Alberta Politics
conomist Jim Stanford directs a few choice bon mots at right-wing politicians from both Canada and Australia (Photo: David J. Climenhaga).

Jim Stanford Part II: An Australian cautionary tale for Alberta and Canada

Posted on July 24, 2019, 1:59 am
8 mins

What do Albertans imagine will happen if we manage to build more pipelines to tidewater, as the ocean is known out here on the Great Plains of North America?

Going into last April’s Alberta provincial election, there was a clear consensus by both Jason Kenney’s United Conservative Party and Rachel Notley’s then-governing NDP that more pipelines to get our ethical but disconcertingly fungible oil to additional markets was the answer to all our economic problems, real and imagined.

Alberta Premier Jason Kenney (Photo: David J. Climenhaga).

Which party was the best bet to get those pipelines built quickly became the election question for most of Alberta’s voters. Their answer on April 16 was resoundingly Mr. Kenney and the UCP.

It’s early days for the Kenney Government, and whether we’re all going direct to Heaven or direct the other way remains an open question. However, there are some things we can say about the premier’s promises, and his economic premises.

In his remarks to the Alberta Federation of Labour’s spring convention, Canadian economist Jim Stanford observed that there’s been so much hot air devoted to this issue that “no one has really critically and in a balanced way thought through, What does it actually mean to build more pipelines?

Now a resident of Sydney, Australia, where he works for The Australia Institute’s Centre for the Future of Work, the former Globe and Mail economics columnist had some sharply worded thoughts on what happens when the “Klondike Gold Rush approach” to resource extraction moves in to an equally fevered export phase. As it turns out, Australia’s already been there, done that, and got the lousy T-shirt.

First some hard truths from the author of Economics for Everyone: As noted, oil is a fungible commodity — which means one barrel of oil is pretty much like every other barrel — so “to think that we can just get a much, much higher price by selling in Area A instead of Area B is absolute wishful thinking.”

What’s more, there’s that pesky law of supply and demand, which even Marxist economists agree is a thing. “If we in fact were successful in building enough pipelines to pump out millions of barrels more a day, we are clearly going to drive down the world oil price again,” Dr. Stanford observed. “So this knee-jerk idea that the market will reward us as long as we pump it out as fast as we possibly can is absolutely violated by the world’s history of this industry.”

And so the notion more pipelines will solve all our problems is, of course, nonsense.

“The cautionary tale I want to tell you is about the Australian LNG industry — liquefied natural gas,” Dr. Stanford continued, noting that Australians were following the same logic advanced by Mr. Kenney (and for that matter, Ms. Notley) when they looked at other markets and asked, “Why is all our gas stuck in Australia for $3 when we could be selling it in Japan for $10?”

Former Alberta premier Rachel Notley (Photo: David J. Climenhaga).

So, abetted by right-wing governments and unhindered by even Canada’s lax regulations, “they went and built seven LNG export facilities all at the same time!”

“You want to see waste in action? Go and watch the LNG gold rush and oilsands gold rush in northern Alberta,” Dr. Stanford said. “That’s where you’ll see waste in action!”

“Anyways, guess what happened? They’ve got seven LNG export facilities. They’re pumpin’ it like there’s no tomorrow. Australia’s now the biggest LNG exporter in the world. …”

“So guess how much LNG sells for in Japan?” (Beat… beat … followed by a cry of “$3” from the audience.) “Three dollars! You got it. An economist in budding, right there!”

It’s that inconvenient supply-and-demand thing again. “And guess how much it sells for in Australia now? Five dollars! It sells in Australia for five fuckin’ dollars because all of the supply is leaving, and there’s no supply to meet the Australian market.”

So for Alberta’s pipeline pipedream, he continued, “it would not be as extreme but exactly the same logic, exactly the same flawed logic and undue faith in market mechanisms is behind the whole argument that all we have to do in Alberta is build more pipelines and pump it out even faster, and then we can reflate that great bubble.”

In other words, Dr. Stanford concluded his argument, “when Jason Kenney says I’m gonna come in and build the pipeline that no one else can build, and that will solve all our problems, he is Don Quixote of 2019, tilting at windmills. No doubt about it.”

