On Alberta’s Future: A Vision for a new Alberta (Part One)

Martin Luther King, Jr once said: “The arc of the moral universe is long, but it bends toward justice”. Increasingly, though, I have come to disagree with this notion, as I educated myself. In reading and learning more on the histories of the world, it is obvious to see that it is the actions of brave men and women who bend us in the direction of justice. The Nineteenth and Twentieth Century shows this. For the last two centuries, from Slavery to World War II, from Holocaust to Apartheid, from Woman’s Rights to Minority Rights, courageous individuals have sought to raise their voices. Those individuals have sought for a better balance. From the Famous Five to Martin Luther King, they have sought solutions which improved the lot of minorities without being detrimental to the “Majority”.

 

The logic for this approach was simple: if everyone does better than people will seek change through evolution rather than revolution. Put differently, the pain from slow change, from evolution, is preferable to the heartache that comes with revolution. This inclusive approach came to pass in England in 1689 with the Glorious Revolution and has been passed onto the rest of Western Society thereafter. When this simple approach of including the Interest of “Others” has been ignored, the consequences are always harsh. Just look at the Terror after the French Revolution.

 

So what should we fight for in Alberta? I would say we should fight for a simple truth: The recognition that Alberta has a problem.  We are economically and politically dependent on one resource: Fossil Fuels. For the last forty years, this has not been an overriding problem, as evidenced by our economy’s ability to bounce back. However, moving forward, as evidenced by low energy prices, we will not be as lucky.

 

In spite of production cuts, Worldwide Oil Stockpiles continue to be at record highs. From the Advent of Bakken Oil Production to the re-entry of Iran and Iraq to the World Economy, the World has an ever increasing supply of Oil. Economics tells us that an “endless” supply of a commodity will drive down its price and so it is with Oil. Alberta’s problem though is that our government depends on Oil and Gas Royalties to run our government. In spite of Peter Lougheed’s warnings, from Don Getty to Alison Redford, Alberta Premiers have used Oil and Gas Royalty Revenue to balance Alberta’s budget.

 

Accordingly, Alberta’s problem is easily defined: unless oil jumps to $70 dollars or more, Alberta’s economy will not provide the growth that we have become used to. Just to be clear this is not a partisan view. The Canadian Energy Research Institute (CERI) pegs breakeven costs for SAGD projects (steam-assisted gravity drainage) at $43.31/bbl, while stand-alone mining needs a price of $70.08/bbl. Given that WTI started dropping in June of 2014 and has not gotten over $55 since the Spring of 2015, one can see that Alberta’s budget woes are not going to be corrected soon. This is especially true since, the most recent close (i.e. Friday, July 14th, 2017) of WTI was US$46.54 and Brent Crude closed at US$48.91.

 

It is easy to say that Premiers Prentice and Notley were unlucky. With low oil prices, they were given a choice: cut government up to 25%, raising revenues, run some debt or do a combination of the three. In both cases, our last two Premiers have largely eschewed cuts and chosen to raise revenues and create debt. If I am to be honest, I would probably have done the same; because, I don’t believe in closing rural hospitals, cutting health budgets, cutting salaries to nurses and doctors, cutting transfers to cities, reducing the size of police forces and ambulance services as well as other destructive measures to cut 25% out of the budget of the Alberta Government.

 

To compound the issue, predictions of future Oil Prices have constantly been wrong. If we were to listen to analysts and economists in 2014, Alberta’s economy should have recovered. Yet, we know that that is not the case. Therefore, I don’t have much confidence in the U.S. Energy Information Administration’s belief that Oil Prices will be an average of $53/barrel in 2017 and $56/b in 2018. With all that being said, I do have a deep hope for Alberta and I think a new vision is required. It might not be the vision that Katherine O’Neill, David Khan and Greg Clark would argue for, but it is a vision which nonetheless can bring prosperity to Alberta.

 

So let me tell you what that vision looks like. Firstly, it is one which is based on an honest review of the evidence, while being bold and courageous. According to the US Energy Information Administration, in 2015, nearly three-fourths of total U.S. petroleum consumption was in the transportation sector. While, 40% of worldwide demand for oil is taken up solely by car and truck use.

