Are the oil sands holding Ontario up or hollowing it out? -

Are the oil sands holding Ontario up or hollowing it out?

A fascinating public debate has broken out between the premiers of Alberta and Ontario


A fascinating public debate has broken out between the premiers of Alberta and Ontario. Alison Redford kicked off the festivities by calling on Dalton McGuinty to acknowledge that spinoffs from oil sands development are worth billions to the Ontario economy:

“We in Alberta have a resource that matters to the rest of the country,” Ms. Redford recently told members of the Small Explorers and Producers Association of Canada in Calgary, “It’s not enough for Alberta to be talking about the importance of Keystone in the United States. We need the Premier of Ontario talking about that. We need the Premier of Quebec talking about that, and of course, we have the Prime Minister of Canada talking about that.”

The ink on that Globe story was barely dry before McGuinty made nearly the opposite argument: that Alberta’s resource economy is driving up the dollar and sucker-punching Ontario manufacturers and exporters.

“So if I had my preferences as to whether we had a rapidly growing oil and gas sector in the West or a lower dollar, I’ll tell you where I stand: with the lower dollar.”

That sounds kind of defeatist, but it’s possible to see where McGuinty is coming from. The Globe stories I’m using for this post both quote the same study on oil-sands fallout for Ontario:

According to the Canadian Energy Research Institute, the province enjoys the lion’s share of oil-sands benefits outside Alberta. Between 2010 and 2035, Ontario is expected to see $63-billion in economic spinoffs and 65,520 oil-sands-related jobs.

$63 billion over 25 years, or $2.52 billion per year on average, is a lot of simoleons. But you need to remember how deep a hole Ontario is in:

Ontario lost nearly $154-billion worth of direct economic activity between July 2008 and December 2011 from lost factory sales alone. That’s $3.7-billion every month.

Those lost factory sales aren’t all Redford’s fault, and it’s a mug’s game to guess how the sector would have evolved if oil had been $40 cheaper, but they are McGuinty’s problem, and he seems to be sensitive about it all.



Are the oil sands holding Ontario up or hollowing it out?

  1. Presumably, McGuinty think he’s improving Ontario’s economic circumstances when he pays 21st century prices for technology that has existed since Christ was alive in order to fight a problem that isn’t occurring. 

    Does McGuinty have any thoughts about trying to develop a cash cow of our own here in Ontario instead of caviling about other’s people success?

    NOW Toronto ~ Dec 2011:

    Shale gas exploration, which involves the extraction of natural gas from rock using water, sand and chemicals in a method called hydraulic fracking, or hydrofracking, is in its infancy in Ontario. But a three-year study by the Ministry of Northern Development and Mines uncovered areas of potential development in almost all of southwestern Ontario west of London and a section of southeastern Ontario.

    Canadian Press ~ Dec 2011:
    McGuinty snubbed watchdog Jim McCarter by skipping question period in the legislature to attend the opening of a plant in Windsor that makes wind turbine towers, the Tory leader said.McCarter, who released his annual report Monday, found that the government rushed into a $7-billion deal with Korean giant Samsung without consulting its key energy agencies or conducting any formal economic analysis.

    • If gas ever becomes so expensive that shale refining becomes viable, we’ll be thanking God for Dalton’s turbines. 

      • USA Today ~ Feb 23 2012: 

        Aaron Dinnin’s last job was as a prison guard. Before that, he was a roofer. Today, the 33-year-old West Virginian works in a shale gas field near his home and earns more money than ever before. “This is the best job I’ve ever had,” he says.

        Expansive underground gas and oil fields being tapped in the nation’s industrial heartland have brought hopes of prosperity and riches to a region that has been in economic decay for a half-century. 

        Towanda, Pa., (pop. 3,000) had been losing population since 1900. Then came the natural gas boom. A flood of workers from Oklahoma and Texas arrived. New hotels and restaurants opened. Heavy trucks carrying pipes, rigs and tankers rumbled over rural roads. Housing grew scarce. Bars got busier.

        For the residents of old industrial America, the boom was what people craved: well-paying blue-collar jobs for those with high school degrees and good jobs for college-educated people who want to stay home.

        • Oh it’s definitely started, although I thought the process was a little less developed than the article hints at. Terrifying that these expensive and environmentally damaging techniques  (what with climate change being, you know, real) are becoming what passes for market friendly in the age of crazy-priced power! 

      • The UK is littered with thousands of turbines, offshore and onshore, and can’t get to 4% of total consumption of electricity.  Turbines are a flight of fancy, nothing more.