Well, what does Dr. Stanford know, even if he did grow up in the midst of our bust-to-boom-and-back-again Alberta economy? He’s only a PhD economist with degrees from Cambridge University and the New School of Social Research in New York. The very definition of elitist!

Give him this much, though, he’s been around long enough to notice that “Canada and Australia have an economic similarity in that we have both been unduly dependent on the extraction and export of unprocessed resources. …”

And, what’s more, that “another similarity between Australia and Canada is each country has a remarkable proclivity to produce right-wing dickhead politicians.”

Now, if only Alberta could come up with a way to export them, we might be onto something!

Here endeth the lesson. This is the second of two pieces I promised about Dr. Stanford’s remarks. For those of you who want to dig a little deeper into this topic, though, a good quality video of Dr. Stanford’s keynote address has been posted by the AFL. Strong language and all. DJC

16 Comments to: Jim Stanford Part II: An Australian cautionary tale for Alberta and Canada

  1. Jim

    July 24th, 2019

    Funny thing about the statement about Canada producing right wing politicians is Alberta isn’t really responsible we just seem to attract them. Kenney, Harper, Day, even the original Manning all came from other places. The ones, right and left, we have produced for the most part haven’t turned out that bad, Notley and Lougheed heck with the current crop of so called conservatives Klein isn’t looking so bad. Something about the water in southern Ontario perhaps.

    Reply
    • Mike in Edmonton

      July 24th, 2019

      True, most of the ultra-right Libertarian-Republican wannabes seem to come from Ontario. But don’t let Ralph off the hook because he was less bad. Something about a grumpy, angry little man who sucked up to Big Business (“Naw, Ralph can’t give Martha and Henry a hand. He needs them both for social climbing.”) just resonates with Albertans.

      It’s been said that peasants have generally been out of touch with their own best interests. Electing Jason as King of Oilberduh shows Alberta peasants are more out of touch than most.

      Reply
  2. ronmac

    July 24th, 2019

    My guess is Kenney and his minions are trying to create conditions for another oil sands boom. The shale oil boom in Texas appears to be running out of steam with shale oil companies going belly up left, right and center. Since 2015 170 shale companies have declared bankruptcy, leaving over $100 billion in debt. Nine out of ten shale companies are bleeding red ink. Seems these frackers can’t make money at $50 a barrel oil and Wall Street is getting jittery. The question is where are they going to park their money next. Why not the oil sands?
    https://wolfstreet.com/2019/06/08/a-gusher-of-red-ink-for-us-shale/

    Reply
  3. Geoffrey Pounder

    July 24th, 2019

    “As noted, oil is a fungible commodity — which means one barrel of oil is pretty much like every other barrel”

    Not sure about this. Heavy crude is not interchangeable with light crude. Unless the desired product is asphalt, the market for heavy crude is limited to expensive high-conversion heavy-oil refineries. Simple, cheaper refineries can handle the light stuff. Heavy crude is generally discounted because of higher refining costs.

    Even using the industry’s under-estimates, Canada’s oilpatch is the FOURTH MOST CARBON-INTENSIVE on the planet, behind Algeria, Venezuela, and Cameroon. Canada’s rating is nearly twice the global average. (CP, 2018)
    AB dilbit ranks near the bottom of the heap, not the top.
    Ian MacGregor (president and large shareholder of North West Refining) admits that bitumen is sold at a discount because it’s “the worst feedstock”.

    Here is what the AB Govt says about “Best Barrel”:
    “Western Canadian Select (WCS): is a heavy (high viscosity), sour (high sulfur) oil produced from Bitumen in Alberta. It yields fewer valuable end products, and is more difficult to refine. It will naturally receive a lower price in the market place due to these less valuable characteristics.”

