ABCtech #135 28NOV18 At the Tipping Point

ABCtech #135 28NOV19 At the Tipping Point

After visiting Calgary last week and being flooded with news about Alberta’s oil industry, it is hard to see any silverlining in what is happening to the economy.  This issue leads with a deeper look starting with Robert McGarvey. His writings are familiar to those of you who monitor developments in accounting and financing of intangible assets.  His view is that we may be at a tipping point where what is happening in Alberta may have a spill over effect on others.  The article is followed by several related Media articles and OP EDs received in response to last week’s article by Esir Pretne.  This issue concludes an early-bird special for a VISION & LEADERSHIP Symposium on January 26th featuring addresses by each of the candidates for Premier of the Alberta Government and panels discussing issues critical to Alberta’s economy and future. – Editor

At the tipping point? By Robert McGarvey

Just how close is the Alberta oil patch to catastrophic failure? In an informal and (I admit) very unscientific review of sentiment in Calgary’s oil patch conducted by ABCtech officers last week, a chilling tale of fear emerged. With Western Canada Select (WCS) bottoming out at less than ten dollars a barrel the general sentiment is that we’re weeks – not months or years – away from a systemic collapse of large parts of the energy industry in Canada.

Admittedly, there are winners in this unprecedented oil price catastrophe. Large integrated players like Imperial Oil and Cenovus, who own refining and/or retail assets are managing to survive due to the unprecedented profits presently being made on the consumer side of the business.  Consumers are still paying retail prices for gasoline(s) that were last seen when oil was trading at over US $100 per barrel. Not surprisingly many energy players are choosing to downsize or leave town while the gettin’s good. Office vacancies in Calgary’s downtown are growing and further desertions are likely.

And worse, for the vast middle sector of Canada’s oil patch, oil field service industries and those companies that concentrate on the upstream side of the business (exploration and production) the ‘end is nigh’.  They’re presently underwater financially, their creditors are panicking and shareholders are bailing as fast as they can. With their year-ends approaching consensus opinion on the street is widespread bankruptcies are imminent. If such a thing were to occur the consequences would not only devastate Alberta but the falling dominos could be fatal for Canadian and global financial stability.

The first dominos to fall could be the TSE (Toronto Stock Exchange) and Canadian banks. Canadian market sentiment is already on a knife-edge over rising interest rates, trade friction and growing protectionism in the United States. Large-scale failures of energy stocks could trigger a panic that could send the TSE into a downward spiral. Global markets, already jumpy, would react immediately possibly triggering a global panic.

It might be worse for the Banks. Canada’s major banks are deeply involved in financing Calgary’s oil patch and would be significantly impacted by widespread bankruptcies. Credit losses in the multiple billions of dollars would create financial panic and likely trigger a credit contraction not seen since the 1930s. This kind of credit crisis would impact the whole economy as bank loans are called and lines of credit withdrawn. To address this crisis, dividends would be cancelled or drastically reduced.

Large pension funds like the Canada Pension Plan, Quebec’s Caisse de Depot et Placement du Quebec, and the Ontario Teachers’ Pension Plan need the (formerly) predictable dividend returns from Canadian businesses to finance their outgoings. Widespread failure of these dividends would trigger a panic, and calls for a government bailout.

The problem is, governments themselves would also be impacted. The most vulnerable government of all is Alberta’s. This government relies upon corporate income taxes and royalty revenues from the oil patch, the loss of which would balloon the province’s deficits and debt into hyperspace. The Government of Canada would not escape this scale of market failure, and it’s responsibility for managing the Canadian economy would lie in tatters.  Not only would tax revenues be hit, but the loss of Equalization resources from a collapsing West would potentially give renewed life to separatism in Quebec and trigger a Constitutional crisis.

Is there any way to limit the damage? We must address the root source of the problem. NAFTA and the deep continental integration of the energy sector are the prime reasons for our present predicament. Canadians must take control of their own energy destiny and that means implementing a national strategy that trumps (pun intended) blind market forces.

The nation needs to commit to national energy self-sufficiency immediately. Follow through on Trans Mountain and build the Energy East pipeline to displace imported crude presently being supplied at world prices by murderous oil regimes like Saudi Arabia, Iran and Venezuela. Canadian’s also needs to address the systemic problems that exist in the technology sector. Canadian innovation is world class, but commercial successes in the new economy are few and far between. There are structural flaws in Canadian capital markets that are misdirecting saving into stock markets and away from investment opportunities in Canada’s tech sector that need immediate review.

The time for action is now. As for urgency, nothing concentrates the mind like starring into the abyss – which is what the Alberta economy is doing right NOW.

