The Alberta Economic Boom - Part Two
The current economic boom in Alberta is
increasing the dependence of the province’s economy on oil exports rather than
deceasing it. This lopsided development is completely dictated by monopoly and
U.S. interests. Alberta has less diversity of exports than any other province.
Crude oil and natural gas alone account for almost two-thirds of goods exports,
while another 10 percent is contributed by refined petroleum, petrochemicals
and coal. Non-energy international exports rose six percent in 2005. The
largest non-energy exports were agricultural products, notably livestock and
grain, followed by forestry products. Metals and machinery and equipment remain
small at about seven percent of all exports.
In all, Alberta exports 62 percent of its
Gross Domestic Product (GDP) to other countries and provinces; that is more
than BC, Ontario or Quebec. The U.S. is the destination for 90 percent of Alberta
international exports; a decade ago it was 80 percent. Nominal exports to other
countries have also steadily increased, rising 13 percent in 2003, 11 percent
in 2004 and 15 percent last year. Most of this increase reflects higher energy
prices, as the volume of total exports only rose 4.2 percent over this period.
The Canadian Economic Observer states
that "Alberta imports more capital and consumer goods from other
provinces, leaving it to specialize in resource exports". The lion's share
of Alberta's trade surplus comes from trade outside Canada, where exports
exceed imports by $33 billion. Alberta runs a surplus of only $7.5 billion with
the rest of Canada. It runs deficits with Ontario and Quebec which are offset
by surpluses with other provinces. This reflects a number of specific
characteristics of Alberta's trade.
Three-quarters of Alberta's energy exports go
to the U.S., especially crude oil destined for the U.S. Midwest and Rocky
mountain states. At the same time, much of the oil in eastern Canada is
imported from Europe because of lower costs and its older refineries which are
designed to process lighter grades of oil than that produced by Alberta.
Conversely, Alberta exports more refined petroleum and less crude oil to the
rest of Canada, especially the west, reflecting the concentration of large
refineries in the province. Edmonton has almost three-quarters of all western
Canada's refining capacity.
Last year Alberta bought almost as many goods
and services from the rest of Canada ($41.8 billion) as it did from the rest of
the world ($51.1 billion). While international imports supply the lion's share
of the province’s machinery and equipment, imports from the rest of Canada have
risen faster since 1999 (up 36 percent). Alberta itself has a machinery and
metal fabricating industry that supplies the “oilpatch”.
Another measure of the boom is business
investment. In Alberta this expanded 37 percent over the three year period from
2002 to 2005, including a 17 percent jump in volume last year. Firms are
reportedly planning to increase their investments another 11 percent in 2006.
As expected most of the business investment growth was in the energy sector,
especially the “oilsands” north of Edmonton. This
investment was fuelled by exports, which hit $134 billion last year, double
their level in 1999.
The Canadian Economic Observer states that the impact of an oil price crash on “oilsands” development would be different than drilling for conventional oil, because the planning and investment horizon there is so much longer and on a much grander scale. The authors base this conclusion on the experience of the past 15 years. For example, while the oil price crash in 1998 triggered substantially less drilling, investment in the “oilsands” was less affected. It is possible that the same thing might happen again, but it is equally possible that investment could drop abruptly. What the authors do not deny is that the Alberta economy will boom or bust depending on the price of oil. With 90 percent of the province’s total exports going to the U.S., and two-thirds of this in crude oil and natural gas, the Alberta economy is more dependent than ever on demand from south of the border.