Jason Kenney has bet his political future on delivering the “best summer ever” for Albertans, and so far he’s getting a lot of help from global commodity markets. After years of being stuck in various stages of doldrums, oil prices are on fire — and show no signs of relenting any time soon. With COVID case counts subsiding in most major economies and huge stores of pent-up demand for travel and other petroleum-fuelled activities, some prominent market watchers like Bank of America and Goldman Sachs are predicting oil prices could hit $100 per barrel. With a provincial election scheduled for 2023 in Alberta, the timing couldn’t be better for Kenney.
This could be a particularly big problem for the Alberta NDP, which has seen its poll numbers and political prospects surge in the face of Jason Kenney’s repeated failures. He deserves no credit for the rise in global commodity prices; his policies have nothing to do with it. But that won’t stop him from declaring victory and promising Albertans the good times are here again — and here to stay, if they stick with him and the UCP.
But make no mistake: This isn’t going to be your father’s oil boom. It’s probably not even going to be your slightly older brother’s version. There will be no major new oilsands facilities commissioned, no massive increase in oil production and none of the frothy optimism that drove up activity and wages in the oilpatch. That’s because, for all the near-term excitement about higher prices, nobody who makes decisions in the oil and gas industry has any confidence it will last.
The last time oil prices hit triple digits, there was a prevailing sense we’d run out of barrels before demand ran dry. But a series of technological breakthroughs, particularly the impact of fracking in the United States’ shale formations, made it clear that supply wasn’t going to be the problem — and the OPEC nations, led by Saudi Arabia, responded by trying to drown the market.
This time, prices are rising because of restraint, not scarcity. Saudi Arabia is holding millions of barrels off the market to support higher prices, while the “drill, baby, drill” mantra that used to define the so-called American “shale cowboys” has been replaced with a much tighter grip on the metaphorical reins.
Some of the biggest oil companies in the world, from BP to ExxonMobil, have acknowledged they will produce less oil in the future than they did in the past — an unthinkable concession even a few years ago. According to Russell Hardy, the CEO of Vitol (one of the biggest oil trading firms in the world), “it is not a super-cycle. The energy transition tells us demand will peak and drop.”
Instead of plowing their oil revenues back into production, large oil companies around the world — including a recently announced alliance of Canadian oilsands giants — will either invest in projects that reduce emissions or return the money to shareholders in the form of dividends and buybacks.
While this is good news for those shareholders, who have seen the value of their holdings soar in recent months, it’s a different story for those hoping for a return to the mid-2000s, when high school dropouts could make six figures in their sleep and companies competed viciously over more skilled labour. This boom is almost certain to disappoint. ExxonMobil made that clear with a recent announcement it intends to reduce its ranks of U.S. white-collar employees by up to 10 per cent — no small number in a company that large.
Ironically, the recent rally in oil prices could actually accelerate the ongoing transition already transforming these companies. With gasoline prices rising and the cost of electric vehicles continuing to fall, the point at which going green on the road actually saves you money is rapidly approaching. It helps that major auto manufacturers, from Ford and General Motors to Volvo and Audi, are rolling out a far wider range of new electric vehicle models — and in many cases, committing to making nothing but electric vehicles in the near future.
While oil company executives may be able to fill their pockets right now, Alberta ought to use this last boom to repay the environmental debts their companies have racked up over the years. The cost of cleaning up after the oilsands mines and their tailings ponds remains largely unfunded, and while the federal government has committed $1.7 billion to help the industry clean up older wells, it’s an issue that deserves more attention — and investment.
Rather than promising a return to the past, Jason Kenney and his UCP government should be focused squarely on serving the interests of their province’s future. They should demand oil companies square up their ledger with the province and people who helped make them wealthy by putting their money where their well cleanup liabilities will be. And they must lay out a vision for how those accounts are settled before this last boom turns into the bust that inevitably follows. This time, praying for another boom isn’t going to get the job done.