        • They aren’t a total answer, but they’re a step in the right direction.

  2. Rather eat grass than grovel before the blue eyed shiekhs.

    • PJ O’Rourke ~ Eat The Rich:

      Economics is not zero sum. There is no fixed amount of wealth. That is, if you have too many slices of pizza, I don’t have to eat the box. Your money does not cause my poverty. Refusal to believe this is at the bottom of most bad economic thinking.

      True, at any given moment, there is only so much wealth to go around. But wealth is based on productivity. Without productivity, there wouldn’t be any economics, or any economic thinking, good or bad, or any pizza, or anything else. We would sit around and stare at rocks, and maybe later have some for dinner.

      • Today’s wealth is NOT created by productivity.  It is created by capitalism.  The process of money making money.   Thus manufacturers move to where the money can  produce the most wealth for the capitalists, not for the producers.

  3. McGuinty’s point is a reasonable one. The Dutch Disease cycle is a strong possibility in Canada: rising resource currency (already happening), deindustrialization because exports are less competitive (already happening), and then the economy falls apart if resource prices fall (may happen, may not, who knows). But for Ontario, the result is pretty clear.

    • The “Dutch disease” economic diagnosis is compelling: nearly perfect correlation between oil price and our currency value.  It has happened in several countries before and the treatment is also well-known: 
      sterilize the boom revenues but putting a part aside in a long-term fund.  Other diversified economies have done this.  It takes nothing away from Alberta and helps the rest of the country.  The other way is to run a budget surplus.  Realistically, that’s no longer a possible solution.

      • Alberta could be responsible and put the oil revenues in a sovereign wealth fund, like Norway. Instead, they’d rather blow the wad and drive up our currency, then bitch about how the economy of the rest of the country struggles.

        • Andrew: I’m liking your postings. Stashing it away does help mitigate inflationary effects, but even careful Norway has a Krone problem as per skewed value. Mind you, the Nords are far more adept at careful management, and bragging to the other Scans just isn’t on.

          Alberta seems to have a very short memory…..

        • If Alberta didn’t have to do equalization payments, which Norway doesn’t, Alberta would have nearly $150 billon in a wealth fund already.

  4. Oh….so now that they’ve discovered they need help, we’re no longer ‘eastern bastards that can freeze in the dark’, or ‘fat cats’ or Ontario elitists’ eh?

    Tsk tsk.

    That said,  no we don’t want to be dragged into your petrostate.  Ontario is a different economy altogether, and we want to go forwards not backwards.

    • I’m always up for defending OE1s comments, but this is just…subversive to the notion of common sense.
      Or have you not read the news in the past week?

      • I’ve been reading the news since before you were born…..and there is no benefit to Ontario in this.

        Ontario is not interested in Dutch Disease, petrostates, or Albertas sudden discovery it’s landlocked.

        • I think Alberta will get by just fine without Ontario’s help promoting the oil sands – which is all Redford was asking for.

          • Yes, Albertans said that years ago when the NEP was proposed, and then the world oil price crashed….and we got blamed for it.

            They were keen to sell to the Americans rather than us….and I invite them to do so again.

          • Emily,

            I propose a National Nickel Program.  Nickel is very expensive, and necessary in many oil and gas applications.  Please inform Sudbury that Nickel is now half price, belongs to Canada, not Ontario and will be used in the national interest.

          •  [I think Alberta will get by just fine without Ontario’s help promoting the oil sands – which is all Redford was asking for.]
            Then why did she ask?

            Wazzup? Getting the feeling that the Americans aren’t so hip for your dance, and you’re looking around to see if anyone likes you?

            It’s not even your teeth. It’s your attitude. Treading tar all over the carpet and calling it love doesn’t help.

  5. This seems to almost Canada’s curse- what’s generally good for AB and the west is often not best. news for ON and Quebec. It might help if AB made a serious commitment to investing in ON green tech economy, or showed a serious commitment to leading on CC, instead of hiding behind Ottawa, who’s hiding behind AB. Such a pity no one believes we’re really one country these days.

    • I’d be satisfied if they saved their oil revenues rather than consumed them immediately.

      •  Yeah. Lougheed is more than disillusioned. Alberta is spending like drunken Arabs…if you get the drift of gasoline…

        Certainly nothing learned from the Norwegians (Heritage Fund).

  6. Really appreciate this article. It explains why such a behavior and is not trying to take sides. Unfortunately our premiers should stop doing small town politics and explain their positions more clearly. This would contribute to a more adult debate and would get things moving in a positive fashion.

