Alberta's oil boom had strong impact on Canada's wealth

Many Canadians have a love-hate relationship with the energy sector.

We love it for the jobs buthate the fact that Canada is often seen as a climate change villain, whether the description is fair or not.

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But just how much does the Canadian economy, especially the job market, depend on the energy sector?

CBC News asked the School of Public Policy at the University of Calgary to run some numbers and the answer isa lot.

Economist Ron Kneebone created an alternate reality of Canadas job marketone in which Alberta wasnt booming.Specifically, if the provinces job market over the past 20years grew at the same rate as Ontarios.

Itll come as no surprise that Alberta has the highest employment growth in the country.

Since 1995, its employment has grown by an average 2.5 per centa yearconsiderably faster than Ontario, which had the next highest growth rate of 1.44 per cent.

Unemployment numbers

Kneebone tried to answer just whatwould the Canadian unemployment rate be today if it hadnot been for the boom in job creation in Alberta.

Obviously the number would be higher, but how much higher?

By August 2014, the unemployment rate that we observed in Canada (7.165 per cent) would have been 9.39 per cent, saidKneebone. That is a 2.2 percentage point difference.

That difference translates to 411,000 fewer jobs in Canada in 2014.

National Process Equipment is one of the companies thats been creating some of thosejobs. The company produces pumps and other equipment that moves fluids, something that is much in demand in the energy industry.

Dave Harvey, vice-president of marketing for the company, saysthings really took off at its Alberta operations over the past five years.

His companys revenues jumped by 45 per cent and employment in his Calgary plant by nearly 50 per cent.

These are skilled jobs, saidHarvey. Whether its on the shop floor, whether theyre tradespeople, or engineers in the front office drawing up plans, or accountants, these are good lifetime jobs.

Energy boom variables

Kneebone describes his analysis as a back-of-the-envelope calculation that doesnt take into account all of the variables of the energy boom.

For instance,fewer jobs would be created in other provinces if Alberta wasnt booming. Alsofewer people would have migrated to the province andfewer temporary workers would have entered Canada.

Those factors would have an effect on his experiment and hypothetical unemployment rate.

As well, if investment dollars didnt flow into the oil patch, presumably they would have gone elsewhere.

Sothe number isnt exact, but its no great leap to acknowledge that without the oil boom, Canadas economy would not be doing as well as it is.

The graph above shows the observed national unemployment rate (blue) as well as the unemployment rate without Albertas boom (red)that Kneebone modelled in his experiment.

The two lines really begin to diverge in 2002around the time that we saw the beginning of the oil boom.

Oil prices

In 2002, the price of West Texas Intermediate (WTI)the North American benchmarktraded around $20 US a barrel. Two years later, it had nearly doubled to $40 USa barrel.

In 2006,WTI traded at $60 US a barrel, and then$140 US a barrelin 2008. You can see that the two unemployment rates tend to move apart and come back together depending on the price of crude oil.

The graph ends in August2014, which also marks the beginning of a substantial price drop for crude oil.

At the beginning of August, WTItraded above $95 US a barrel. This Tuesdayit closed at $77.40

A multitude of reasons is dragging down the price of oil:increased supply in the U.S. andSaudi Arabia lowering its prices for the U.S. market to protect market share.

As of now, the drop in the price of oil is being offset by a corresponding drop in the Canadian dollar, the currency in which WTI is priced, but alarm bells are being raised.

Could the boom be coming to an end?

Late last month Bank of Canada governor Stephen Poloz said if oil remains low, it will shave a quarter point off Canadas economic growth, which is forecast to come in at 2.5 per centthis year.

Poloz saidit was enough of a hit to have him worried.

Peter Jarrett,a Canadian economist with the OECD,says we might already be seeing signs of Albertas slowdown.

We saw monthly building permits from StatsCan come out (last week) and where are the permits the strongest? Ontario.Toronto and Ottawa in particular," he said."Where are they not doing well? Alberta, among other places. Building permits are not activity yet, but they are intention.

Jarrett says if oil prices remain low, there will be aprofound impactseenas soon as next year.

There will be people who may have nothing to do with the oil and gas industry who have taken out loans, built factories that are predicated on Alberta still growing three to fourper centper year and attracting immigrants and migrants from Eastern Canada. If those flows from abroad and Eastern Canada stop and go into reverse, there will be a lot of pain to be felt.

Harvey says his company,National Process Systems, is not as concernedat least for now.

"This industry makes decisions for the long term, not for the short term. Were certainly bullish, we think industry will continue to grow, were certainly going to invest in it. Its been a great ride and I hope it continues.