The beginning of Alberta’s economic diversity starts with focusing on oil production, market access, and the development of value-add products.
Before we can talk about economic diversity, it’s crucial that we keep something very important in mind. Economic diversification requires that we include the things that we are already very good at producing, which is Oil.
Since I was in elementary school and I first learned that the Canadian Economy was primarily based on the extraction and exportation of natural resources, I have always felt that our economy was a little backwards. To be perfectly honest, I’ve always felt that exploiting our vast and beautiful environment, just to turn around and repurchase value-add products made from the raw materials, like consumables and household goods, at an exponentially higher price has never made sense to me. How Canada has managed to stay afloat for so long was perplexing. This was up until I studied economics.
It’s fairly clear, especially in the most recent months of late 2015 and now into the second quarter of 2016, that basing the majority the Canadian economy on the extraction of raw materials can be extremely volatile and a risky bet going forward. This is because we export our raw materials in trade for other goods from other countries, but the prices of these commodities are controlled by the global market. So far, the benefits of our exports, for the most part, have been moderately beneficial. Though I can tell you that we’ve squandered many of these benefits and failed to maintain a more long-term vision in comparison to countries like Norway. Since the commodity’s price crash beginning in 2014, Alberta alone has seen more than 100,000 in estimated job cuts. This doesn’t include the increased unemployment in Saskatchewan or across the rest of Canada. We cannot blame OPEC, the US Oil production market, or even the political leadership in Canada. Part of this volatility comes from our own undoing, and there are many parts in play here.
Today, we won’t be arguing about the cost benefits and differences of transporting oil via pipeline versus train. They both have their merits and both have their risks. What we will talk about is the benefit of keeping more of our natural resources here in Canada. During the Word Economic Forum, located in Davos this year, Trudeau stated quite blatantly, “…My predecessor wanted you to know Canada for its resources. Well, I want you to know Canadians for our resourcefulness.” Though this led to additional banter among other Canadian leaders, there’s more to Truedeau’s statement than face value. It’s up to us, the Canadian people to help drive his point home to the rest of Canada and the world.
It all starts with a pipe dream. No, seriously. Dovetailing an article by Willow White writing for Alberta Venture, the TransCanada Energy East pipeline is incredibly important. Similarly, it’s sister pipeline project proposals to the west. Alberta and Saskatchewan are the two largest oil-producing regions in Canada. Together along with the rest of Canada, these regions comprise the third largest petroleum reserve in the world next to Venezuela and Saudi Arabia.
The problem is that our producers are land locked. Our closest and largest purchaser of our raw petroleum products is the United States. They purchase our oil, refine it, mix it and resell it at a much higher cost across both the Pacific and the Atlantic oceans to the same neighbours that we have just across the ponds. So why do we ship our raw materials to the US? Because it’s easy. Meanwhile, we import oil back into Canada from the Oil Cartel OPEC (Organization of the Petroleum Exporting Countries), and refined petroleum from our friends to the south.
Trains can only ship so much, so quickly, and so far, by continuing on this path, I can predict that we will struggle to keep up with the growing global demand. Yes, despite the current oversupply glut, the demand for petroleum is increasing. The International Energy Agency (IEA) predicts that though growth has slowed for 2016, that the global demand for oil is still upwards of 96 million barrels per day. It should also be noted that both India and China are poised to continue their GDP growth as they increase their standards of living. This in turn, due to their population sizes will only increase this growth exponentially. Case in point, Canada needs to be able to access these markets without piggy-backing off of American pipelines and refineries.
As a result of our market access issue, foreign investors from countries like China, who’s demand for our product is increasing, spend billions buying up stake in Canadian companies. These investments destroy our environment, reduces Canada’s GDP, and denies us entrepreneurial long-term opportunities.
These pipeline projects are important because it opens access to new markets for Canadian exports and enables existing Canadian refineries to make the necessary capital investments required to handle and refine our own raw product.
Though, environmentalists and Quebec opposition will tell us that pipelines are unsafe. It’s true. Pipelines are not incident and accident-free. However, let’s look at the data for a minute.
The National Energy Board, who’s also in charge of regulating the energy sector, supplied the following data. If you’re looking for further study in this area, the information is freely available to you. This graph shows the total number of petroleum incidents since 2004. As you investigate further, only a fraction of these incidents are related to pipelines.
Since 2004, there has been a total of 470 Petroleum related leak incidents. As we can see in the graph, 2010 to 2012 showed the highest number of leak incidents in Canada. Many of these incidents Largely came from both Alberta and Saskatchewan respectively. This governing body has openly stated that an average equivalent of two rail cars worth of oil, approximately 1100 barrels, is leaked into the environment each year. Interestingly, the NEB fines companies heavily when leaks do occur. In addition to heavy-handed penalties, the NEB enforces strict mandates on land reclamation if environmental damage were to occur. As a result, many producers invoke their own strict regulations whereby frequent inspections are paramount to each company’s regulatory compliance. The most interesting fact from all of this is that less than 1% of all petroleum related incidents incurred environmental Damage, and only 1 incident in the 12-year history or recorded data, required the evacuation of just 250 residents. Canada remains yet one of the safest and most environmentally sustainable regions in regards to oil transportation via pipeline.
