Crude Observations

Hot Under the Collar

Well wasn’t that exciting? Another Super Bowl, another Super Bowl victory for Tom Brady. All I can say is it’s a good thing for him that the game was held when it was since, as the numbers show, he only wins championships when the price of WTI is below $60 a barrel. I say it’s a good thing because if the price signals are to believed we should break that $60 mark within weeks (if not days) as ongoing vaccination rollouts, inventory drawdowns and economic optimism all point to higher commodity prices.


In the meantime, here in Albertaland over the last week, we continue to lick our wounds on the cancellation of the Keystone XL presidential permit, point fingers at the Federal government and see continued consolidation in the energy world, the latest of which is the announced equity swap of Montney majors Arc Resources and Seven Generations.


Mixed up in all this is an ongoing political war in Alberta between the UCP, the NDP, the middle and the loons on the fringes which includes of course the burgeoning independence party which is siphoning support from the right flank of Jason Kenney’s ruling UCP based on the absurd proposition that Alberta would be better off as a separate country.


As many of you know, I find this proposition particularly offensive and, as someone whose entire livelihood depends on a healthy climate for investment into and around Alberta and its signature industries, I have many thoughts on how destructive this type of discussion can be.


Let me state up front – I get it.


It’s frustrating to feel powerless in the face of decisions made in foreign countries that affect your livelihood, never mind decisions made by so-called “Laurentian Elites” that on balance appear to be designed to deliberately punish Alberta.


But the proposition that Alberta, as an entity, would have more influence and be in a better position to control its destiny if it were able to toss off the shackles of its Eastern based overlords just doesn’t compute for me. The negatives too far outweigh any perceived positives.


Equally frustrating to me is the gaggle of sycophants, grifters and opportunists who gather around these political movements and ideas in order to ultimately, (in my eyes anyway) line their own pockets and advance their own personal agendas.


Part and parcel of this is a proliferation of articles and social media posts espousing all kinds of misinformed or skewed nonsense that I am often left scratching my head as whether these people actually believe what they are saying!


It was exactly this type of article that got me incredibly triggered in the seven days since we last connected as an ill-thought out and presumptuous editorial was published in the local rag (as yet unrebutted by the way) that opened with the premise that a referendum on separation from Canada was inevitable – a position which of course isn’t remotely likely, but which conveniently served its dual purpose of advancing yet more absurd arguments in favour of independence and getting really far under my skin.


Why so mad you might ask? What does it bug you so much? Well in reverse, I can be a bit of a hothead and have not a lot of patience for inanity. But in addition, I have seen the damage that a festering separatist movement can have on a provincial economy because I lived it in real time growing up and living in Montreal from 1965 through 1992. So the prospect of living that gong show in a province as well-off as Alberta with no cultural imperative to contemplate going it alone gets me all hot and bothered.


I was still angry when we did our video coffee chat on Tuesday and expressed these feelings to the assembled group whereby I was challenged by one of the crew with the thought that anger wasn’t the right play and that actions were needed. Which of course is 100% correct – and I agreed and said actions are needed, especially on the part of the business community, which hasn’t done anywhere near enough to counter these clearly populist sentiments. Which of course is the point that was being made to me – it’s not enough for me to get “mad”, that’s just playing into the grievance mindset anyway.


Rather you need to challenge these ideas and misrepresentations head on and do it succinctly and convincingly.


It was shortly after that conversation that my epiphany came. I realized (duh!) that I was in fact part of the business community and that if I was going to walk the talk or quack like a duck or do whatever the expression required is, I needed to throw my hat in the ring and make my voice heard. So I decided to do just that.


Of course I don’t have a highly accommodating newsprint publication available to me to publish whatever drivel I want so I have to do my part in the only way I really know how, which is of course to make you all suffer through a stream of consciousness rant about why I think Alberta independence and even the open contemplation of it is such a horrible idea.


So herewith and without further delay is my newest listicle.


Never mind the impact of actual separation, talk of separation is an economic suicide pact. This is a key one and it is therefore number one on my mind.


Alberta is facing a lot of headwinds. The extended downturn in the energy sector is draining. The energy transition is going to be hard. The separatist movement is the result of many things but at its root it is a backlash against forces outside of our control. And the psychology of fighting against these forces and going it alone has a lot of appeal. After all, who better to take care of our interests than us, right?


But it doesn’t work that way in an interconnected world. No one has ever successfully walled themselves off and protected a past that was being challenged. In the current environment, Alberta is being challenged to attract investment. This is because our primary industry, energy, is perceived as running counter to the direction the rest of the global investment traffic is moving. The light in front of us is green but we are too busy complaining to notice.


