What Keeps us up at Night at Case

Being a debt collection company you would automatically think perhaps NSF cheques, broken promises for payment, the challenge of locating assets for seizure or locating debtors to enforce collection would keep us up at night; not a chance.  All this stuff is well within our reach of influencing.  It’s what we do.  We’re experts in our field.

What keeps us up at night is on a much broader macro-economic level, something that over time will negatively impact every type of business in Alberta, irrespective of the industrial sector you find yourself operating in.

The WTI (West Texas Intermediate) price of oil is currently hovering around the $94/barrel level.  The price that operators in Alberta receive however is based on the WCS (Western Canadian Select) price which is typically sold at a discount of $10-$20/barrel.  However, thanks to supply increases in North Dakota, backlogs in US refineries and most notably due to bottlenecks in pipeline capacity Alberta (most specifically due to our lack of pipeline capacity to the Pacific where Alberta oil can expect to command world Brent prices at a premium of roughly $15/barrel over WTI) supply has become severely landlocked resulting in WCS now selling at over a $40 discount to WTI.  In effect Alberta’s most valuable asset is currently selling at a 50% discount to ‘world’ oil prices.

What’s at risk; Alberta producer’s possibly scaling back drilling programs or capital investment in the oilsands.  Why invest if it’s a money losing proposition or if better margins can be realized investing elsewhere?  Albertan’s have often been preoccupied with the idea of what do we do when the oil runs out?  Albertans should now become more pre-occupied with; “What happens if we can’t effectively export our oil to market”?

What can be impacted; labour demand and employment growth.  What about the trickle-down effect? Home prices, retail demand, automobile dealers, home renovators you name it.  If they (working Albertans) are not making money then they’re not spending or investing.  Your business sales and personal asset values will naturally diminish with the overall decreased economic demand.

Alberta’s finance department calculated in 2010 that Alberta taxpayers provided $14.1-billion more in annual revenue to the federal government than they received in services and transfers.  With decreases in oil exports and prices provincial government coffers will naturally be gutted with a substantial drop in natural resource royalties.  This is already happening as Alberta stares down the pipe of a $3 billion budget deficit this year.   Current levels of net transfers to Ottawa will also naturally evaporate.  What would the impact be on both provincial and federal social programs?

Denizens of Wild Rose Country have bragged for years about the Alberta Advantage for business, be it having the highest labor force productivity rates in Canada, lowest personal and corporate income tax rates in the country, no provincial sales tax or the lowest WCB rates or lowest private sector unionization rates in Canada.  But let’s be frank.  The true Alberta Advantage simply comes down to God’s blessing.  It’s all about the oil.

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3 Comments

  1. Keith Hawkins
    Posted January 29, 2013 at 5:39 pm | Permalink

    nice article Chris. Now to send it to Horne and our other leaders in power.

  2. Posted January 29, 2013 at 6:56 pm | Permalink

    Wow.  I didn’t know that we would see a premium over the WTI pricing if we managed to get to the West coast.  Given the political challenges in doing that, what are your thoughts on adding pipeline capacity to the East?  It seems odd to me that we are not supplying Canada's needs as a priority.

    • cdugan
      Posted January 29, 2013 at 11:07 pm | Permalink

      Increasing pipeline capacity to eastern Canada would help reduce the need for eastern Canadian refineries to import from overseas at Brent (World) prices (mostly from Norway).  Kind of silly when you think of it isn’t it; exporting cheap and importing dear.  Alot of Canadians don’t realize this. Would this reduce end user fuel costs in central and eastern Canada? You bet it would.  Fortunately we live in a place where it is the private sector (and not the government) that ultimately makes the decision on whether or not there is a business case to invest billions in such infrastructure.  What is the ROI (return on investment) based on long term demand, size of market etc?   If the private sector determines that a good business case exists then they spend millions more in applications, enviromental impact studies etc. to win over the government to provide the necessary approvals.  A satisfactory ROI is paramount to proceed.  It’s no mystery then why the private sector, in an open and democratic free market, will always allocate fiscal resources more efficiently than government.  Free markets are the surest path to prosperity.  As for Alberta increasing export capacity is the key, irrespective of to where.  Kinder Morgan is currently in process to do just that via the expansion of their existing Trans Mountain Pipeline to Vancouver.  More on this story can be found by clicking on this link: http://www.cbc.ca/news/canada/british-columbia/story/2012/04/12/bc-kinder-morgan.html

      Why is Kinder Morgan doing it?…because there’s a business case for it. …until such time that is that the technology is developed to allow us to have “hovercrafts fueled by the laughter of children”.

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