The Alberta provincial budget just came down and discussions about it reminded me of something that’s puzzled me for some time. We’re very dependent on our oil (and related commodities) revenue for the fact that the province is doing very well financially. Many people have said that we are too dependent on that revenue and we need to diversify more.
My question is why? The above seems to imply that people think that there is some reasonable chance that resource revenues will crash in the short term. I can see resource revenues tapering off slowly in the long term as we use up our easy to get resources and other jurisdictions become more productive, but for the life of me I can’t see how oil and gas prices could possibly drop back to their prices of several years ago; the demand is just too great and getting greater.
So, why should I as an Albertan care that we are so dependent on oil and gas revenue? What reasonable (not necessarily likely, but reasonable) set of circumstances could cause our dependence on that revenue to make our economy take a nosedive faster than we can adjust for those circumstances?
It isn’t likely that anything will happen to the oil industry but it is healthy to have other industries as well. What if you had two or three booming industries? That would be even better right.
You also truly can’t know what is going to happen 10 or more years down the road. Private investors know to diversify. You don’t just put all your money in government treasury bills because you may do even better elsewhere and there is a non-zero chance that the government will default on them (this once unlikely scenario looks more likely by the day).
The Canadian government could confiscate and redistribute much of your provinces wealth. A breakthrough in hydrogen technology could mean that oil revenues could decline steeply in just a few decades. You never know.
You have to look at these things on the scale of many decades and not just now. It will take decades to build thriving new industries so by the time you know there is a real problem, you are already way behind (see my home state of Louisiana in the 1970’s when the oil industry collapsed and post-Katrina this year. That hit both major industries.)
Oil prices are very volatile. A slight change in supply vs. demand and there is a very wide swing in prices. Not a very good basis for running an economy.
A lot of people are putting major efforts into figuring out Better Ways of doing things in terms of energy. Ideally, good old fashioned desktop fusion would be best. Realistically, what if someone discovers a entirely new way to locate small oil fields? I.e., no more wildcatting. Sink the hole, get oil. There’s a huge number of such spots on the globe, but the economics of finding them are bad. Find a way to detect them via N-rays or something and Alberta’s economy is in the toilet.
Think in terms of Nantucket when “rock oil” started to replace whale oil.