    “Compared to conventional heavy crude, bitumen contains 102 times more copper, 21 times more vanadium, 11 times more sulphur, 11 times more nickel, 6 times more nitrogen, and 5 times more lead, according to the U.S. Geological Survey. It also has a much lower ratio of hydrogen to carbon, which degrades combustion efficiency.
    No refiners will pay the same price to process sweet light crude and bitumen because they have to make costly capital outlays to configure their refineries to extract higher sulphur and heavy metals like copper and lead, make up the hydrogen deficit of bitumen, then dispose of the mountains of chemical crud left over. So refiners—anywhere on the planet—will charge AB producers more to process each barrel of bitumen.”
    “The fatal flaw of Alberta’s oil expansion” (The Energy Mix, 2018)
    • theenergymix.com/2018/03/04/exclusive-out-of-the-loop-the-fatal-flaw-of-albertas-oil-export-expansion/

    If the world burns less heavy oil from Canada, that’s a global benefit. If the world takes real action on climate, AB’s heavy sour barrels — low quality, costly to extract, more expensive to refine, and remote from distant markets — will be among the first to be stranded.

    Reply
    • Bob Raynard

      July 25th, 2019

      Perhaps a ‘what if’ is just mere navel gazing, but here goes.

      The powers that be have decided that ‘blame’ for greenhouse gases is assessed to the country they are produced in. As a result Canada takes the blame for the oilsands’ greenhouse gas production, as if we are just having a giant campfire up north, instead of producing them so other countries can have fossil fuels. My understanding is that this same system does not assess any blame for cross-ocean shipping at all, since it happens in international waters.

      So, what if the importing country had to accept the blame for the greenhouse gases that were produced in getting the product to their citizens? At first glance this seems like a much more fair way to do things. Such a move, however, would be devastating for Alberta’s oilsands, as countries could see a significant, and painless, reduction in their greenhouse gas production simply by changing fuel supplier.

      Reply
  4. John T

    July 24th, 2019

    The lack of an economic reason for the pipeline has been known and written about for years. It is obvious that this albatross is going to disappoint a lot of people who expect it to rejuvenate the Alberta O&G industry.

    The really sad thing for me is going to be watching these same folks start to realize this in the next year or so.

    Reply
  5. Michael

    July 24th, 2019

    Could it be that the Oil Industry is well aware that having pipelines flood the market with their product will reduce the price, but they are willing to do this because, as demand for the product decreases (we fervently hope !) in the face of climate disaster and new technology, they figure cashing in on it as fast as possible is the best way to maximize what profit they can still get out of the tar sands ?

    Reply
  6. alan

    July 24th, 2019

    Did this fellow miss Notleys whole point about not more oil, but oil to different markets… or did he miss the fact that alberta oil shipped to the us is then shipped out the gulf coast for a profit… or we aren’t building seven new pipelines…. possibly someone could show this person an apple and an orange and point out some of the differences. another 15 minuter in a mid-life “I am so smart” crisis it would seem. 🙂 news media is a fun form as the people reporting aren’t necessarily the education elite they claim to cite.

    Reply
  7. David Bridger

    July 24th, 2019

    Well, Albertans can dream and even hope that things will turn around for the oil industry now that they have a UCP government in Edmonton. But they shouldn’t hold their breath waiting for it to happen.

    Economics will prevent it and the likely austerity imposed on working Albertans after the federal election will turn them sour on conservatives and any solutions they have. All that is holding them back now is that they want to give the Scheer Conservatives a chance to return to power in Ottawa and then look out.

    Reply
  8. Farmer Brian

    July 24th, 2019

    Again ideology fascinates me. David both you and Dr. Stanford disagree with Jason Kenney’s desire to build more pipelines and sell more oil. When Rachel Notley was premier she promoted a similar path to balancing the budget which was increased oil revenue from pumping higher volumes of oil. In the NDP’s budget for 2023-2024 was over $10 billion dollars of royalty revenue, almost double where we are now. So did that make her a “right wing dickhead politician” as well? I find there are differences and similarities on both side of the ideological divide. One glaring similarity is that everyone wants someone else to pay for their government services, on the left they want higher business taxes, on the right they want less government spending but it still proves the late Jim Prentice was right when he said Albertan’s should look in the mirror! We get just what we ask for from our politicians, a system of government where the needs and wants always exceed the available revenue. Enjoy your day.

