ALBERTA VICTIM OF CANADA’S VOTE BANK POLITICS; AND, UNEMPLOYED SUFFERING DUE TO DELAYS IN EI DISPENSATION

Amidst all the recent brouhaha related to auto industry’s near closure situation in Ontario province, the plight of huge unemployed work force of Alberta has got submerged and forgotten. No doubt thousands of workers were axed by GM, Chrysler and Ford and potentially many more may have been affected indirectly, but the fact remains that Alberta also saw massive lay offs from Q4 2008 till Q2 2009 – it is still going on.

The precipitous fall of crude prices led to cancellation of many oil sands projects. Coupled with this, falling prices of natural gas caused big cut down in new wells to be drilled. This dealt a double whammy to the Albertans and resulted in job losses not seen in decades. As well, there have been thousands of bankruptcies in the province which was riding wave of prosperity until a year ago.

But the unfortunate part is that while auto sector workers have got all the attention from the Federal government in terms of bail out funds and other help, no body has bothered to look at the plight of the massive number of laid off workers of Alberta. A substantial portion of people were laid off from the engineering companies and these people have no other job options because there are hardly any oil and gas projects elsewhere in Canada.

The Federal government seems to be keener in looking after the Ontario workers because the number of Parliament ridings is far more in that province than Alberta. Obviously, the vote bank politics is prompting the government attitude rather than the compassion or humane side of things. The Alberta workers have been left to fend for themselves with very little government support coming forth.

To make matters worse, the EI support to the laid off workers has been very slow to come. There doesn’t seem adequate staff to cope with the deluge of EI applications in Alberta. EI support cheques should start arriving within couple of months of having got laid off, but reports suggest longer waiting period for the laid off workers.

People in the other part of the world may have a perception that in Canada things happen in a non-partisan, fair and equitable manner but in reality that seems to be more of hogwash, complete rubbish. Hypocrisy rules the roost in Ottawa it would appear, securing vote bases for future parliamentary elections seems to be more important than the predicament of the suffering folks of provinces which do not send MP’s in droves.

Shameless self-seeking schmuck politicians do not exist in the developing countries only, they are present in Canada too; the difference may be only in terms of façade or polish that is maintained in this North American country.

One wonders when the conditions would turn around in Alberta, and the thousands of hapless engineers, skilled workers, and other laid off work force would get employment and lead a reasonably un-stressful life. It seems only God can provide some succour to the suffering and the dejected. The question is: when would He decide to shower His Grace!

ARE SOME CANADIAN & EUROPEAN OIL COMPANIES LESS MONEY SAVVY THAN SOME OF THE US COMPANIES?

The present economic downturn has hit Canada too fairly badly, and jobs are evaporating by the day. The January job loss figures indicate that Ontario province suffered the most. This is understandable due to the contagion of auto industry ills crippling the big three American auto companies affected the companies to the north of the border.

But the province which till middle of last year was riding a wave of big investments is also suffering from increasing number of full time job losses – Alberta. Till last year Alberta’s economy was riding high, fuelled by big investments in oilsands projects. But suddenly a lightning bolt hit these projects in Q4 last year.

As per Canadian Energy Research Institute (CERI) its own 2008 forecast of oil sands production of 3.4 million billion per day by 2015 has been scaled back to 2.9 million billion per day, gathering pace to 3.7 million per day to 5.4 million billion per day by 2030, compared with its previous target of 5 million billion per day.

CERI further states that Canadian oil sands is going to stagnate, capital investment over the next 11 years will be cut 31% from a forecast made only 3 months ago and will need WTI prices above USD 70 per barrel to resume growth and expansion.

A number of mega oilsands projects have been put on hold, and almost all the projects are being reviewed from the point of view of CAPEX cost reduction. What is hurting the job market is the stalling of engineering work done in Calgary and Edmonton, and absence of new construction jobs related to oilsands.

But what is most curious is that the mega projects of some Canadian oil companies like Petrocanada and Suncor, CNRL have had to face major axing consequent to these companies hitting panic buttons. Their balance sheets and cash flow have suddenly come under such tremendous pressure that they have had to cancel large chunks of the projects, and mothball the remaining alive portions.

