Energy sector key to our national fortunes
By: Lorne Gunter
If you’re inclined to believe NDP Leader Thomas Mulcair and numerous “green” lobbyists that the oil and gas industry is a drag on the Canadian economy, just watch how well our economy does if the price of oil falls much further.
In February, oil was selling at about $110 a barrel. Currently, the price is bouncing around in the mid-$80s.
That’s a decline of 20% in just six months. (Curiously, drivers haven’t seen a similar decline in the price of gas at the pumps, but that’s a topic for another day.)
So why is a big dip in oil prices such a bad thing for the national economy? Won’t lower prices help consumers and manufacturers? Won’t lower energy prices boost consumer spending and exports?
Yes. Sort of. The problem is the trade-off isn’t one for one. A decline in the oil sector will likely cost more in jobs and economic growth than would be generated by renewed consumer confidence and more manufacturing.
For one thing, much depends on what happens to the Canadian dollar. So far, the 20% decline in oil prices has been accompanied by about a 5% decline in our dollar. That makes imports more expensive — not a lot more, but enough to make consumers cautious.
The winners — for the moment — are manufacturers whose input costs are lower thanks to the drop in energy prices and whose products have become marginally more competitive internationally thanks to our lower dollar.
But it will take longer to crank up our manufacturing sector than it will take for our energy industry to fall off if oil remains low for long.
And if American and European consumers lose confidence in their domestic economies and stop buying our manufactured exports, then the dollar would have to drop a long way before Canada is exporting enough manufactured goods to make up for a decline in the energy sector.
Indeed, if oil drops to $70 a barrel and stays there for any length of time, the resulting loss of investment in the oilsands and pipelines will almost certainly be so great that even a decent, healthy revival in manufacturing could not undo that damage.
Consider that according to Statistics Canada, exports of oil and gas and investment in machinery and infrastructure for the oilsands accounted for one-third of our economic growth last year and the year before. Since the worldwide financial meltdown in 2008, nearly 40% of all the growth in the country has been due to growth in the energy sector.
Also, energy stocks comprise 25% of the value of the Toronto Stock Exchange index.
Like it or not, Canada has become an oil country. Our fortunes — our national fortunes — rise and fall with the health of the energy sector.
Lately, “green” activists have begun making the claim that the oil industry is actually costing us jobs and growth. This is just so much magic-wand thinking.
Their reasoning — elements of which you can see seeping into NDP energy policy — insists that the world’s dependence on fossil fuels is all that is standing between us and millions of fabulous, well-paying new jobs in alternate energy.
End our addiction to carbon fuels and we will magically solve hunger, war and unemployment.
Nice dream. But would you really bet your house and future on it?
Categories: Contributor Columns