All Good Things Must End

Talking to locals around here, you'd get the feeling this "boom" will last forever. People fret about house prices going up and up and away, well beyond their reach. They fret about inflation, etc, etc. Then some of them whine they wish the boom would end.

Taken from the Calgary Herald:

For oil-rich Albertans in the midst of an economic boom, this week's budget presented the sobering prospect that falling resource revenues could put an end to the province's free-spending ways.

According to budget projections, oil and natural gas revenues are expected to be nearly cut in half within two years, dropping to $7.8 billion in 2009-10 after peaking at $14.35 billion in 2005-06.

The $6.5-billion drop in petrodollars has prompted questions about whether Alberta has hit its budget peak, with fewer resources available for the future.

So some of these types that wish the boom would end. Well, you might get your wish. When the government says it will be getting lower revenues, that also means the businesses that pay them will have lower profits. Lower profits translate into lower salaries. And if not lower salaries, it translates into layoffs. So here comes the end of the 350K 1 bedroom condo in Calgary. This place is so overheated, it's a nuke waiting to explode.


"David Taras, a political analyst at the University of Calgary, said Stelmach -- like his predecessor Ralph Klein -- has no vision for managing the province's enormous wealth."

......

People out here seem to lack the economic sense to understand one thing. Higher oil costs do not always mean higher profits. There is no magical secrets, it's just simple old business. Return on Investment. When it costs 10 bucks to suck a barrel of oil out of the ground, selling it for 60 bucks pulls in alot of money. But when you dig it out of the tar sands, the energy input is huge. That same barrel of heavy oil now costs 30 bucks to extract. And if the price of oil hits 100 bucks? You're still not safe, because the cost of extraction increases with the cost of oil. The tar sands are incredibly energy intensive. If you've ever wondered why Kyoto is not the friend of Alberta, now you know why......

The only saviour might be that 2/3's of the provincial revenue comes from Natural Gas. The price has plunged over the past 3 years on the commodity exchange. We've also had much warmer winters than normal & I doubt that's going away. Ironic eh, Global Warming may very well lay an ass kicking to the very industry that is so heavily responsible for it. On the other side of things, there is only so much natural gas....and it's bound to increase in price.

So......for all you types that cry & whine about the boom, careful what you wish for. You just might get it. Because if an profit recession hits the oil & gas industry, it'll be the nuke that takes this place offline. And no one will understand how it's happening when oil prices are still at record levels.

All good things must end.