European player Shell cancelled its second upgrader expansion and put on hold their upstream expansion part. Other Europeans companies like Total and Statoil were chickening out even before the lightning struck the oilsands. These two companies had already been dithering for quite sometime.

Interestingly, on the other hand, Canadian oil companies developing their oilsands assets in collaboration with US based oil companies, like Encana (partnering with ConocoPhillips) and Husky (with BP) don’t seem to have run in to such panicky situation. Albeit, they also have had to scale back investment in some of their new projects but not in that drastic manner as Petrocan and Suncor have had to do.

But most interestingly, Imperial Oil whose majority shareholder is ExxonMobil (69.6%) didn’t have to press any panic button. Imperial is going ahead with their Kearl project, said to be a $7-8 billion Imperial Oil and ExxonMobil Canada project. Exxon are known to be notoriously conservative in their investment and economic rate of return analyses.

However, this can’t be said about another American company – ConocoPhillips – whose in-situ oilsands project in Surmont (in partnership with Total) has been put on a very slow track. It is not clear whether cash flow considerations were the only reason for slowdown or Total’s lack of enthusiasm was a contributing factor too.

At any rate, however, the above throws up a question: Why did the US based companies not have to drastically alter their oilsands project development plans? Why did they not seem to be pressing panic buttons and manifesting knee-jerk reactions? Are the US based oil companies better in their working out their investment strategies? Are their economic analyses models more stringent and powerful?

Surely, the world at large doesn’t get to know the details of project planning and investment decision making by various companies, therefore, one would not be in a position to provide conclusive answers to above questions. But then the folks losing their jobs in Alberta must be wondering why the heck the CEO’s of those companies, that went in to a paralytic limb late last year and started hacking down their oilsands projects, were paid the big bucks till recent past!!

It is the job of the top management to make sure that the investment decisions are rational, realistic and have been tried out for different scenarios. Why did some of the Canadian oil companies have to bite so much that they could not chew? If they didn’t have a US partner who could process their bitumen (if they went for bitumen only route) why did they not look for a partner before opting for the whole meal deal project implementation strategy, i.e., going all the way to upgraders in the first phase itself, or think of a safer project investment model?

One wonders what kind of intelligent thinking some of these companies did before committing such huge outlays! Do they realise that because of their unreasonable over-exuberance various engineering and construction companies in Alberta mobilised huge work forces, and now the same work force is being laid off in droves?!!

Some of those CEO’s will say in their defence that nobody in the world could predict the recession coming to US and the consequent slowdown in fastest growing economies like China and India, and hence their assumptions of oil price (we don’t know what they were) were justified. But that does not mean that they ought to have considered a high crude price and worked out their current and future revenues. Why were they not conservative in their assumptions and what prevented them to develop manageable portions of new projects – manageable with respect to revenue generation during project implementation phase?

May be there is lot to learn from the way ExxonMobil folks carry out their project development and economic analyses. It is not for nothing that this company has such a huge cash reserve that it could, if it wanted, buy any oil company in the world.

And, you know what, it is said that Exxon likes to implement new projects during economic downturns so that the project costs be kept relatively less. They can afford to do so –because of their strong cash position. So, you see – they set themselves up for making more money; because when good times return their revenues improve while their initial CAPEX had been lesser (because they set up their project during economic downturn). Makes sense, doesn’t it!

One feels sad to see so many engineers, tradespeople getting out of their jobs in Alberta only because some folks who in their own flawed wisdom – one can certainly they their wisdom was flawed – contributed towards huge growths in engineering and construction companies in Alberta. Currently, those companies don’t have projects to assign their folks to!

Now, all eyes are on US president’s visit. Will Mr. Obama’s visit on 19 Feb bring more bad news for oilsands projects, or, will he provide some words of comfort with regard to continued cooperation with Canada in developing this resource on a long term basis? Surely, US wishes to move away from dependence on foreign oil from ‘hostile regimes’. Be that as it may, the families of the jobless are praying for some good news – are the Gods listening?

PRESIDENT OBAMA’S VISIT TO CANADA – SOME CRITICAL BILATERAL ISSUES NEED TO BE HANDLED CAREFULLY BY BOTH SIDES!

President Obama, reverting to the tradition of newly elected US presidents, will be visiting Canada on his first overseas trip. This trip, dubbed essentially a working visit, will have to grapple with some tricky issues which are bound to be on the table.

