Ok, we're just going to have to tear this thing apart, so I present to you in my usual commentary style:
Alison Redford in "Premier's Address to Albertans"
Alright, now before I begin with the dialogue of my response to the Premier here I'd just like you to note (and keep in the back of your mind) the video's little introduction text: Energy, Prosperity, Foresight. I couldn't find a transcript so I just typed the whole thing out (that's the sort of awesome you get here on Canadian Trends). Let's begin (bold quoted text is emphasis added by me):
Good evening,Remember those words I told you to keep in mind? Energy, Prosperity, Foresight? Well reading the above paragraph it sounds to me as though there has been zero foresight in regards to Alberta's long term prosperity when it comes to our lust for quick energy sales. 30% of our revenue relies on oil and gas, not because of God or mother nature or even China; 30% of our revenue relies directly on oil and gas because of the shortsighted policies which put all of our focus, resources and energy into an unreliable, unsustainable industry.
In the last election I made a commitment to speak directly with Albertans when important issues arise and to listen carefully to your advice. Tonight, I want to start one of those conversations.
As Premier I am proud to lead a province that has achieved so much. We're creating jobs and attracting thousands of new Albertans here each year, in part because our taxes are the lowest in Canada. We live in safe communities, and we're able to provide world-class health care for people like my dad, and quality education for people like my daughter Sarah.
Alberta has been a steady star in turbulent waters but even we're not immune to economic forces beyond our borders. Today, 30% of our revenues is funded by oil and gas, and this means that we're vulnerable to swings in resource prices as we've seen with natural gas prices in the past, and now the price that we receive for Alberta oil.
This time last year: private sector economists, industry experts, and banks forecasted that West Texas Intermediate Oil - the benchmark price for oil in North America - would average $100 / barrel in 2012. The federal conservatives, our neighbours in Saskatchewan, and our own government used that benchmark as the basis for our budget forecasts. In fact we forecasted the price to be slightly lower, just to be safe. But now, Texas Oil ended up only averaging $94 last year and that difference in price alone has cost the province nearly $1B in royalty revenues since April. But it isn't the price of oil in Texas that's causing the real problem; historically the price we've received for our oil has been slightly lower than West Texas oil and that differential had been manageable. But since September that gap has grown considerably and the trend is getting worse for the foreseeable future.Private sector economists, industry experts, and banks got it wrong? Wow! no kidding? They also got the 2008 collapse wrong, they got the Facebook IPO wrong, estimates on Canadian growth.. wrong too! Interest Rate outlook? Wrong. It's a good thing I don't listen to those folks otherwise I would just have to spend all of my time trying to justify why my forecasts were always wrong!
Look Alison (I figure since we're having a conversation and all first name basis should be cool with ya), I get it, everyone was using the benchmark! Monkey-see, monkey-do. Well, not everyone. I mean seriously, it's not like basing the entire provincial budget on an anticipated market response is anything similar to gambling right? Like for instance: if I went to the horse races and this guy I know who sits outside on the same bench all the time - I call him Mark - told me that he knows like pretty much "fer sure" that the #6 horse was going to win all 8 races and I put my entire rent on the line based on my bench-Mark, that would be pretty responsible wouldn't it? I mean seriously, the guy is on the bench every fucking day! Calling out "#6! #6!". Guy knows his shit, I mean he never wins or anything and the #6 rarely if ever actually comes first but this guy... he's on the "inside". Is this not just taking an opportunity? If I win? Well holy crap - that's a nice thought. What.. lose? Lose-smoose, go ask bench-Mark: he knows. If the bench-Mark says bet your future on my bullshit then hey! You're stupid not to do that.
That vast majority of our oil is now bitumen from the oilsands and because of rapidly increasing levels of oil production in the United States and the fact that we virtually no where else to sell our oil but to the U.S. market, Alberta is getting just over $50 / barrel for our oil. This bitumen bubble means that the Alberta government will collect about $6B less in revenue this year alone. To put that in context: that's equivalent to all of our government spending on education each year, so as we prepare this year's budget it means we have to make some very difficult choices.Huh? Bubble? What the hell are ya talking about?
When Albertans elected us last April you placed your trust in us to both manage us in good and challenging times. To protect Alberta's gains while building for the future. You gave our government a clear mandate to keep investing in services that support our families and our communities, the communities where we live. You told us to continue building the new roads, schools, and health facilities that we need, and we are listening.And yes, we do need them. We've needed them for a long time. This is part of the overhead of oilsands growth - an overhead which will always outweigh revenue so long as market conditions remain as they are currently with a fluctuating bi-directional oil price. Of course, I'm not saying that hospitals and schools are needed by the oilsands, what I'm saying is that the numbers that we require are due to the influx in population that is primarily arriving because of the demand from the oilsands for them to be here. We're building huge roads to carry massive trucks that otherwise wouldn't need to be there. As the oilsands expand the infrastructure to run them also has to expand further, but we are being told that to essentially have enough to pay for the infrastructure the oilsands must grow more. A continual debt on the future.
