The boom and bust of Sask. oil

There are worse things for provincial economies than being a slave to the ups and downs of oil.

But as the recent stock market swoon has shown, it isn't always the greatest thing, either.

Of course, we in Saskatchewan should count our blessings when it comes to our relatively new oil wealth. Our history tells us that having it is a lot better than not having it.

It was the discovery of oil in the late 1940s that pretty much defined the difference between Saskatchewan and Alberta. Prior to the discovery, Alberta was really no better off than Saskatchewan which, at the time, was finally recovering from the ravages of the Great Depression in the post-Second World War era.

From that gusher at Leduc grew economic prosperity for Alberta and a lot of political reality and legend. Notwithstanding what some old timers will tell you about CCF Premier Tommy Douglas driving the oil companies out of the province, critical to Alberta's successful development was the availability of easily accessible light, sweet crude oil.

There was simply more easily accessible oil within range of the Rocky Mountains foothills than there was under the bald, flat prairie of this province. Calgary became the logical place for the head office jobs in the oil sector, while Edmonton's refineries made it the secondary oil capital. As nice as it was to have all the royalty revenues from oil, it was the executive and processing jobs that drove Alberta's boom for decades.

Moreover, while many will argue that left-wing politics and the desire of CCF-NDP governments to intervene either through higher royalties or direct government participation in the oil sector were the reasons that the oil companies stayed away, that abundance of easily accessible Alberta oil slowed exploration of oil anywhere else.

However, the need for more oil and improved techniques in both oil exploration and extraction in the past 20 years have offered newfound opportunity for Saskatchewan. In fact, the discovery of southeast Saskatchewan's Bakken Play that also takes in a large swath of North Dakota and even the southwest corner of Manitoba and accompanying horizontal drilling techniques has now put Saskatchewan close to par with Alberta when it comes to drilling for conventional oil.

With oil prices doubling in the past five years, Saskatchewan is finally capitalizing on its resource wealth. It's been a wondrous opportunity for this province, although - as the markets recently taught us - it's by no means perfect scenario.

What the recent crash in the U.S. and Canadian stock markets has reminded us is that our economy is dangerously vulnerable to the unpredictability of commodity prices.

The March provincial budget pegged oil prices at a reasonable $93 US a barrel and was later revised to $100 US a barrel after the first-quarter update of the 2011-12 budget in July. Spending decisions have been built around these assumptions. But while such projections were accurate for the first three months the rapid decline in oil prices - including nearly a $6 a barrel drop when the stock market fell over 400 points in a single day last week - oil now hovers around $80 a barrel.

Of course, $80 a barrel is hardly a tragedy - especially in the context of oil being around $50 a barrel four years ago. But all this instability does make it hard for provincial governments to budget. And it's especially hard for Saskatchewan Finance when this province doesn't have the cushion of Alberta's head office and refinery jobs.
Admittedly, eight other provinces would dearly love to have Saskatchewan's oil problem right now and we should remain thankful for our blessings.

But dependence on oil does tie us to its boom and bust cycle. And we may now have to consider the consequences of a bust.

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