Navigating these uncertain times together
As we all face social distancing and self-isolation, I trust that you are well and able to maintain your health.
With all the uncertainty as we close the first quarter of 2020, one thing is crystal clear: this year will be one for the history books.
Put simply, the world, and our country, have changed.
It is hard to fathom that a month ago key words in Canadian media were rail disruptions, Trans Mountain and Coastal Gas. Today, it is hard to find any news that is not Covid-19-related. Its impacts are far worse than anyone thought possible in January and has created a new normal for every Canadian.
A perfect storm
Let’s review the economic impact. The traditional economic powerhouse of Alberta has been brought to its knees by a perfect storm of an international price war, drastic demand cuts, full storage across the continent, and no new capacity to get its product outside North America.
The price for Western Canadian crude has dropped below $4 a barrel, into such negative territory that the unthinkable of keeping it in the ground is now a reality.
There is no supply issue – in fact, there is a glut of oversupply. The demand side of the economic equation has fallen drastically causing an even further price drop than oversupply and a Russia-Saudi price war. Crude oil, refined petroleum and natural gas are all at historic lows.
Here in the Maritimes, construction projects, maintenance turnarounds and expansions are all on hold.
To soften the blows, the federal government has offered billions of dollars in social safety nets and incentives, and the Bank of Canada has set interest rates to within a hair of zero as volatility in the stock market indicates complete uncertainty of short- and long-term impacts.
In all of this, there are winners and losers. Winners include makers of bread, toilet paper, pasta and hand sanitizer. Those in the hospitality sector, contractors, small businesses, construction companies and those that work on major projects are among the legions of the less fortunate.
Some impacts are double-edged swords. Retail gasoline is 64 cents a litre in Nova Scotia and heating oil is 70 cents a litre in New Brunswick – great for consumers of carbon fuels, but certainly not for enticing the switch to non-emitting energy sources.
Cost of delay
With world crude prices dropping like a rock week after week, the case for migrating to renewables falls flat as they can’t compete with oil and gas at these levels. Carbon taxes have become irrelevant for reducing emissions.
The Maritimes historically weather recessions better than the rest of Canada because we don’t experience the highs and lows. As New Brunswick-based economists Richard Saillant and Herb Emery have pointed out, for various reasons we are being impacted, but not to the devastating degree that the “have provinces” are experiencing.
So what is ahead? Alberta has been shouting to the federal government for years in an effort to warn about the impact of not getting their resource to tidewater. Now the country will feel the cost of that delay. After successive years of deficit budgets by successive governments, Alberta is being faced with its worst year on record. The rest of the country will feel its pain next year in 2021 when the equalization formula is recalculated, as it is every fifth year. Quebec, New Brunswick, Nova Scotia and other recipients will be forced to deal with a vastly lower (if any) contribution from Alberta.
As we adjust and find our way to a new normal, it will be a bumpy road ahead.
Critical role of energy workers
It is crucial that individuals remain vigilant to stay healthy, protect themselves and those around them from contracting and passing along the Covid-19 virus. In addition to safeguarding individual health, the workforce must be available and be ready to resume work when it is safe to do so.
I would like to acknowledge the critical role of workers in the energy sector that are producing and delivering the energy to keep our homes warm, our lights on, and enabling us to work offsite. The disruption to the economy would be even more dire if we were not able to continue to operate from our homes. In addition to healthcare and other essential workers, I am grateful for everyone's dedicated efforts.
Dealing with this global pandemic and the massive economic fallout will be a long journey but I am confident that, by working together and supporting each other, we will build a better future.
Atlantica Centre for Energy