IN THE NEWS

If Albertans want to avoid fiscal disaster, the only choices left are difficult ones. HERE

The “No Oil” Plan for Alberta is Working – Just A Little Early.  HERE

The Tar Sands Campaign 

In 2008 two major U.S. foundations asked CorpEthics to recruit the groups, develop the strategy, create a coordinated campaign, and act as a re-granting agency for the North American Tar Sands Campaign. The tar sands of Alberta posed a serious threat to the climate in that they were the third largest oil reserve in the world, and would require the destruction of a native boreal forest the size of Florida. CorpEthics coordinated the campaign in Canada and the U.S. until 2014 when the two national campaigns were separated due to their complexity and strategic focus.  FOR MORE

The Tar Sands Campaign Against the Overseas Export of Canadian Oil: Activism or Economic Sabotage?

For excerpts of the full report, click HERE The Tar Sands Campaign Against Overseas Exports of Canadian Oil: Activism or Economic Sabotage? On the basis of the evidence presented in this report, it is clear that The Northern Gateway pipeline and other proposed pipelines for the overseas export of oil from western Canada have been deliberately sabotaged as part of a multi-million dollar, U.S … FOR MORE

The CRA Audit of Tides Canada . . . . Why The Stakes Are High 

Prime Minister Justin Trudeau opening the Actua Centre in Kitchener Waterloo, a project funded by Google, via The Tides Foundation. January 14, 2016

If Tides Canada Foundation were to lose its charitable status in Canada, this would trigger a domino effect that would cause problems with the Internal Revenue Service in the United States, not only for Tides Canada but also for its big U.S. funders. This is why the stakes are so high when it comes to the outcome of Tides Canada’s audit by the Canada Revenue Agency. FOR MORE

OP EDS

Who are the Robber Barons? – John Vrolijk.  We don’t need to look far.  We need only look for purveyors of untruths, both so called non-profits that seek to disrupt to their benefits and the multi-national mega firms that seek to control our resources.

Energy East Pipeline Needed Now!– John Shaw. Now is the time, with conservative governments in Ontario and Quebec, to get the Energy East pipeline going again, not to transport dilbit for export, but to transport upgraded lighter crude to the refineries in Ontario and Montreal.  At least Canada would get some benefit from the current discount to Middle Eastern and African light crude now feeding those refineries.

Alberta Oil is Hardly Landlocked – Willem Langenberg.  Vivian Krause claims that Americans have landlocked the Oil Sands. However, Alberta oil is flowing at present through the existing Linder-Morgan pipeline at a rate of 300,000 barrels of oil each day (information from Kinder Morgan Canada Limited). In addition, 200,000 barrels of oil is moved daily by train (information from many news stories). This means that each day 500,000 barrels of oil is leaving Alberta. Hardly a situation that could be called ‘land locked’.

A Vision for Alberta – Esir Pretne.  The current chaos stems from the dependence of Alberta and Canada on the US raw carbon market and associated revenue. Other than cold, the Alberta advantage is it’s raw carbon commodities complimented by it’s transportation systems and high-Q talent. The only tenable future – and requisite leadership, is for Alberta to lead the nation in executing a VISION for the future: A. A Vibrant Economy. Processing and exporting east/west processed carbon (wheat/meat, fibre/timber, oil/gas); B. Financing the Future. Creating incentives for Alberta’s to directly invest and benefit from community and Alberta enterprise; C. Ready for Change. Preparing for the impact of emerging technologies – particularly in education and healthcare:   1. Engaging Youth. Launching a national dialogue about the future of work including the relevance of: emerging technologies, social and global enterprise, and continuous learning.  2. Personalizing healthcare. Embracing innovation and managing the emergence of personalized healthcare. Is there a hope in hell for a sustained crisis to forge a vision.

VISION & LEADERSHIP – SAVE THE DATE

Creativity and convergence – designed for a sober discourse

Saturday January 26th, 2019 – Royal Glenora

8:30 – 4:30

EARLY-BIRD SPECIAL

$88 now – Register HERE

Increasing to $125 on January 1st

DISCOUNTS APPLY AUTOMATICALLY WHEN REGISTERING ON-LINE

ABCtech Members receive a 20% discount.  Not a Member? Register HERE

Members of Alberta’s Technology Industry Alliance also receive a 20% discount. Use “ALLIANCE” as your code

PROGRAM FEATURES

Keynotes – Election ’19 Preview

Each of four party candidates for Premier of Alberta are invited to deliver a 20-minute address followed by a 10-minute Q&A.

Rachel Notley – David Khan – Stephen Mandel – Jason Kenney

Networking

Twenty-minute breaks – Refreshments  – Buffet luncheon

Themed 4-5 Seat Panels

Economic resilience. Chaired by Leann Hackman-Carty, Economic Developers Alberta

Engaging Youth – the future of work. Chaired by Phil Davidson, Alberta Council of Technologies

Public procurement in Alberta. Chaired by Arnold d’Sousa, Supply Chain Management Association

Advancing and financing Innovation in Alberta. Chaired by Werner Biegler, ABCtech

AGM

ABCtech’s half-hour AGM will follow lunch

Broadcasting

The entire event will be webcast and recorded live