The high cost of cheap gas

The bad news is that the economy will take a major hit from plummeting oil prices. The good news is that the Harper government and their polluting projects will, too.


The saying has been around as long as there have been baskets: don’t put all your eggs in just one of them.

With 10 months or less to go before an election, Canadian Prime Minister Stephen Harper has to regret that he pinned so much of his re-election hopes not on a basket of eggs but on the price of a barrel of oil, which is falling faster than a four-goal Team Canada lead these days. And while dropping prices at the pump is call for celebration in most quarters, there is no joy in Oilpatch Alberta as sinking prices are sinking hopes for further development of the onerous and expensive bitumen-extraction process.

Thanks to Saudi Arabia and its OPEC allies, the international oil benchmark has fallen to less than $54 U.S. a barrel from $115, threatening the end of nearly $60-billion in Canadian oil and gas projects, the Financial Post reported last week. And while the ensuing loss of jobs isn’t normally something to cheer about, it will just be an early taste of what’s in store for any economy that relies heavily on economic expansion from a volatile market of non-renewable resources.

Lower oil prices will mean slower production, since the speed at which resource companies try to extract the bitumen sludge is tied directly to how profitable it is to do so. The mad rush to build new facilities and pipelines is hinged on high international prices, so the falling index could easily end up killing the Keystone XL and Energy East pipelines much more quickly than any protest movement could hope for.


Canadian development of the oilsands has been controversial for many reasons, not the least of which is that the extraction process is ecologically destructive both in terms of carbon-dioxide emissions and its massive use of water (two to five barrels per barrel of oil) to separate the bitumen. And since the tarsands are a long way away from any processing or shipping facilities, you need to look at the risks associated with transporting the bitumen, whether by rail or pipeline. Then there’s the cost of cleaning up any spills, tailings pond breaches etc.

In other words, although the cost of oilsands extraction is already expensive compared with traditional land or sea drilling, it doesn’t begin to reflect the real costs to Canadian society in direct impacts (pollution) or the astronomical price tag we’d be stuck with in the event of a serious spill or tailings pond breach.

So there’s that.

Then there’s the ephemeral nature of any jobs associated with oilsands production. These are not wheatfields or apple orchards — we can’t pick them dry and then wait for a little rain and sun to bring us a fresh crop of oil. The number of jobs that the oilsands can sustain is a relatively fixed variable, so increased employment now just means less employment down the road. The bigger the boom, the sooner the bust. So a slowdown in production may actually be good news for people currently working in the tarsands, who might keep their jobs a decade or two longer than they would if expansion continued at its breakneck pace.

That all depends, of course, on whether extracting oil from the tarsands continues to be profitable. A further significant drop in oil prices could not only kill expansion plans but halt development altogether, in which case Fort McMurray could become a ghost town, the capital city of a devastated wasteland abandoned by now-defunct affiliates of resource companies that will have moved on to browner pastures.

After all, the economics of the oilsands has nothing to do with job creation. The companies installed there are motivated by profit. High oil prices have allowed them to make a lot of it while incidentally creating some employment along the way. When the profit incentive disappears, so will the jobs.

The Harper government has done its best to keep the industry in the black through slack environmental regulation and various tax breaks, but those advantages can’t make up for such a sharp decline in oil prices.

So although Harper may try to claim credit for fueling the Western Canadian energy boom, the truth is that he is no more responsible for that than he will be for the inevitable bust.
Peter Wheeland is a Montreal journalist and stand-up comic. His sardonic observations about the city and province appear on Cult MTL every week. You can contact him by Email or follow him on Twitter.