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Over reliance on one resource and one market has boomeranged on province.
Alberta Premier Alison Redford brought her sad tale of budgetary woe to Ontario last week. Her province isn’t collecting enough money for its oil. It suffers from overreliance on a single export market.
That market is not as needy as it once was. And so Alberta is headed for a $6-billion surge in its deficit. Her finance minister described the situation as a perfect storm. Cry me a Bitumen Bubble. Has ever there been a province so lax in its fiscal management and so derelict in its policy duties as Canada’s petro-superpower?
Perfect storms arise from an unusual array of natural forces. What’s happening in Alberta is the predictable outcome of three decades of policy indifference and political pandering. If these were storms, they would go by the names of Don, Ralph and Ed — the province’s three premiers from the mid-1980s till 16 months ago. Will Alison be blown off course, too?
Redford’s so-called bitumen bubble is a familiar phenomenon more commonly known as the price differential. Alberta’s sludgy crude requires extra processing. So it sells at a discount to the benchmark West Texas Intermediate price. The situation is aggravated by swelling U.S. production and plugged pipelines. As a result, the differential has widened to $30-$40 a barrel, more than twice the province’s expectation.
Unfortunate. But at every juncture, Alberta has opted for poor policy choices or no policy choices rather than get in front of its vulnerabilities. The victim card doesn’t play well.
Alberta’s petroleum potentates apparently have only recently discovered they a) rely on the U.S. for virtually all their exports and b) are a landlocked jurisdiction. They had thoroughly convinced themselves they commanded a captive market to the south even though the U.S. fervently spreads its purchases around. It was the supplier was wholly dependent.
A pattern of chronic misjudgment is evident. Decision-makers have long favoured PR over R&D, failed to diversify markets, shown a weak grasp of pipeline politics and promoted a headlong rush on oilsands development without first figuring out how to produce the stuff in a globally acceptable manner.
But the worst policy mistakes have occurred in the fiscal realm. Alberta, though reliant on a non-renewable resource and prone to boom and bust cycles, has inculcated into its political culture a virulent anti-tax mindset alongside drunken spending habits. Rather than smoothing the waves, fiscal policy rides them up and down, with deficits regularly crashing ashore.
For the rest of this article, please go to the Toronto Star website: http://www.thestar.com/opinion/editorialopinion/2013/02/05/bitumen_bubble_gives_alberta_the_vapours_greenspon.html