    Reply
    • David Climenhaga

      July 24th, 2019

      This blog regularly criticized the Notley Government’s assumptions about the economics of the TMX program, so no inconsistency there. As for Ms. Notley’s position, and that of almost all other Alberta New Democrats, it is certainly to the right of centre, indeed, notwithstanding the nonsense spewed by the UCP during the campaign, it would be fair to describe the Notley government as “centre right.” As for whether or not that makes a politician a “dickhead,” I’ll leave it to readers to guess whether I think the former premier qualifies. Regular commenters to this blog might fall into different camps on that issue. As for the use of the word, I am an old journo and can’t resist a good quote, as long as someone else said it.

      As to other commenters here today, alan obviously does not understand the meaning of the word fungible. He should look it up. Geoffrey Pounder does, and he has a point. Oil made from Alberta bitumen is more expensive to process, and therefore worth less. But the fungibility factor, regardless, isn’t going to result in a higher price. Ronmac’s theory is intriguing, but I frankly think he’s giving the UCP too much credit. They’re that sneaky; they’re just not that smart. DJC

      Reply
    • Farmer Dave

      July 24th, 2019

      Farmer Brian, get out from under the dome. Your current UCP government is operating under the last NDP budget right now (which is working and is bringing down the deficit). UCP have no intestinal fortitude to do their own budget until late fall in hope that things will improve. If UCP had intestinal fortitude they would increase oil royalties back to the level before the great Ralph eliminated them. And maybe have southern Alberta start paying their fair share of taxes instead of relying on Northern Alberta to subside them.

      Reply
      • Jerrymacgp

        July 25th, 2019

        Mr Dave: “… maybe have southern Alberta start paying their fair share of taxes instead of relying on Northern Alberta to subside them … “ As a resident of Northern Alberta—truly Northern, not Edmonton’s geographically-dubious conceit that it is “Northern”—I’d be interested to know what you meant by this. I am unaware of anything that would suggest that my taxes are subsidizing Southern Alberta in any way.

        Reply
        • Farmer Dave

          July 25th, 2019

          JERRYMACGP

          I lived in Calgary for 8 years and dealt with various levels of government there. Anytime Calgary started to hurt economically they blamed Northern Alberta. Northern Alberta provides the largest resources from lumber to oil and gas for the Province. If you travel on side roads in Southern Alberta most of them are paved, some of them with few people living nearby or any industry. I have a farm in Northern Alberta and a side road that has heavy commercial industry on it and we have been trying for years to get the Province and Municipality pave it with no results. Most of those southern paved roads were subsidized by the Province, I know because I worked in that industry with various levels of government.

          Reply
        • Kang

          July 25th, 2019

          Taxes for southern Alberta? Well consider the water diversion and irrigation district dams, canals etc. all paid for by the Ab Gov. Not to mention the poor irrigation farmers. How about the several hundreds of millions of Ab Gov funds loaned to the two largest corporations in the world to build packing plants in southern Alberta? That is just agriculture. Consider the absurd Calgary P3 ring road system built to allow more GHG spewing cars to drive around Calgary. How about the roughly $5 billion wasted on two north to south electrical transmission lines which were obsolete before they were built? How about allowing our own little Enrons to game the electrical system everyday to make profits at the expense of everyone with an electrical meter? How about the AER acting on behalf of the oil and gas drillers to steal private lands for the frackers and drillers? You think tax payers don’t pay for all of this, either directly or in the form of contaminated land and water? How about abandoned oil, gas, and pipelines that will cost more billions to clean up than the Ab Gov has ever taken in royalties? All for the benefit of the southern Alberta oil types. Don’t forget thousands of acres of government grazing land leased to favoured supporters for a song.

          And how about having to endure the Calgary Stampede and its phony re-write of western history? They should pay us! Not to mention building a hockey arena for billionaire team owners. Ultimately all tax payer money in one way or the other.

          Reply
  9. Brogan

    July 24th, 2019

    Pipelines benefit only the oil company owners, to the surprise of no one capable of independent thought (everyone but conservatives).

    Reply

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