We have to get our energy to more markets

Posted by: Adam Legge on April 27, 2012

I am very happy to have the Alberta election behind us, because it means we can get back to making a great Alberta even greater.

I was heartened when I read that one of Premier Alison Redford’s first areas of focus will be a Canadian energy strategy and that energy issues will be high on her agenda. Why? Because I think the future of Alberta’s prosperity is more tenuous than most of us wish to believe. If we don’t start to focus on ensuring long-term opportunity for our energy sector, the good times may not roll around as often as we would like.

The energy sector is incredibly vital to Alberta. While the official statistics indicate that oil and gas only accounted for 25.7 per cent of real GDP in 2010, keep in mind that is only for the companies directly engaged in oil and gas, such as exploration and production companies, and drilling companies.

But what about the manufacturing companies that support energy? Or the transportation companies? The investment banks? The accounting or legal firms that do a lion’s share of their business in the energy sector? They aren’t included in that 25.7 per cent figure.

While many initiatives and companies are doing an amazing job of diversifying into areas like technology and creative industries, Alberta’s economy is still reliant on energy. Many indirect industries do well when the energy sector does well.

We are also heavily dependent upon one customer — the United States. Alberta had exports of $77.8 billion in 2010. Of that amount, 71 per cent was energy related, and 87 per cent of that went to the U.S. That is a lot of eggs in one basket.

In addition to this, due to growing continental supply and limited transportation options, oilsands crude is selling at a discount compared to other North American benchmarks. With the increase in shale gas production and limited transportation options, natural gas prices are at a 10-year low. This means Canadian producers aren’t getting as good a price for their product versus in international markets. Therefore, Alberta companies face revenue risk if this discount and low gas price environment continues. And the more we keep our supply on one continent, the higher the risk.

We ultimately face a need to expand our market base and pool of customers. This means more transportation options for our energy products. Not only does that diversify our portfolio of customers and reduce demand volatility and risk, but it also means Canadian producers can capture a greater international price for their product. That means healthier cash flows, balance sheets and investors. It also means more jobs and economic activity.

There is a lot of good work happening in Alberta right now to try and deal with this issue of market access. But I believe it should perhaps be the priority. Health care and education are vitally important, I do agree, but if we don’t address getting more product to more markets, there may not be as many people to educate or keep healthy in Alberta.

We need increased access to new markets. Whether it is pipelines to the West Coast, the Gulf of Mexico, Eastern Canada, or increased rail use, expanding market access for our key commodities should be job No. 1.

We should not take this sector or situation for granted. While oil prices look high, and are higher at the pump, returns to Canadian producers have diminished. And add natural gas to that mix and it is an even greater imperative that we get our product to new markets. One hundred dollar oil may look good, but it isn’t necessarily what will bring back another boom and keep Alberta’s prosperity a sure thing into the future.

An important step in this process will be developing a Canadian energy strategy, but I suggest that we can’t wait forever for that to happen. Increased transportation options need to happen soon. Albertans need to collectively understand that we are far from a sure thing in terms of our future prosperity and that there is still much work to be done.

We need to support the initiatives to get product to market, we need to speak collectively to the rest of Canada about the importance of the sector to our nation, and we need to continue to innovate to enable us to be the world leading energy centre that we are.

We are blessed to live in Alberta. Let’s not take that blessing for granted. Let’s all play a part in continuing to ensure our future prosperity and making a great Alberta even greater.