  7. I don’t know how the Alberta oil sand spin off is measured in Ontario. Seems a bit constructed to me that whatever benefits Ontario is getting from the oil sands wouldn’t exist to supply some other market either domestic or foreign.

    However, it is a bit disingenuous of Dalton to criticize Alberta’s resource economy when he’s betting so much on the mineral economy in Northern Ontario. What he probably wants to say is that the massive amount of jobs in Alberta is competing directly with the competitiveness of mines in Northern Ontario by draining our workforce of equipment operators and trades people and raising the base salary.

    •  [However, it is a bit disingenuous of Dalton to criticize Alberta’s
      resource economy when he’s betting so much on the mineral economy in
      Northern Ontario.]

      I think a reference is in order on that one. Or a foil hat, whichever comes first.

  8. The US has intentionally devalued its currency by printing money to pay its debt and to increase exports.  THAT is what has hurt Ontario’s exports….but what has really hurt its exports is its lack of competitivness, lack of innovation, and more importantly its lack of political leadership.

    • No, sorry….you have no idea about our exports….and if you want favours, don’t insult people

    •  [The US has intentionally devalued its currency by printing money to pay its debt and to increase exports.]
      Ummm…perhaps you haven’t noticed? If that is what is intended (and indeed, Carney spoke words to the effect of “Bank Governors dirty little secret by lowering overnight rates…”),then it hasn’t worked very well, has it?

      CAD is almost at par with USD of late, closely tracking. Perhaps you could explain your thinking in more lucid terms?

      Perhaps not….

      • Really?? Is basic math that tough for you?  I am not sure why it’s difficult to understand that a US dollar at par is better for the US than a US dollar worth 1/3 more?  I think you might need some extra training at one of Dolton’s all-day Kindergartens…

  9. Ontario’s financial sector, accounting, and legal sectors would take a big hit without all the investment banking they do for the oil and gas industry.

    That indirect economic benefit is typically not included in the numbers.

    Equalization is not included in those numbers.

    If McGuinty really believes that a lower dollar is the solution to Ontario’s economic woes, than both Ontario and Canada are doomed.

    Just think what would happen to the low interest rates that is allowing McGuinty to finance his massive deficits if the Canada dollar started falling.  Unlike the US dollar, the Canadian dollar is NOT a major reserve currency.  A weak loonie policy would cause capital flight, and almost overnight Ontario and Quebec would be exactly where Spain and Italy are right now, facing sky high interest rates to rollover their debt.

    • YOUR economy depends solely on oil….Ontario’s does not.

      Canada had a low loonie for years, and there was no capital flight

      I dunno where you learned economics, but I’ve worked in it all my life and you are talking through your touque.

      • Different world before 2008 and after 2008.  The PIIGS has no problem financing debt before 2008.  They do now.

        McGuinty spent like a madman during the good times, instead of balancing the books.  The only thing preventing Ontario from the problems of Europe’s troubled countries now is our strong desirable dollar.  It buys time for McGuinty and Charest to eliminate the provincial deficits with only modest austerity.

        The strong dollar is the only reason for Canada’s low interest rates.  A strategy to weaken the dollar and the increased interest rates would collapse Ontario’s housing market, and probably take the Canadian banks down with them.

        The era of delusionary thinking is over.  

        Canada’s natural resource wealth buy Ontario and Quebec time to fix themselves without systematic collapse.

        • Yes the era of delusionary thinking is over….so give up the crappy Alberta myths, and the kitchen table economics.

          Everyone has low interest rates….look around

          Now learn something about Dutch disease before you embarrass yourself further.

          In economics, the Dutch disease is a concept that explains the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector. The mechanism is that an increase in revenues from natural resources (or inflows of foreign aid) will make a given nation’s currency stronger compared to that of other nations (manifest in an exchange rate), resulting in the nation’s other exports becoming more expensive for other countries to buy, making the manufacturing sector less competitive. While it most often refers to natural resource discovery, it can also refer to “any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment”.[1]
          The term was coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of a large natural gas field in 1959.[2]

          • Ontario’s manufacturing sector was strongest when the Cdn dollar was at or near parity to the US dollar. Ontario didn’t even do all that well with a 62 cent dollar and so ran massive deficits.

            So what changed about Ontario?

        • [ A strategy to weaken the dollar and the increased interest rates would collapse Ontario’s housing market,]
          You have a strange logic. You like to spite others’ faces on one hand, and then try to spite them again on the opposite, reversing your logic in doing so.

          Note how you *single* Ontario out for consequence of action, while ignoring your own and that of historical precedent.