Despite falling oil revenues I give you my commitment that as we deliver our long term economic plan for Alberta, we will be thoughtful of our approach, and we will deliver on these priorities. It's not good enough to simply take an axe to government spending across the board, that would mean that vulnerable Albertans get hit the hardest, and it's not good enough to take the easy way out and raise taxes.I'm hearing lots about how they are going to redistribute the unstable revenue they get, I am not however hearing anything about how to actually fix the problem about a completely unstable revenue source. I would love to be on stable footing, but instead what's being proposed is a slow and painful downward spiral as we chase the oilsands profit that never was.
Last year we initiated a results based budgeting process, a process that challenges every dollar that the government spends while making sure that the programs and the services that we provide are getting results for Albertans, and I've instructed every one of my ministers to speed up this review. In this year's budget we'll hold the line on our spending and we'll live within our means, but our population is growing quickly, we know that living in this province. Last year alone we welcomed 95000 new Albertans; that's equal to adding a new city the size of Red Dear every single year. So while it may sound relatively painless to hold our overall spending levels, it's not. As a result, some programs and services will change especially those that are not sustainable over the long term. Quite simply, we have to put Alberta's finances on a more stable footing.
A province as prosperous as Alberta should not be as susceptible as we are to swings in the prices of oil and gas, and it's why I'll continue to fight for a Canadian energy strategy that gets our oil to both the west and the east coast in Canada, to the refineries in the U.S. Gulf Coast, and to markets over seas - particularly growing economies in Asia.How are more markets for oil and gas going to fix the problem of "swings in the price of oil"? This is just plain misdirection, the promises of the last years have failed. The "5 year economic action plan" has failed. We don't just need high prices, we need exponentially high prices. Prices that rise, forever. No market in the world can provide that. A province that was truly prosperous wouldn't rely entirely on an expensive one-trick pony.
We have a duty to ensure that our resources, especially Alberta oil and gas, get to new markets at a much fairer price. These are our assets and we need to sell them for the highest price possible, and that means we absolutely must find ways to get Alberta oil to multiple customers around the world and get a competitive price, but this won't happen over night. It will take focus and determination over the next several years to open new markets and that's job one for my government. Through all of this as we make the tough but thoughtful decisions to live within our means, we have a plan to once again begin investing a portion of our resource revenue in the heritage fund, the first time that will have happened in over 25 years.The misdirection continues further. You see how she has turned the "conversation" around? It began by talking about how 30% of our revenue is based on oil and gas which has now morphed into an excuse and some sort of prophetic duty to "get our resources to new markets". That's the duty is it? Nothing else? Do you not think Alison that maybe you have a duty to be honest? To admit the fault on behalf of the 40 year regime known as the Progressive Conservatives for putting us into a really shitty economic situation where foresight didn't enter the train of thought for profit at all? Do you not also have a duty to diversify our economy? Or at least maybe have a 'plan b'?
We'll build on the legacy that Premier Lougheed laid down for us;a legacy premised on fiscal conservatism with a strong social conscience that has built Alberta into the greatest place in Canada to live, bar none. Working together, and with your support, we'll work through the effects of the bitumen bubble and put Alberta on a more secure footing. But make no mistake about it, our government was elected to keep building Alberta. To focus our spending on the priorities that you told me were important and that's exactly what we'll do.Yes.. Lougheed. This guy, right? (Sorry for the shitty source, the original source the Calgary Herald has conveniently removed that article...). Maybe you should try going back and listening to all the suggestions he had instead of building on a legacy I think few still recognise. This is the Klein legacy now: quick money, no plan.
I look forward to continuing our conversation directly with you in the weeks ahead (More #RedTV?), we will listen and we will act. Next month I'll lead the first annual Alberta Economic Summit that will bring together leading thinkers from across Alberta. We'll hear from industry experts, from business and not-for-profit sector leaders, and academics from our colleges and universities, but most importantly we'll hear from people like you who are passionate about sharing ideas and finding solutions. This summit will not solve everything in one day but it will allow us to continue our conversation. I don't expect your advice to be unanimous, it usually isn't in most families, but I'm prepared to make the tough decisions that must be made to protect all that we've achieved together while not losing sight of our duty to future generations.Alison, I'm going to be frank; at this point there is only one thing that would interest me, and that is for the Alberta government to stop selling all of us out for generations to come. You talk about a duty to the coming generations, but what duty? Debt? Environmental Cleanup duty?
Thank you for spending a few minutes with me this evening, good night.
I'm not oblivious to the needs of our society, we are a 100% oil based industrial economy. This is the current world and that is certainly not going to change overnight and quite likely to maintain the sort of lifestyle we currently have to some degree it can never change, not that it can't change - but if it does it will be involuntary. I get all of that, but I also get peak oil, although I'm pretty sure you do too, don't you? You've gotten the memo, the evidence is all around you, why continue to lead Albertans down this path?
If you really want to listen, go and listen to everyone who has been priced out of the bubble-territory housing market. Listen to the Temporary Foreign Workers who slave away on a second tier wage with no rights to speak of. Oh sure, we'll bring 'em in now right, figure out what to do with them later, as always. Hell, we need the labour, don't we! Overhead, overhead, overhead.
A prosperous province shouldn't always have to continue slimming it's belt and living by the bottom line. You have a revenue problem, and it's name is the oilsands: fix it; not by opening up new markets, but by examining the core business model in a modern volatile bi-directional market. I really hope you're listening...
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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading.