Canada’s version of the US housing boom has been the Alberta oil sands boom. This has resulted in various investors and oil companies flocking to Alberta, and along with them, thousands of migrant labourers looking to secure one of the lucrative jobs the boom created. Now, the floor has collapsed under the great oil sands bonanza.
Project after future project has been shelved or slowed down until, according to the companies, plunging oil prices stabilize and financing starts to loosen up.
For at least another two years, and probably more, Fort Mac will no longer be the dream factory for ambitious young men and women from elsewhere in North America. It won't be the escape valve for frustrated workers in areas short of jobs and long on shuttered factories – places like northern Nova Scotia and central Ontario.
Just as the global economic boom was driven by China, the Canadian economic expansion of the past decade was fired by northern Alberta. Now China is talking about 8 per cent growth, not the 11 per cent-plus of past years, and Fort McMurray is talking about more “normal” growth built on operations, not massive capital spending.
This may not be so bad for the “core” oil sands workers, but this will have serious repercussions to the rest of the Canadian economy going forward.
The oil sands will no longer be the strong shoulders that carry the economy. With the price of oil below $40 (U.S.) a barrel, as current construction projects finish up there will be no immediate plunge into Phase 2 expansions….. and that will cool activity in and around Edmonton, including in the hectic oil sands manufacturing centre of Nisku south of the city. And with the cancellation or delay of future capital projects, what once amounted to 24,000 mobile workers' jobs in the oil sands are now in jeopardy.
The shadow work force is in danger. ….if the downturn is not catastrophic for Fort Mac, it is devastating for many communities that have been exporting their young men and women to the oil sands – places like Marystown, Nfld.; Donkin, N.S.; Prince Albert, Sask.; and Wainwright, Alta.
In fact, the end of the oil sands boom could most seriously hurt the rest of Alberta, which, according to the Oil Sands Developers Group, an industry association, typically generates 52 per cent of the mobile work force in northern Alberta.
In the past, rural communities could export their labourers, but they would not lose all the purchasing power. The normal routine for mobile workers is to spend 20 days in Fort McMurray and go home for 10 days, which means they can still buy new ATVs, pickups, and widescreen TVs in their home communities.
A lot of that income will dry up now, as will the wealth transfer to the rest of Canada. Assume the average mobile worker might bring home $25,000 in surplus cash to spend at home in Fredericton or New Glasgow, N.S. Those 24,000 jobs could potentially channel more than $600-million a year from Fort McMurray to the rest of Canada – or to Latin America and China, which contribute a small percentage of oil sands labourers. And that's not counting the vast oil sands supply chain of equipment and materials.
It is one of the best equalization mechanisms outside government transfers. But now the workers will be coming home and putting pressure on their home economies. Young men and women had put education on hold while grabbing six-figure incomes in the sands. Now, there will be increased demand for schooling and retraining.
What a difference seven months makes. Back then, I thought Alberta’s growth offset, and probably contributed to, the manufacturing downturn in the rest of Canada. Now, demand destruction has spread the economic downturn to a much broader area of the economy. This seriously undermines the government’s capability to finance a broad-based stimulus.
Will asset sales, such as of these oil properties, to those still left holding some money (Sovereign wealth funds from China/Asia?) finance the stimulus?