          The only thing that has hurt *any* Cdn housing market in recent history is undue investment based on a bubble forming.

          Gee, I guess that doesn’t ring a bell at all in your part of the world now, does it?

          Toronto’s *condo* market is due some concern, already in bubble territory, but other that and Van outside of Oilberta, Canada’s housing market looks remarkably stable, and both Remax and CMHC reports predict more moderating stability.

          You’re the kind that thinks your makeup makes you attractive, so you can turn a pricier trick.

          Next you’ll be bragging as to how they all love you….

          • Where did I single out Ontario.

            I said “both Ontario and Canada would be doomed” by a policy of intentionally weakening the dollar.

          • Oh…golly…we thought you were talking about PEI

  10. Why can’t Ontario manufacturers compete against the US with the dollar at par? Why does gas and books and booze and dairy products all have to be exorbitantly over priced in comparison to the US? 

    And a final question… how does the Liberal green energy policies which drive up the cost of electricity and therefore everything else that requires it, make Ontario less competitive in the manufacturing sector?

    • If the same product is the same price in the US and Canada…which one will Americans buy?

      • Atlantic Canada, Quebec, and Ontario prefer buying foreign oil at $130 a barrel, than Western Canadian oil at $110 a barrel.

        Enbridge has begun working to reverse pipelines, and should be able to get cheap oil as far as Toronto in a couple of years.  However Quebec and Equiterre (I think it is called something like that) are blocking/delaying efforts to get cheap oil into Quebec.Without Keystone XL, this differential between world (Brent) prices, and WTI (Cushing, OK) prices will persist indefinitely.

        When Israel and Obama go to war with Iran, and the Straits of Hormuz get shut down, Ontario, Quebec and Atlantic Canada could lose their supply of oil, with no way to get Canadian oil to them. 

        • So all of Ontario competitors in Illinois, Michigan, and Ohio are using cheap Canadian oil ($110) while Ontario is currently using foreign oil at $130 per barrel.

        • Yup, we do

          Albertans chose to sell elsewhere, so we made other arrangements.

          And we’ve had oil slowdowns before….so we have other arrangements for that too.

          You had your chance…and you blew it.  So tough shitsky.

  11. Hats off to the natural resource production in western Canada. I hope ON will have to experience the “have not – we’re chilly in the twilight” lifestyle for a while. Somehow, I think that if the oil sands were in ON, the premier of that province wouldn’t be talking the way he is now.
    Ontario needs to look in the mirror regarding their lost manufacturing capabilities. Alberta is not sucker punching Ontario or anyone else.
     Ontario, if you do not want the $63B in spinoffs or 65,000 jobs, I am sure that there are plenty of States and people here in the US that would be willing to take that problem off your hands.
    Private business simply cannot afford to pay the high costs that decades of union demands and social entitlements/redistribution have produced. The $44B/yr in lost factory sales is proof that Bick’s, Caterpillar etc. etc. can and will move south of the border and into right to work States where the work enviornment is more palatable.

    • And after spouting bullshit like that, you have the nerve to ask us to speak up for you?

      Ontario has a diverse economy….it doesn’t depend solely on oil

      Yours does…and you’re landlocked.

      Deal with it.

      • Sounds like sour grapes to me Emily. Ontario now wants to pick up it’s puck and go home. If Alberta shut off the tap and I don’t care how diverse your economy is – you wouldn’t remain solvent long enough to cash your next welfare/redistribution check.
        Hate to break it to you Emily, but you need to get your head out of your sand.

        • Ontario is 40% of Canada’s GDP

          Alberta is 16%

          We have oil thanks, so go suck a gas can.

          • Also, Ontario has $400 billion of debt, Alberta has $0. So if bigger numbers mean something, Ontario wins again.

          • A lot more of Ontario’s 40% (especially in the investment banking, accounting, and legal sectors) is dependent on Alberta, than Alberta’s 16% is dependent on Ontario,  which was the point Premier Redford was making, and what Premier Dad was apparently ignorant about.

          • The only ignorance here is that of a pre-industrial province trying to tell a post-industrial province how to manage…and you’re all angry because the post-industrail one isn’t interested in listening to irrelevant pre-industrial fantasies.

      • Oh yeah. please help us Ontario – maybe Quebec can help us too – lulz

        • That’s exactly what Premier Redford of Alberta asked for.

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  14. Emily, post-industrial indeed with a bright service industry (think call centres) ahead.

    Don’t worry, since Ontario can’t responsibily look after their own finances, the rating agences and banks will assist you.