As a result, attracting needed capital is hard. We talk to equity and debt funds every day and they tell us that. Foreign investors don’t understand subnational subtlety and nuance. They see a cancelled pipeline and decide we’re done. They see an acquisition opportunity that says Alberta and they link Alberta to energy to oilsands to ESG and they say no. I was on a webcast today on 2021 prospects for the oil patch and the American analyst was talking about how Canada’s upcoming trade war against Biden was going to be terrible for the country. What? Word matter I guess.


Layer on top of that the years of political instability that talk of independence will bring and that capital attraction won’t just be hard, it’ll be closer to impossible.


The implications for businesses here in the province are massive. Lower valuations. Increased cost of capital. Increasingly limited options for liquidity and financing. Marginalization. Loss of supports for key industries. Exodus of talent. I could go on, but I prefer to retain at least some optimism.


But how do I know this you might ask? Well I’ve seen it. In Quebec. And I’ve lived it. In Quebec.


It is no accident that Quebec’s economy was, on a relative basis, a basket case for a good portion of my lifetime and why, to the consternation of many out west, it was such a massive recipient of equalization payments. It’s because of neverendum referendum talk and the drumbeat of separation. Capital and people went elsewhere – entire companies and industries just packed up and left. It took two punishing and too close referendums and years of economic stagnation for Quebec to turn itself around. And now? Well at long last Quebec has been hitting its stride for much of the last decade as legitimate talk of separation and the anxiety it caused has faded into the background.


Separation won’t solve pipeline issues. This is probably the biggest misconception out there. There is much chatter about how if Alberta were to separate from Canada our pipeline egress issues would be magically solved and Canada and the United States would have to allow our pipelines to access tidewater because of some ancient United Nations treaty. Aside from the irony of people who decry the UN at every turn promoting an obscure treaty as some sort of panacea for a self-selected landlocked Alberta, the reality is that this treaty has been ignored regularly throughout its history. I’ve heard that the United States isn’t even a signatory to it. Also, does anyone really think that a hostile group of provinces under Federation are suddenly going to quake in their boots and knuckle under to this treaty and allow an independent Alberta to start running pipelines across their territories? It’s nonsense.


Never mind all the first nations territories we would be forced to negotiate with, it will literally be decades before we have even a glimmer of hope of having our egress rights acknowledged by which time I will mercifully be retired and the energy industry will likely be fundamentally reshaped. We don’t need pipelines in 25 years, we need them now. Independence doesn’t solve this.


It won’t save the Energy Industry. That’s pretty much a guarantee. The only thing that saves the oil and gas industry is rising prices and access to capital and a stable regulatory environment. We can’t control prices and we’ve already touched on why capital access is currently challenged and won’t improve. On the regulatory front, sure we can change the rules in an independent Alberta but if we fall out of step with what the rest of the world is doing, guess what? We lose access to capital. Never mind that as an independent entity we will 100% lose whatever ability we had to influence policy in a Canada that will now be free of that pesky fossil fuel belching monstrosity east of the Rockies.


An independent Alberta will be fiscally compromised. We are already in a financial and economic crisis. There are very few realistic paths where Alberta would be better off financially as an independent country. All the federal transfers would need to be funded and new departments for all the services provided by the federal government would need to be created. It’s not as simple as getting back ou “fair share” of equalization. Sure that pool of tax dollars will be kept in Alberta, but add it all u and it may not be enough given our challenges.


Our sovereign debt cripple us for generations. Alberta’s share of the Federal debt would need to be calculated and transferred. And rest assured, after the pandemic, the response to which was pretty much exclusively funded by the Feds, our piece of that is massive. This level of debt will crush our sovereign credit rating and dramatically raise the cost of borrowing. This will necessarily result in increasing levels of taxation to service the debt and reductions in services to citizens. The prospect of that debt alone is enough to slam the door on this crazy talk.


There will be a Sales Tax. Alberta prides itself on not having a Provincial Sales Tax. A separate Alberta will be desperate for funds. The GST will be replaced by a National Sales Tax, it’s pretty much guaranteed.


First Nations will say no. Somehow this part of the equation never seems to get adequately addressed. It never was in Quebec and it isn’t being addressed in the Alberta Wexit ranks. Why? Because there is no answer there that proponents are willing to hear. First Nations have treaties with the Crown and the Federal government and not provincial ones. They are sovereign nations whose funding lifeline comes from the Federal government.


Alberta-based First Nations aren’t going to want to rely on a likely broke new Alberta to provide for their people. First Nations control vast swathes of territory that contribute to our natural resource bounty – oil and gas, forestry, mining – and when the First Nations say no, which they will, all of that will be gone.


Who will be the Queen? I’m only sort of kidding here. What type of government will we have? Will we still be beholden to the monarchy? Will we have a political system modelled after our current parliamentary democracy? A US-based system? An anarcho-syndicalist commune? A principality like Andorra, the Vatican or one of those made-up countries from Hallmark movies?


Immigration will dry up. Ongoing levels of immigration are critical in Canada and other Western Nations to continue to support the growth of our economies. Can you imagine how frustrating it is for someone to immigrate to Canada and settle in Alberta only to be subjected to political upheaval and an independence movement? They came to Canada. They chose Canada. They will leave for Canada. And as small, landlocked, likely broke principality, we will not be destination number 1.


Young people will leave. Scratch that. The pace of young people leaving will accelerate. I can’t point to anything specific, but in my own limited experience, young people are attracted to forward and outward looking locales that have a wealth of opportunity and they will leave strife and instability behind, just as what happened to Quebec. This is already happening. The uncertainty caused by all the handwaving is only going to exacerbate it.


Smaller isn’t better. Bigger is better. We live in a globalized inter-connected world where everyone and every country and every industry is competing for attention. And getting that attention is becoming harder and harder. If there is a lesson to be learned in the vaccine rollout debacle, it’s that bigger countries have better access to resources and supplies when the sh** hits the fan. Canada, for all our economic stature, is an after-thought when countries are looking to their own self-interest. Even our biggest trading partner is ignoring us. So what makes anyone think that tiny land-locked Alberta is going to fare any better. At 4.5 million people, we would rank with the likes of Panama and New Zealand. How much influence do they have again?


These are all big picture things, how about the more mundane?


Goodbye Banff. Wait, what? That’s right. Banff (and Jasper for that matter) are part of Canada’s National Parks and are crown jewel travel destinations for people visiting Canada. There is zero chance Ottawa gives them up. That means we will have to cross an international border to go skiing because places like Nakiska will have to become open-pit coal mines to pay for our massive sovereign debt.


The BC interior is going to become very expensive. Places like the Okanagan, the Shuswap and Fernie are extremely popular playgrounds and defacto lake country for thousands of Albertans from across the province. Currently, many of these Albertans escape some of the more egregious extra taxes imposed by the BC government on foreign home-owners but this latitude will most assuredly not be extended to an independent Alberta that wants to lay thousands of kilometres of pipe across pristine northern BC. Something will have to give.


What about sports? Do we get to keep the Flames and the Oilers? What about the Stamps and the E’s? It’s the Canadian Football League after all. The last out of country foray was a disaster for the CFL.


Do we really want that many border-crossings?


What do you about Lloydminster? Will we have to build a wall like in Berlin? Will there be a demilitarized zone?


What about Saskatchewan? What about it. Is it really fair to make them go it alone inside a hostile parent country when so many Albertans trace their roots there?


It won’t change the weather. That’s it. Not sure that’s in the independence platform, but if it is, it’s a bold-faced lie.


We will never have another Trudeau as our leader again. OK, this one I can get on board with. But can you guarantee it? Not a chance.


We will need a National Energy Program. Because well, we’ll be a nation.


The Clarity Act. The clarity act requires a clear referendum question on secession, a clear majority and ultimately support from the Federal Government. Which means its part vote, part political. In this context, unless the question is “do you want to destroy your province by leaving Canada” and the result is 70% plus in favour with massive turnout, it isn’t likely to go anywhere. So why even bother.


The idea of an independent Alberta has, on its surface, great appeal. Be your own master. Set your own agenda. Throw off the yoke and be free. But it’s an illusion.


We have too much to lose through this pursuit. Far better to achieve change from within the system than to blow it all down and wreck what is, despite its flaws, a pretty good gig. We are the fourth largest province in one of the wealthiest countries in the world. Because of that association, we can punch above our weight on the world stage.



An independent Alberta isn’t going to be some cool startup unicorn. It’s a backward looking suckers bet investment in a coal mine marketed by a former Bre-X flim flam nan. And we all know it too.


As such, it needs to be called out by business leaders and legitimate politicians (ahem, Jason) for the nonsense that it is.


We’ve got serious problems in this province. This isn’t one of them.


I will reserve the right to be mad though.

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