One of them is the controversial provision that President Obama’s US$800+ billion economic stimulus plan is proposed to contain. The proposed legislation aims to ban foreign iron and steel used in any building project undertaken under the massive stimulus plan - which could potentially cut out a major portion of the Canadian steel industry's $7 billion in annual exports.

If this provision got implemented to the letter it would be severely detrimental for Canada, so Canada is rightly worried. It should be, it is a serious matter coming as it does when the economy is already in recession. Canada views the proposed legislation, and correctly so, as a protectionist measure on part of US.

It was heartening to see that Canada is being proactive in this matter rather than fume and fret. International Trade Minister Stockwell Day did well to speak with US Trade Representative Peter Allgeier at the economic forum in Davos, Switzerland which ended on Feb 1. Later Day told reporters that he was cautiously optimistic that something could be worked out.

Canada has also conveyed to US that this type of protectionism is exactly what helped push the Great Depression forward at the start of the 1930s. On a parallel track Canadian PM Harper said in Ottawa that such measures would see the U.S. renege on its "international obligations" to eliminate barriers to worldwide trade.

It is a good positive strategy. The message has reached US prior to Obama’s planned visit on Feb 19 – that Canada would like this issue to be resolved to mutual benefit. US acknowledged that it had got Canada’s message. US White House Press Secretary Robert Gibbs said on 30th Jan "the administration is reviewing that provision" and acknowledged the concerns on both sides of the U.S.-Canada border.

Another important matter that would need to be discussed and mutually beneficial path forward identified relates to oilsands fronted crude/bitumen supply to US. Oilsands has attracted lot of attention, of late, from environmentalists. As well, President Obama places great importance on protection of environment. But at the same time Canada is the largest supplier of crude to US – crude both from conventional and non-conventional sources. This pitches tarsands in a dichotomous situation.

Other issues that are likely to form part of the conversation between Obama and Harper are: war against terror – Canada’s role in Afghanistan, NAFTA, ailing auto sector, claims to Arctic assets and security of passage to that area, cross-border security, intelligence sharing, global economic reform.

President Obama is obviously briefed on the importance of US-Canada ties – ranging from NORAD to crude oil. Obama’s economic team led by Treasury Secretary Timothy Geithner is putting together US economic recovery package which is expected to be finalised by middle of February. This timeline adds urgency regarding what assumptions the package is going to be predicated on.

If Geithner et al base their package including some protectionist premise (like, the one relating to steel), that certainly will not portend well for both US and Canada. Or, will there be some selective waiver for friends (Canada), or, the package will prefer not to mention such contentious premises at all?

Obama and Geithner would do well to be aware that a very diverse group of leading economists of all ideological stripes met at a preparatory conference for Davos in Dubai in November 2008. The group said in a formal statement that one of their chief tasks is "advocating against the deregulation backlash." An update right before Davos by this same group stressed the importance of "openness to trade" and "competitive markets."

Both Obama and Harper should be cognizant of what someone said in Davos about the economic downward tailspin that we are in: “I tell you we have not turned the corner, we can't see the corner, we don't even know where the corner is." In such a situation creating new protectionist walls, or getting in to some kind of head-butting will be damaging for either parties.

It is, therefore, imperative that US and Canada handle the bilateral issues carefully and with sensitiveness. Political rhetoric sound good from the podiums placed in political rallies but if they are carried to the policy making blueprint without evaluating the various pros and cons, that is opposite of everything that embodies the word ‘prudence’.

In cooperation with Canada there is so much to be gained for US – towards its goal of gaining independence from crude imports from ‘hostile regimes’, war on terror, joint US-Canada defence partnerships and so on. Canada has already offered a bi-nation energy agreement, and also proffered to participate in environment related joint-action plan. Canada is aware of what needs to be done to make tarsands industry more environment friendly, and actions are already being implemented in that direction.

Finally, the current economic crisis is one such which can be ridden out of only through collaborative, combined effort – on a global basis. Such efforts will be rendered severely ineffective if countries resort to raising trade walls. President Obama has mentioned on a number of occasions that US will ‘lead’ again. Surely, raising protectionist measures (e.g., use of US steel only for US projects) will not raise the US to the moral high ground that it seeks to regain in post-Bush era.