After decades of enduring “have-not” status, residents of Saskatchewan are finally getting used to the idea of being economic leaders — ahead of even the perennial front-runner, Alberta.
Saskatchewan’s economy has gone from strength to strength, building on a diversified resource base of oil and natural gas, potash and uranium, and augmented by energy and agriculture-related manufacturing and processing. Having led Canada in economic growth in 2008 with 3%-plus growth, Saskat-chewan is poised once again to post the strongest economic gains in the nation in 2009.
Saskatchewan will find itself the leader of a recession-ravaged pack, with forecasted economic growth of 0.6% to 0.1% in 2009. In fact, Saskatchewan is pegged by one forecaster to be the only province that will see any economic growth this year.
Clearly, the global economic downturn is taking its toll on Sas-katchewan. Not that many months ago, some commentators thought Saskatchewan might avoid the economic contagion that was spreading like wildfire across the globe.
The province’s mid-term financial report showed the government sitting on $3 billion in unbudgeted, “windfall” revenue, largely from resource royalties, along with $2 billion in its rainy-day fund. And oil prices, while they had fallen from their lofty heights of US$147 a barrel in June, were still expected to average US$94 for the 2008-09 fiscal year, based on an average price of US$67 for the latter half of the fiscal year. With the benefit of hindsight, that oil price forecast now seems wildly optimistic. But even the experts were caught offguard by the precipitous plunge in oil prices.
Also, in July 2008, the Petroleum Services Association of Canada had projected that Saskatchewan would lead Western Canada with a 9% increase in oil and gas well drilling in 2009, while Alberta was expected to suffer an 11% decrease. (PSAC based its forecast on oil averaging US$85 a barrel in 2009.)
As it has turned out, 2008 was Saskatchewan’s second-best year on record for drilling, with 4,045 wells drilled. That will be a hard act to follow, especially after oil prices have fallen by more than US$100 a barrel in less than six months.
The banks fared no better in predicting the economic calamity that has befallen the western provinces because of the collapse of oil prices. In December 2008, Royal Bank of Canada lowered its projected economic growth for Saskatchewan from a positively bullish 3.5% to a more restrained 2.8% for 2009.
But with oil prices remaining stubbornly below US$40 a barrel, the economic forecasts have become increasingly grimmer.
Like RBC, Toronto-Dominion Bank had projected that Saskat-chewan would lead the nation again in 2009: “Albeit [with] a meagre 0.6% [growth in GDP]” — just a fraction of the growth predicted by RBC a few days earlier.
Also in December, potash mines began issuing layoff notices. Potash Corp. of Saskatchewan issued notices to 940 miners at three of its mines; Agrium Inc. followed suit with 380 layoff notices. Then Mosaic Co. issued more than 1,000 layoff notices.
Oil companies began to trim, then slash their drilling budgets. Crescent Point Energy Trust, which had spent about $1 billion on wells and related facilities in Saskatchewan in 2008, said it would be cutting its capital budget by two-thirds, to about $350 million, in 2009.
Even the Bakken play, one of the hottest oilfields in North America, estimated to contain up to 400 billion barrels of oil in place, with perhaps a quarter of that in Saskatchewan, has felt the impact of the plummeting price of oil. In January, Calgary-based oil giant Talisman Energy Inc. announced it was exiting the Bakken light-oil play only seven months after changing course to focus on unconventional resources.
Now, layoffs in the Saskatchewan oilpatch — unthinkable six months ago — seem all but inevitable. The province’s largest manufacturer, Evraz Inc. (formerly Ipsco Inc.) also has announced plans to layoff about 120 workers at two of its Regina pipe mills, which produce steel pipe for the energy industry, in February and March. Another Regina-based company, StarTek Inc., has announced it will be shutting its downtown call centre in March, putting 266 people out of work.
Yet there seems to be something different about these layoffs than those announced in Canada’s newest “have-not” province, Ontario. The potash industry layoffs are being announced by highly profitable companies, which are reducing supplies of potash into a soft global market in an attempt to prop up prices. In fact, potash prices remain relatively strong by historical levels and potash companies are still making money hand over fist.
@page_break@Similarly, the slowdown in the oilpatch comes after a year or two of superheated oil prices, frenetic drilling activity, record land sales, rising costs and sky-high profits for oil companies. While few in the oil industry will publicly admit it, the drop in oil prices might have the salutary effect of wringing excess costs out of the industry.
In any case, layoffs are a fact of life in the mining, energy and steel pipe manufacturing industries, which are cyclical industries that ebb and flow with commodity prices and markets.
There’s no question that within several weeks or months, most of these industries will be back to business as usual once market prices rebound and consumer demand recovers.
After all, people have to eat, drive their cars and trucks, and power their homes and businesses. Saskatchewan produces the food, fuel and fertilizer to enable consumers to do just that.
As Saskatchewan Premier Brad Wall said in his yearend statement to the province: “We will not be immune from the market turmoil, and since commodity prices are significantly lower, 2009 may not be as impressive as this year.
“However,” he continued, “there will still be growth in Saskatchewan. And relative to the rest of the world, our economic performance will be very strong.”
In other words, while Saskat-chewan residents may not be floating on a “sea of tranquility,” they should be able to keep their heads above water longer than most. IE
A slowing Saskatchewan is still ahead of the pack
Commodities prices have put the brakes on a roaring economy, but that may be a good thing
- By: Bruce Johnstone
- February 6, 2009 October 28, 2019
- 12:01