So, do pipelines create economic diversity? Well. no. Not exactly. First, pipelines slow our need to purchase and refine foreign petroleum enabling us to refine our own product and export the excess. By creating access to new markets for our producers, creating short-term jobs through infrastructure construction, and adding additional jobs as a result of requiring ongoing maintenance buys us enough time to work on Diversification. This first step will help us stabilize our current situation allowing us to focus on a better longer-term vision. Rome wasn’t built in a day, nor was it built by one faculty alone. If you analyze the birth and growth of tech hubs like Silicon Valley, Boulder, and Austin, you’ll recognize that it took many years along with a diverse group of business leaders and visionaries to burgeon these centres to fruition.
Looking purely towards oil commodities for a moment, Alberta does have one region that is more important than one might think. Named the Alberta Industrial Heartland, located just east of Edmonton, this region of our province focuses on the opportunities of downstream investment. This means that companies here take the raw materials from our oil and gas producers and turns it into a plethora of petrochemicals.
Though job opportunities in certain sectors in our province are scarce, this manufacturing region in Alberta is certainly growing. In February, the NDP earmarked $500m in royalty credits to encourage growth for the region in hopes of encouraging both domestic and foreign investment. The region currently houses more than 40 companies working towards creating value-add to our low-cost-per-barrel price opportunity. Just today, April 7th, The Alberta Industrial heartland Association, chaired by Ed Gibbons, is expected to be announcing the details of their trade mission to China. Presently, there’s so much activity in the region with $14bn in construction projects the grid roads are in gridlock and it’s only expected to increase.
Why is this important? Value-add products. Petrochemicals can the be turned into more than six-thousand household products. From dyes, solvents, plastics, vitamin capsules, surf boards, sweaters, car body parts, skis, eye glasses frames, etc. The list is huge. Though, the argument could be made that it is less costly to ship raw bitumen than a container full of footballs. Yes. It is, but we also make more money per unit as a result of adding that value to each barrel of oil. Keeping in mind, however, that if you’re thinking of starting up a football manufacturing business in Alberta, I would highly encourage you do conduct some proper due diligence beforehand.
From one entrepreneur to another, as Canadians we need to stop by-in-large being so conservative and reserved. We’re so euphorically fascinated with what’s going on in Sunny California and the rest of the world that we’ve lost focus on what’s right in front of us. Canada has one of the largest supply of value-add opportunities. The top American companies are so successful because their leaders are less risk averse than we are. The Canadian mindset to starting a company generally follows this cycle: Develop in Canada, test the product in the US, then sell the company to someone bigger in five or so years. In stark comparison, entrepreneurs in the US look to change the world with long-term visions holding on to as much control for twenty to thirty years out. Selling their dream to someone else is usually an afterthought or an emergency ripcord. According to Peter Theil, co-founder of PayPal and writer of the book, Zero to One, we’re better off as entrepreneurs if we, “…Dominate a small niche and scale up from there, toward your ambitious long-term vision.” In other words, unicorns aside, how can you change the world? What is your long-term vision?
One idea in which I’m currently writing a sustainability study involves the recycling of shipping containers. We, as well as Australia, ship an abundant amount of raw ore materials to China, only to be smelted into steel that gets formed into shipping containers. Many of these shipping containers make a one-way trip back to us (full of all of the fancy things that we buy) and tie up valuable land because it’s more costly to ship empty containers back. There are few companies that try upcycling these containers as homes, pre-built storage units and even mobile gardens. Though novel, these practices are not sustainable or high demanding solutions in our country. Yet across Canada, we manufacture automobile parts that require steel. I Digress.
Opportunity aside, it’s important that we are mindful about our country’s environmental sustainability. For example, Lafarge, a French-European conglomerate, one of the world’s leading suppliers of cement materials, is gradually grinding down down a mountain to a nub at their Exshaw plant, just off of the Trans-Canada highway in Alberta, because of it’s abundance in limestone. Yes, the end result of resource extraction processes is ugly and messy. For instance, Indonesia is one of the largest production regions of palm oil. Palm oil is used in the manufacturing of many household products such as food and cosmetics. To do this, producers burn old palm plantations and churn the charred remains back into the earth to make the ground more fertile for new palm plantations. This is called peatland processing. Most recently, due to the increase dry weather caused by El Nino weather patterns, some of these fires have spread beyond control putting the environment and Indonesian residents at detrimental risk. Similarly, many of us have heard about the risks and environmental impacts surrounding fracking and oil sands production. In addition, increasing our manufacturing capabilities in Canada also means that if we’re not mindful of our environment for the sole purpose of the almighty dollar and an increased standard of living, we stand the risk of being left with a dirty, barren, and overpopulated landscape. We are very lucky to have the environment that we do, and have managed to keep it in as pristine condition as it is.
Our province is already abundantly populated with innovation, opportunity, and growth. Your neighbors, friends, and co-workers could very well be the entrepreneurs that work every day towards a better tomorrow regardless of the adversity that they may face.
What is your vision? I encourage you to look in the mirror. You are a Canadian. You are an Albertan. You are resourceful. How can you contribute to change our future? So, fight for our market access. Fight for our raw materials. Let’s work together as Albertans and Canadians and reverse our age old tradition of giving away what we so fortunately have. Look beyond the short-term and the political banter. Together, we can build a diversified economy and the higher standard of living that we all have become accustomed to.