Is Alberta boom starting to dim?

Petti Fong, May 31, The Toronto Star, Edmonton -- In two short years in Alberta, Becky Mallon has learned a whole new language.

In her hometown on Vancouver Island, she started to hear the strange words when she spoke to her brother-in-law who was working in Alberta. She learned that working on a rig was not about trucks, but about drilling holes.

The language her brother-in-law and sister were fluent in after moving to Edmonton to find work in the oil and gas industry spelled out something else for Mallon: new opportunities that she didn’t have working at the Dairy Queen back home.

“As soon as I got here, there were jobs everywhere. I went through seven in a few months as I tried to figure out what I wanted to do,” says Mallon, 22, who is now working for a car rental company.

“After I met my boyfriend, that’s when I really started hearing all these new words.”

Words like roughneck or roustabout, the entry-level jobs in the oil sands, and motorhands and drillers, the better-paying jobs a step above. Her boyfriend, who came from the East Coast to look for work, is a push, one of the top-level positions on a rig.

It’s good money, says Mallon, but he’s gone for weeks at a time, working up north in the greatest oil boom this province has ever known.

But prospects once blindingly bright have dimmed in recent months. After a dizzying full-bore run for two years, everyone agrees it is time to take a breath and get out from the suffocating strain of intense growth in a short time period.

Mallon knows this, as do the people around her, she says, who have all been affected in small ways and big ones by record growth in Alberta. Her boyfriend hopes to keep working until his car is paid off and then wait until the next cycle.

At its peak, Alberta was expanding at double the rate of the rest of Canada, its economy so dominant that for four straight years it propped up the national average.

Indeed, Alberta’s real GDP growth rate of 7 per cent was so off the national average of 2.7 per cent last year that it nearly rendered meaningless the idea of a Canadian average, according to Derek Burleton, senior economist with TD Bank Financial Group.

That province’s growth lifted the national-average tally by more than half a percentage point.

“Alberta’s growth has been similar to China, it’s been that strong a pace, and China has got to slow at some point. Same with Alberta,” says Burleton.

“Based on our forecasts, we have the Alberta economy slowing. It’s important that it does slow.”

At the breakneck pace it was heading, the only thing that could catch up to Alberta’s roaring economy was the even faster problem of inflation.

Over the past year, inflation in the province rose by 5.5 per cent, double the national average of 2.3 per cent. Natural gas prices surged more than 23 per cent in the 12 months to March of this year from the same month in 2006, according to Stats Canada.

Once-affordable rents have, in some cases in Calgary and Edmonton, tripled in the past two years.

That quick rise in costs for housing and food took Alfredo Zelcer, art director for Edmonton-based magazine Alberta Ventures, by surprise.

Lured to Alberta from New York last November, Zelcer noticed far fewer people on the streets than he was used to seeing back in Brooklyn but he quickly got back on familiar ground when he saw price tags on items.

“It was a big disappointment, being so far removed from New York and finding everything was just as expensive here. Food, clothing, entertainment,” he says. “I thought I would do really well with my salary but I’m paying the same for things as I would be in New York.”

The only saving grace until recently, says Zelcer, was his housing, but in the past few months, rent has also risen to near New York levels.

Buying a house has become unaffordable for many, even as retail sales continue to rise at a rate of 12 to 14 per cent annually.

The province’s low unemployment rate has also created problems. Over the past year, full-time employment rates increased by more than 5 per cent. Average is about 2 per cent. The high employment may be good for the job seekers who have come in record numbers to Alberta, but it is having a negative effect on productivity because it increases the rate of turnover.

Public pressure to apply brakes on the growth has been mounting and the government has called for a public review of the royalty structure that has been in place for the past decade for the revenues collected from oil and natural gas companies. The federal government has also made recent moves to curb excesses, especially in the oil sands sector, by removing a tax break given to operators.

Those are small steps, but the most pressing one needed is a short-term moratorium on further approvals for oil sands projects, says the Pembina Institute, a policy research group on climate change issues.

“Some may say that’s extreme, but if you look at all the projects approved already, this is not going to slow down the economy by too much and it’s taking a healthy pause to make sure we do things right,” says Marlo Raynolds, executive director of the institute.

Still, a downshifting Alberta economy is going to grow at about twice the national pace in 2007, especially with Ontario and Quebec’s manufacturing-dependent industries knocked further down by the robust Canadian dollar and weak U.S. demand.

The hope is for a soft landing, rather than a heavy crash. The good news is there are signs that Alberta’s economy is more buffeted these days than during the boom-bust cycles of the past.

One reason is that oil and gas development has spurred the high-tech industries in the province. Another is that, under conventional oil and gas operations, sudden drops in the past led to sudden halts in production. With the oil sands sector now a primary driver of the growth, the lag time is slower. It takes five to seven years to get an oil sands operation going, considerably longer than conventional drilling.

The oil and gas industry has had sharper drops in the past quarter than predicted for demand. High labour costs have had an impact on slowing operations in the industry.

Workers are being pulled in different directions: to Olympic-related construction in B.C.; to forestry work cutting trees before the mountain pine beetle destroys them; or to the mining sector.

The materials needed for rigs also have shrunk, with India, Saudi Arabia and China also demanding the steel needed to keep industry in Alberta growing.

With industry in western Canada running on high cylinders, that has driven up both demand for materials and for labour. Even without those factors, a slowing U.S. economy and a rising Canadian dollar has already started the decline in the oil and gas industry.

The Alberta government anticipates lower energy revenues, dropping from $12 billion this year to $10 billion next year. By 2010, the government estimates it will collect only half of the revenues it got from the industry during the heydays of 2005-06.

The excessive demands of the past year can only be curbed by moderations, including limiting more expansion in the oil sands and raising royalty rates, says business professor Ted Chambers at the University of Alberta’s Western Centre for Economic Research.

“There’s a lot of merit to making that decision because certainly unlimited expansion in the oil sands is at the root of the experiences of the Alberta economy in the last 18 months,” he says.