When you’re down on your luck, you bet on the horse you know.

And with Alberta facing its steepest economic downturn since the 1930s, as the government has been wont to say, Premier Jason Kenney is again putting his money — well, taxpayers’ money — on oil.

Albertans woke up Tuesday to an announcement that Kenney’s government was injecting $1.5 billion into the controversial Keystone XL project, in the hopes of using it to shuttle oil to the southern United States by 2023.

But with oil prices dropping, a global price war and questions about future demand has some asking, is it a losing bet?

It’s hard to overstate the challenges facing the Alberta government. Like jurisdictions around the world, the Alberta economy is being walloped by coronavirus. Unlike most other governments, the province rolled out a budget just a month ago that was highly dependent on oil. Now, sinking prices are taking the government’s dreams of a balanced budget with them.

On Tuesday, Kenney lashed out at Russia and Saudi Arabia, blaming what he called the “world’s worst regimes,” for the ongoing spat that’s driven oil prices into the gutter.

“In a pandemic, you find out who your true friends are,” he told reporters in Calgary. “After COVID, Canadians and Americans will remember that the Saudis and Russians tried to exploit our pain for their gain.”

The province is gambling on oil amid calls for the federal government to bail out the beleaguered industry: “The world needs a reliable, democratic major source of energy,” Kenney said.

The reappearance of Keystone will feel like déjà vu for many Canadians. It’s been 15 years since the project was first proposed by TransCanada Corp. as a way of connecting Alberta with refineries as far away as Texas. The almost-2,000-kilometre pipeline was the subject of debate and protest for years because of its perceived environmental impact.

Then U.S. president Barack Obama nixed the project in 2015, and it faded from the spotlight. But it got a second go around when President Donald Trump gave the project his stamp of approval in January, though state level governments could still prove hostile to its completion.

While the pipeline was once at the centre of a heated North American debate over climate change and carbon emissions, in Alberta its revival is a last-ditch attempt at a reprieve for an industry currently grappling with the lowest oil prices in years.

“We also believe that this is our last chance to get a major pipeline project done, and without it, the future of our largest industry will be compromised.” Kenney said Tuesday.

It’s not a huge surprise that Alberta sees oil, long the province’s biggest industry, as a safe harbour in a time of trouble, experts say.

“It’s really hard to transition to have a different mindset in the middle of a crisis,” notes Glen Hodgson, a senior fellow with the C.D. Howe institute, a Toronto-based policy-research organization.

“Diversification is a great theory, but it’s very hard to do in practice, you have to do it piece by piece. Given the short-term crisis, trying to figure out what the future might look like, and then to build a diversification strategy on top of that? That’s a lot of moving parts.”

Which is not to say that oil is a safe bet. He points to the International Energy Agency, which last November released two scenarios for oil’s long term outlook, the most optimistic of which sees global demand slowing after 2025.

“And then we’re gonna have to fight for market share, against the Saudis and against the Russians and against the Americans and everybody else,” he said. “It’s going to be a much tougher world in which to compete.”

Complicating things is Alberta’s evergreen problem: a lack of pipeline capacity. Along with the Trans Mountain expansion and Line 3, Keystone was one of three projects that Alberta has been betting on to buoy its budget over the past year.

But not all pipelines are created equal.

Keystone would mean more access to the U.S., Hodgson says, but the province would still be in the unfortunate position of having only one customer to whom it can peddle its wares. Unlike the Trans Mountain Expansion — which remains mired in challenges of its own — completing Keystone doesn’t allow for selling Alberta oil on the world market, hopefully for better prices.

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But Kenney is still willing to pay for access to the American market. He has pledged a total of $7.5 billion to TC Energy with the expectation that once the pipeline is complete, it will pump 830,000 barrels of oil per day down to refineries on the Gulf Coast of the U.S. by 2023.

Some of that money should be paid back though. The province is putting $1.5 billion into the project this year, and the remaining $6 billion is committed as a loan guarantee in 2021. The province said it expects to make a profit after selling its shares and also said the project would generate 15,000 direct and indirect jobs.

The province also says government coffers will get $30 billion over the years from tax revenue and oil royalties. The Star reached out to the Energy Ministry to ask what oil prices were used to back up that estimate, but didn’t receive a response.

If anything is certain at this point, it’s that the situation is far from certain.

In last month’s provincial budget, the United Conservatives hoped for $58 barrels of oil, and said that analysts believed that, like SARS, the impacts of coronavirus weren’t likely to last long. But this week, the price of West Texas Intermediate, a commonly used benchmark, plunged to near $20, and the ripple effects of coronavirus are proving to be anything but short term.

In its attempt to get government finances under control, Alberta has begun cutting education funding — prompting thousands of layoffs — and going ahead with changes to doctor pay that have left many fuming, especially in the middle of a pandemic.

While an investment in the Alberta energy industry is “central” to boosting the Canadian economy, and would help Alberta pump money into alternative energy sources in the future, Lori Williams, a policy studies professor at Mount Royal University, says the big money for pipelines has been tough to justify as people lose their jobs.

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It comes across as a “contradiction,” Williams said, to see an investment in oil-industry jobs on one hand, and the cutting of jobs and resources in the public sector on the other.

“Many people are keenly aware of medical staff on the front lines risking their health and indeed their lives to try to manage this pandemic,” she said, adding that the government’s refusal to concede on pay has been particularly confusing to some.

Ian Hussey, the research manager at the University of Alberta’s Parkland Institute, also wonders how many workers will actually benefit long term from the investment. After the last oil crash, the big players in Alberta’s energy industry also took stock and started making moves to be leaner and more efficient, he said.

The Canadian oil and gas industry shed more than 50,000 jobs between 2014 and 2019, he said, adding the industry has actually become more efficient, and the average worker last year produced 72 per cent more than they did in 2011.

The reason, Hussey said, is that more things are automated, companies are leaner and the industry is also entering a mature phase, which means fewer people are needed to build new facilities.

As a result, he questions why the province is investing in big companies when that money is trickling down to fewer Albertans. “Premier Kenney said they are securing Alberta’s future with this investment. I think they’re investing in the past.”

Hodgson, of the C.D. Howe Institute, says that while oil demand will continue, a shock like this might inspire the industry, and the province, to think a little differently about energy and diversification in future.

“If you keep betting on the same horse and that horse doesn’t win, then this challenge will just come back.”



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