Alberta oil price collapse raises fears of economic contagion – by David Berman (Globe and Mail – November 17, 2018)

It isn’t just Alberta’s problem now. The plummeting price of Canadian heavy crude oil has been a source of of rising anxiety in Calgary and misery for investors in the energy sector. But it is more than that. As the downturn deepens, it’s becoming a cause of worry for the entire domestic economy, and for government finances that haven’t fully recovered yet from the oil crash of 2014 to 2016.

The numbers are extraordinary. This week, the country’s heavy-oil benchmark, Western Canadian Select (WCS), fell to US$13.46 per barrel, lower than at any point during the oil recession of several years ago.

Jim Gray, a veteran of Canada’s energy sector and chairman of the energy group at Brookfield Asset Management Inc., offers another eye-popping figure to describe the potential damage: By some calculations, total government revenue from royalties and taxable income related to heavy oil could fall by $10-billion. That works out to about $700 per Canadian household. But that’s only one fairly narrow measure of the costs.

Canada’s economy is suffering in other ways, too, from a surplus of energy and a shortage of pipelines in which to ship it. Natural gas prices are weak, and conventional, non-heavy Canadian crude also sells at a price lower than West Texas Intermediate (WTI), the North American benchmark. On the other side of the country, East Coast refineries, unable to get Alberta oil, are relying upon imports of more expensive Brent crude from the North Sea. (Brent trades for about US$67 a barrel.)

Add it all up, and toss in the spinoff effects of slower activity in other sectors of the economy, and the economic damage of oil’s drop runs well into the tens of billions of dollars. At 85, Mr. Gray has lived through decades of ups and downs in Canada’s energy sector, but he believes that the current downturn could prove particularly harmful if it persists.

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