It’s been a rough year for Montana’s neighbors to the north in Alberta, where the shuddering economy and the overwhelming force of natural disaster have combined to hit the province hard.
The provincial government released its first quarter update for the 2016-2017 fiscal year, showing massive impact from the Fort McMurray fires within the oil economy, deepening the budget deficit to $10.4 billion.
The New Democratic Party of Canada (NDP), with Premier Rachel Notley at the helm, took control of the provincial government in 2015, breaking the 44-year streak of the Progressive Conservative Association of Alberta. At that point, Alberta was already headed into an economic tailspin due to decreases in oil prices starting in 2014.
Since the Canadian dollar is tied directly to commodities, the loonie also lost value when compared to the American dollar, adding extra pressure to the Canadian markets. Then the Fort McMurray wildfire exploded onto the scene this May, burning more than 1.5 million acres and destroying 2,400 homes and buildings. The fire is still burning.
While the fire was devastating to the communities it touched, the ripples expanded. The NDP reported the fire drastically reduced oil-sands production in Alberta, to the tune of about half a billion dollars.
All told, the province expects to reap about $1.4 billion in revenue from non-renewable resources, the lowest in 40 years. For comparison, the actual revenue brought in from non-renewable resources during the 2014-2015 year was about $8.9 billion.
“The whole economy of Canada is a resource economy,” Patrick Barkey, director at the University of Montana’s Bureau of Business and Economic Research, said. “It’s not the first bust, but it’s a pretty tough bust for them up there in Alberta.”
On Aug. 25, Alberta’s seasonally adjusted unemployment rate was 8.6 percent in July, a huge jump from the 6.2 percent reported this time last year and higher than June’s 7.9 percent.
This is a problem, Barkey said, because Alberta has acted as the economic safety zone for many in Canada, where people moved from all over the country to get jobs in the oilfields or in the bustling and booming cities of Calgary and Edmonton.
“Alberta’s been the mini-China of North America for a while there,” Barkey said of the province’s energy production. “It’s just all in reverse, and that’s a huge problem. Their politics are even changing as a result.”
Donna Townley, an economist with the University of Lethbridge, said the NDP’s new policies, such as increased taxes and royalties for oil companies, are part of the pressure being exerted on the economy.
Along with the increased taxes, the NDP added a $40 monthly carbon tax on all natural gas bills, which will go into effect on Jan. 1. Townley said the Lethbridge city government already has plans to pass that new cost on to the ratepayers. The NDP is also increasing minimum wage in increments, up to $15. This, plus the weak dollar, is increasing the cost of doing business.
“Alberta has survived oil prices in the past and we could survive it again, but they’re kicking us while we’re down,” Townley said. “It’s not a rosy picture up here right now.”
Low oil prices affect many facets of the economy, from housing and retail activity to manufacturing and construction. The Alberta economy is expected to contract another 2.7 percent in 2016 – the effects of the Fort McMurray fire account for 0.6 percent of that – after it declined 3.7 percent last year. Those are the two worst back-to-back economic years since the 1980s.
Barkey said the woes of Alberta definitely seep into the Montana economy.
“You can see it here in Missoula,” he said. “There have been facilities here built to stage megaloads (headed to the oil sands). You’ve got to have the longer view.”
Other affected industries will include transportation, fabrication work, and many of the other support services built around energy production. Barkey said Canadian oil outfits would send equipment to be fixed in America instead of paying to replace it, for example, and such transactions are slowing.
Economic ups and downs, especially for markets tied to commodities, are par for the course, Barkey said, and in the long run, Alberta will bounce back.
“Oil is a global commodity. They go up and down. It’s always the same thing,” Barkey said. “You have to take a longer view; there’s a gigantic commitment to developing these resources.”