Varcoe: Energy propels Calgary to lead nation in economic growth

“Rising oil prices remain great news for this city, whose name is virtually synonymous with mineral fuel”

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Diversification will help protect Calgary against volatility in energy markets, but one thing is still clear in 2022: rising oil and natural gas prices will drive economic growth.

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However, this is not yet fueling a huge windfall of jobs.

Propelled by soaring commodity prices, the Calgary region will lead the nation’s 13 largest cities in economic growth in 2022 and beyond, according to a new forecast from the Conference Board of Canada.

“Rising oil prices remain great news for this city, whose name is virtually synonymous with mineral fuel,” the report released Thursday said.

Energy markets are hot this year, with benchmark US crude prices closing at US$108.26 a barrel on Thursday. US natural gas futures climbed to US$8.78 per million British thermal units, hitting their highest level in 13 years.

Several key parts of the city’s $131 billion economy are moving in the right direction, with increased construction activity and a booming market for homes, while the tech sector is raising record amounts of capital -risk and creates jobs.

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Yet you cannot underestimate the effect of soaring commodity prices on overall economic growth when the primary sector and public services – which include agriculture, mining, oil and gas – make up 29% of the city’s gross domestic product, the board director said. economist Robin Wiebe.

“It’s hard to beat oil prices when it comes to Alberta,” he said.

“Stronger resource markets, led by oil, are key to all of this. That’s the main reason why we think Calgary will do so well.

The local economy was hit hard in 2020 by a collapse in global energy demand and the pandemic. It partially recovered last year as more businesses reopened, jobs returned and oil prices started to rise slightly, ending the year at $75 a barrel.

This year, the city’s GDP will grow by 6.6%, a high in Canada, before growing by 4.7% in 2023, the report said.

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Still, the city’s unemployment rate remains high, standing at 7.7% in March, as some sectors swept up during the pandemic are still struggling.

The study projects that the unemployment rate will average 7.5% this year before slowly dropping to 6.8% by 2026. Still, overall employment in the Calgary area is expected to increase by 37,000 jobs in 2022.

Energy prices have soared with rising demand and the invasion of Ukraine by Russia, the world’s largest oil and gas exporter.

The financial recovery in the oil sector can be seen in a series of exceptional first quarter results that have been released by the city’s largest energy companies in recent weeks.

On Thursday, Canadian Natural Resources, the country’s largest oil producer, posted profits of $3.1 billion for the January-March period.

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Last week, Imperial Oil reported that its net profit jumped to $1.17 billion in the first quarter, while Cenovus Energy’s profits hit $1.6 billion.

While revenues are rising rapidly, additional spending that would fuel new production — and jobs — has been much slower to return as companies focus on maintaining financial discipline and returning money to investors.

Premier Jason Kenney hailed projections showing the city leads the nation in economic growth, attributing “a strong comeback in oil and gas, as well as major diversification,” while acknowledging that a increase in jobs in the oil fields has not followed.

“The truth is that high commodity prices and the return to profitability of our energy companies is great, but it’s not yet generating huge job gains,” he said in an interview.

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“I don’t expect to see massive job growth in Calgary from renewed strength in oil and gas – where I think we’re going to see most of the job growth and recovery in the economy. commercial real estate market through new industries that are really hitting their stride.

Premier Jason Kenney was in Calgary on Thursday, May 5, 2022.
Premier Jason Kenney was in Calgary on Thursday, May 5, 2022. Photo by Jim Wells/Postmedia

Many oil producers are operating with a smaller workforce than in the past due to technology and efficiency gains, while industry consolidation has continued over the past two years.

Alberta Central chief economist Charles St-Arnaud pointed out that the value of oil production in the province hit a new high of $14 billion in March, well above the peak in 2014. Yet , employment in the resource sector (including energy) in the Calgary region fell by 17% over this period.

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Across the province, jobs in support activities for oil and gas extraction are still slightly lower than they were before the pandemic – at just under 42,000 in February, down from 71,000 in 2014, said economist Trevor Tombe of the University of Calgary.

“The biggest effect of the oil price increase is really on corporate profits and the state budget. It hasn’t manifested itself clearly in terms of increased employment,” Tombe said.

Although a huge recovery in employment in the industry is not expected immediately, Kenney believes the effect of higher prices will ripple through the economy with rising wages as Alberta enters a tighter labor market.

Improved prices for oil service companies will also help businesses and workers operating outside the province’s largest city.

“It would be incredibly wrong to cancel energy. It’s our biggest, it’s the biggest industry in Canada,” Mr Kenney added.

“A rising tide lifts all boats, and a profitable oil and gas sector will be largely reflected in the economy. But as I said, I don’t think we’re going to see massive new jobs coming out of oil and gas. short term.

“I think if this commodity price boom continues, there will inevitably be more investment in exploration and production.”

Chris Varcoe is a columnist for the Calgary Herald.

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