Tuesday, February 21, 2012

Oilsands And Selective "Upsides"

If you're a proponent of the oilsands, your central argument is obviously the economic upside. Listen to any sales job, and immediately you hear how the oilsands don't just benefit Alberta, but the entire country, armed with incredible statistics to show how many jobs are tied to this development, equalization payments, etc. Perhaps this a central Canada-centric point of view, but if you factor in all the various dynamics at play, one wonders if this supposed benefit is really as enticing as advertised.

With the emergence of the oilsands, our dollar is more than ever simply an extension of oil prices, oil goes up, our dollar rises, oil drops, in tow as well, a very simple casual relationship that becomes more pronounced over time. Higher oil prices obviously benefit the oil patch- particularly relatively high cost oilsand production- but because the dollar is so closely tied to this price, there is an almost inverse reality at play that harms other economies. Present day Ontario highlights the disparity, a province that relies on manufacturing is heavily dependent on the standing of our dollar. When you factor in all the jobs lost due to reduced competitiveness as a function of our energy related dollar, the flowery statistics coming out of the oilpatch are somewhat disingenuous. "All the jobs" the oilsands bring to Ontario through supposed supply of equipment is offset by an artificially inflated dollar that is too closely tied to one commodity. In fact, I'm hard pressed to really see a net benefit overall for a place like Ontario, if anything erosion as a function of the counter "emergence" out west.

There seems to be this kneejerk economic argument attached to the oilsands, despite contradictory evidence that doesn't support the optimism. For instance, this argument that a higher dollar has some inherent advantage for consumers- again the overly simplistic theoretical economist arguments apply- we should see cheaper products, that's the payoff! Instead, and our Finance Minister agrees in "frustrated" fashion, the promised cheaper goods as a function of the dollar haven't manifested, the disparity between the border pronounced, consistent, stubborn, with no signs of the promised benefits. As well, the notion of buying cheaper equipment from the Americans is a bit suspect, when one considers manufactures are closing up shop due to that very same dollar related dynamic, it's a complicated picture trying to ascertain true benefit in totality.

The energy sector is crucial to the economies for many jurisdictions. However, in the "federal" sense, when one takes the country as a whole, the supposed "slam dunk" upside is less obvious. Yes, more equalization payments from one quarter, but offset by alarming "have not" status elsewhere, again an almost tug of war reality as it currently stands. Some provinces saddled with debt, others with surplus, some with no taxes, others with high taxes, the gulf is widening and one wonders how that will affect this federation moving forward, because the notions of equal opportunity and distribution of resources are in question. A "regional" perspective I know...


Frunger said...

I understand the point you are making, and its a thoughtful point but using the exchange rate as a counter argument to oilsands develpment is a little tricky.

A(oilsands)=B(> exchng rate) & B=C(job losses) therefore A=C.

It works in mathmatics, but the relationships between these factors are not exclusive and concluding that oilsands development causes job josses due to exchange rate increases is a stretch.

We KNOW there are tangible domestic benefits to development and we KNOW that we have control over that developement. We also KNOW that exchange rate fluctuations affect our ability to compete for manufacturing jobs but we don't have a policy of trying to manage that exchange rate, if we could even do it successfully(which we can't) and the Bank of Canada doesn't do it.
There are other better ways to increase productivity in manufacturing in Canada and it starts and ends with better managing of outrageous union demands. See what not to do by checking out Quebec's competetive (dis)advantage.

A Eliz. said...

I noticed that also every time the dollar goes up the price of oil went up. When he dollar was $.60 or $.70, was our gas that cheap? I still think that Trudeau's NEP was not as bad as they say. I must be alone.

Tof KW said...

I still think that Trudeau's NEP was not as bad as they say. I must be alone.

You're not alone. Texas' oil industry was hit hard just the same as Alberta's in the early 80's, and their economy lost billions too. But Texas had no NEP to blame. There were other, much larger factors to the 80's oil bust that Alberta's Conservatives like to ignore, because the truth goes against their narrative.

Don't get me wrong, the NEP was a way for Ottawa to drill into Alberta's wallet, but it was hardly the be-all and end-all that they claim it to be. More like throwing salt into an open wound, rather than the cause of the laceration.

Steve V said...

"concluding that oilsands development causes job josses due to exchange rate increases is a stretch."

Not only is not a stretch, it's a very simply casual relationship. Our dollar is more tied to oil than at any time in our history, a higher dollar is counter to our manufacturing base, so higher oil, higher dollar, higher risk of job loss in manufacturing. I don't really see anything beyond some common sense here to be honest.

sharonapple88 said...
This comment has been removed by the author.
Frunger said...

"Our dollar is more tied to oil than at any time in our history. . ."

The problem with indentifying a corrolation is that it fails to explain any CAUSATION.

Oil prices and the CDN dollar often move in lockstep with each other, but an increase in the oil price DOES NOT CAUSE the increase in the dollar. They are both CAUSED by the fluctuating (read: devaluing) of the American dollar.

The US dollar has dropped significantly since 2001 against all major world currencies. Since
crude is priced in US dollars it makes perfect sense why "oil goes up, our dollar rises, oil drops, [our dollar drops] as well".

Our domestic oil production affect on our exchange rate is like a large boulder rolling into the ocean when the tides are changing.

Steve V said...

Sorry, but I haven't really heard anyone dispute the fact that commodity prices, oil being the main one, and our dollar are tethered. Yes, the American dollar obviously plays a factor, but it's just ONE factor, you're completely disregarding the impact of commodity prices on our dollar.