 

As we transition to a greener world, we know the demand for Alberta’s Oil and Gas will decrease. The Athabascan Oil Sands Products will likely fall faster because of the chemistry of our product. Unlike sweeter crude products produced in the Middle East, we are unlucky in that our product is expensive to find, refine and bring to market. In a world of declining need, the most expensive options will be less likely to be used. Those are the facts that economics and science bring us. The question is what do we do with those facts? The answer is simple: bring Alberta’s future forward.

 

It is my contention that Alberta should accept the possibility that fewer barrels of oil might be required from our fields and that less natural gas will be used as renewables come on line. So let us drill, while, we can. However, let us also recognize that we have other resources: human resources. We have some of the most talented engineers, research scientists and STEM professionals. As they have been the backbone for our present fossil fuel industry, let them be the backbone for our future. While, our industries will change, the people will not.  Consequently, in plagiarizing a Nordic Politician, “I say we save the people and not the ship”. Or put differently, let us use the people we have to develop new and interesting industries.

 

The question is how do we get from here to there. The first step is to provide the funds to make innovation happen. In our case, we have a great example: ATB Financial. ATB Financial is a provincial government owned deposit institution. Created in the 1930’s, it has become a novel part of our economy. While, it is now structured and run like a bank, it is not bank.

 

In that same vein, we could create an institution which will invest in Angel & Venture firms based in Alberta. It is an institution which would have three main investors: Government, Private Sector and Individual Investors. The Government could provide 20-50% of its capital with the rest coming from retail and/or institutional investors. For simplicity sake, let’s call it the Alberta Venture Investment Corporation (AVIC). The AVIC as a Private-Public Partnership would be able to provide accountability for government money, while reducing the risk of any one investment. More importantly, though, it will give Albertans the possibility to create a new generation of companies. These companies could be based around exploiting the Oil Sands for non-traditional uses or could provide the opportunities needed to create new innovative industries. Either way, each new company will provide new jobs, stability and tax revenue. This will allow our STEM professionals to stay and raise their families in Alberta. However, this is only the first part of the vision.

 

The next step will be providing the tools to the next generation. In my mind, this means providing the right education to deal with automation, low cost jurisdictions and a greener/cheaper energy environment. For, as has been noted elsewhere, over the next 20-30 years, jobs will disappear for many reasons. We know computers will increasingly replace the simple tasks that are done in the legal, accounting and academic communities. This means that lawyers, accountants and many other white collar professionals will need to be retrained; while our youth, at the same time, will be looking for new opportunities.

 

In this environment, we will have to radically change the way our post-secondary institutions interact with society. Invest Medicine Hat, for example, has been working on growing a hemp and renewable energy industry. It is my opinion that the provincial government could supplement such efforts. Through creating a Research University (for our purposes, we will call it the Alberta Research University), we could come up with new “thinking, wisdom, understandings and knowledge”. With campuses in Red Deer and Medicine Hat, and concentrating on Masters, Doctorates and Post-Doctoral Studies, we could develop the “knowledge infrastructure” that could reshape the province. With campuses in Red Deer and Medicine Hat, as a start, Alberta Research University could focus on things other universities don’t: transforming Alberta.

 

However, knowledge without the trained workforce is not sufficient. Consequently, it probably makes sense to create another polytechnic in Alberta. I am proposing that that polytechnic would be based in Red Deer and we should call it the Central Alberta Institute of Technology (CAIT). While the name might not be original, CAIT could pull people from some of Red Deer’s largest industries and provide a starting point for a new Alberta. With a strong base in Construction, Manufacturing and Oil and Gas Extraction, one can see that through the creation of the Alberta Research University and CAIT would springboard Alberta to a new future. And that, at the end of the day, is what we need: Money and Knowledge working together to give us a new set of companies.

 

Consequently, my proposal for a new Alberta is simple. We need another Institute of Technology, a Research University and an Angel and Venture Capital Investor. Those three new institutions will be able to allow our engineers, mathematicians, scientists and technology specialists to tinker. They will have jobs and know that they can stay. Like Silicon Valley in the 1940s and 50s, our scientists will have projects to jump between. Some will fail and some will succeed. In the meantime, those same scientists will pay taxes and go to restaurants for lunches and dinners. Let them spend money that they earn at these ventures, projects and companies to sustain other retail and commercial ventures. Other people will come looking for work and small companies will be able to grow larger. This is the kernel of a plan that will develop over time and today that is what the province needs.

 

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Here are my 52 Ideas. What are yours?