta—and it won’t be for reasons related to hockey.

It’s shaping up to be an exciting year!

Brace yourselves.