Collapsed oil price leaves a bleak future for Canada

Now that the price of oil has tanked, it’s painfully clear how deep a hole Stephen Harper has drilled for Canada.

The Suncor tar sands processing plant near the Athabasca River at their mining operations near Fort McMurray, Alberta [REUTERS]
The Suncor tar sands processing plant near the Athabasca River at their mining operations near Fort McMurray, Alberta [REUTERS]

For two decades, but most especially since 2006 when the Stephen Harper Conservatives came to power, Canada has been betting on bitumen.

That despite warnings that Harper’s “energy super power” ambitions were likely to infect the country with a bad case of “Dutch Disease, which is what happens when a country hitches its economy to the price of oil.

In the end, Harper’s petro dreams were dashed: by US President Barack Obama’s opposition to the Keystone XL pipeline, which would have delivered Alberta’s oil to tankers on the Texas Gulf coast; by First Nations protesters who opposed pipelines through pristine forests to the Pacific to feed China’s energy demands; by celebrity environmental activists and by a global oil glut.

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Now that the price of oil has tanked to levels well below $30, it is painfully clear how deep a hole Harper has drilled for Canada.

Economic shockwaves

As oil and gas companies cut thousands of jobs in Alberta, support industries from banks to airlines are feeling the pinch. Glittering new office space goes unleased.

For sale signs line the streets of not only tar sands town Fort McMurray but also well-to-do suburbs of Calgary where prices for luxury homes, once in high demand, are off by 20 percent – and falling.

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The economic shockwaves are being felt as far away as the Atlantic province of Newfoundland, where workers, now without well-paying jobs out west, are no longer sending their wages back home. Instead, they’re lining up at food banks.

The economic shockwaves are being felt as far away as ... Newfoundland, where workers, now without well-paying jobs out west, are no longer sending their wages back home. Instead, they're lining up at food banks.


Canada’s “loonie” is dive-bombing with no concomitant upticks in manufacturing. Consequently, the recently elected Liberals under Prime Minister Justin Trudeau are looking at tens of billions of dollars in deficits over their term. Even economists are at a loss to explain how to dig the country out of this situation.

As a net oil-exporting nation – and with virtually all its production going to a single market, the US, where there’s such a glut that storage is at a premium – Canada has to move, and fast, to take as many of its chips as it can off the tar sands table.

“In a world of ultra-low oil prices, Canada’s growth model must change,” Emanuella Enenajor, senior North American economist for Bank of America Merrill Lynch, told the Financial Post. “But it’s not clear what sector will fill the shoes that energy once wore.”

No wonder that, at last month’s World Economic Forum in Davos, Switzerland, Trudeau declared: “My predecessor wanted you to know Canada for its resources. I want you to know Canadians for our resourcefulness.”

Nation’s diversity

Promoting the nation’s “diverse and creative population, outstanding education and healthcare systems, and advanced infrastructure”, he went on to sell his audience on Canada’s “social stability, financial stability and a government willing to invest in the future”.

All of which is threatened by the sinking price of oil.

Along with the soaring unemployment rates in Alberta, a province not accustomed to workers out in the street, come reports of increased emotional and mental distress.

Canada's northern oil hub Fort McMurray [REUTERS]
Canada’s northern oil hub Fort McMurray [REUTERS]

A sudden increase in suicides last year has been tied by some to the downturn in the oil patch. Outside the province, an estimated 112,000 Canadian jobs (at the last official count) are in play. And so, communities from coast to coast are facing upheaval.

In Alberta fears are that  anger at the rest of the country for what are seen as inequities in the federal system of “equalisation payments” – essentially, how “have-not” provinces are made whole by their richer cousins – could lead to a resurgence of “western alienation” similar to that created when Justin’s father, the late Prime Minister Pierre Trudeau, moved in on Alberta’s oil wealth via nationalisation and other energy policies.

Which leads to the potential political fallout.

Pundits, as well as opposition Conservative politicians, are making this into a national unity crisis, pitting province against province.

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Among their targets are the mayors of the largest cities in Quebec who are battling for the building of the new Energy East pipeline to the Atlantic through their towns, a pipeline touted as not only necessary for creating a new market for Alberta but also to curtail imports from Saudi Arabia and Venezuela.

Canada's Prime Minister Justin Trudeau [REUTERS]
Canada’s Prime Minister Justin Trudeau [REUTERS]

Basic problem

The basic problem, experts on Canada’s tar sands maintain, is that the price of bitumen extraction now is far greater than the selling price.

Indeed, back in the early days of the Harper regime, it was the high cost of cheaply obtained oil that made the complicated process of mining bitumen profitable. Oil companies went into debt in their haste to expand operations. Now they must sell off assets and dig up ever more carbon to fill their debt hole.

“As society switches to energy resources of lower and lower quality, simply maintaining the flow of net energy to society will require that companies and nations accrue more debt to spend a proportionally larger amount of capital on gross energy extraction that comes with dirtier environmental impacts, such as carbon-spewing bitumen,” writes Andrew Nikiforuk, Canada’s foremost journalist on the tar sands beat.


“Diminishing returns, just like rising expectations, do not bring out the best in people: expect violent reactions and revolutions in petro-states and indebted nations. Expect the unexpected and a narrative of volatility,” he cautions.

As Nikiforuk and other experts conclude, we might be headed for a global energy implosion, one mostly fuelled by greed and panic.

As for Canada, it could be looking at the bottom of the barrel.

Antonia Zerbisias is an award-winning Canadian journalist. She has been a reporter and TV host for the Toronto Star, the CBC, as well as the Montreal correspondent for Variety trade paper.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.