Economic indicators that show signs of how Alberta's economy is performing.
Download: Third quarter fiscal update and economic statement - February 28, 2018
Alberta’s economy saw a broad-based resurgence in 2017, following a deep recession. Improving oil prices, growing exports and a strong rebound in consumer spending helped pull up Alberta’s economy (Figure 1). The provincial GDP is estimated to have grown by 4.5% in 2017.
Following the surge in 2017, GDP growth is expected to moderate to 2.8% in 2018, up from the 2.2% growth forecast in Budget 2017. Population growth, solid employment gains and higher earnings are expected to support residential investment and consumption this year, while continued growth in oil production and manufacturing will boost economic activity (Figure 2).
Economic indicators as of 2017-18 third quarter
Benchmark oil prices moving up
The global oil market is rebalancing primarily on the strength of solid global demand, global oil inventory declines and reaffirmation of OPEC supply commitments. West Texas Intermediate (WTI) prices rose above US$60/bbl for the first time in two and a half years in early 2018.
Oil sector expanding
Alberta’s oil sector saw a resurgence in 2017. Conventional investment increased almost 60% as prices rose. This outweighed declining non-conventional investment, as oil sands producers focused on containing costs and wrapping up construction on several large projects.
Total oil production peaked at a record 3.5 million barrels per day (bpd) in December. Another 300,000 bpd of crude is forecast to come online as oil sands projects continue to ramp up. This is expected to help real exports grow by more than 5% in 2018, following an estimated 6% increase in 2017.
Manufacturing is playing a significant role in Alberta’s recovery, benefiting from the oil recovery and a global economic upswing in 2017. Total real manufacturing exports are estimated to have risen by more than 7% over the year, and should remain strong in 2018 at 3.8%.
Business investment lagging
Investment outside the conventional energy sector, particularly in commercial construction, is lagging behind the rest of the recovery. The lingering effects of elevated commercial real estate vacancies and the pullback in oil sands investment continue to push down total business investment.
The manufacturing sector is expected to provide support in 2018, as construction ramps up on two petrochemical facilities and Cavendish works towards a 2019 completion of its potato processing facility in Lethbridge. However, total real business investment is forecast to edge down by 1.9% this year, following an increase of nearly 1% in 2017.
Labour market renewal
Alberta employment picked up momentum in the second half of 2017. The number of people working in Alberta reached 2.3 million in December, marking a full recovery of the jobs lost during the recession. Employment rose by 1% in 2017 as gains in full-time employment (+1.3%) more than offset part-time declines (-0.1%). Labour market growth is expected to continue in 2018, as private sector gains seen since mid-2017 are extended (Figure 3). Employment is forecast to rise by 2% in 2018, pushing the unemployment rate down to 6.8%.
Population growth picking up
Alberta’s population grew by 1.2% in 2017. The third quarter brought net interprovincial inflows for the first time in two years, as economic conditions and labour prospects continued to improve. These inflows, along with sizable immigration and natural increase, is expected to push population growth up to 1.4% in 2018.
Consumer spending rising
Employment and wage gains encouraged Albertans to open their wallets in 2017. Retail sales surged, as spending at both motor vehicle and parts dealers and electronics and appliance stores rose at the fastest rate since 2006. Overall, real consumption rose an estimated 3.1%.
Housing starts climbed by 20% to 29,500, which included a record 1,625 starts in Wood Buffalo. Continued labour market strengthening is forecast to keep consumer spending strong at nearly 3% in 2018.
Updated economic and energy price assumptions
9 Month Actual
|WTI Oil Price (US$/Barrel)||47.93||50.63||55.00||54.00|
|Light Heavy Differential (US$/Barrel)||13.93||11.11||16.00||14.50|
|Natural Gas (Alberta Reference Price Cdn$/GJ)||2.01||1.87||2.90||1.90|
|Exchange Rate (US cents/Cdn$)||76.2||77.6||76.0||78.0|
|Economic Growth (% change in Real GDP)||-3.7||4.5||2.8|
|Employment (% change)||-1.6||1.0 (a)||2.0|
|Unemployment Rate (%)||8.1||7.8 (a)||6.8|
Pipeline bottlenecks hit Canadian oil producers
The Alberta economy is on its strongest footing since 2014. However, just as the effects of the oil price collapse have started to fade, the challenges of market access have moved to the fore. Alberta heavy oil prices are once again trading at a large discount to global benchmarks—this difference in price is known as the oil price differential.
The problem became acute towards the end of 2017 as temporary reductions in pipeline capacity, continued oilsands production growth and the inability of rail to fill the gap led to a dramatic widening of the differential.
Pipelines at capacity
The need for more market access has been evident for the last several years. Increased use of rail and optimization of the existing pipeline network helped to control the differential for a while, but the rise in oilsands production is once again bumping up against capacity constraints (Figure 4).
Outage reveals vulnerability
In addition to higher transportation costs, recent pipeline outages have shown that without enough capacity to provide a buffer, unplanned outages will increase market volatility and depress prices.
The Keystone pipeline transports heavy crude from Hardisty Alberta to refining markets in the U.S. Midwest and Gulf Coast. On November 17, 2017, the pipeline was shut down for two weeks and continues to operate at reduced pressure.
With the Enbridge Mainline system full, inventories began to pile up in Alberta and shippers scrambled to find alternate means of transport. Rail was not nimble enough to fill the gap, so the differential increased from an average of US$14/bbl in November to around US$28/bbl more recently.
This has prevented Alberta from realizing the potential gains from the recent rise in global oil prices (Figure 5). Alberta heavy oil producers are currently foregoing an estimated $30-$40 million per day in revenue as a result. The wider differential has also subtracted an estimated $500 million from bitumen royalties in 2017-18 compared with Second Quarter.
Lucrative markets to access
Increased market access allows for low-cost transportation to markets where heavy oil is selling at the highest prices. At many places around North America, heavy crude oil pricing is favorable. Figure 6 shows the prices Alberta producers could have received with market access. The TransMountain expansion would allow Alberta to sell into the Pacific market, where heavy oil sold for US$65/bbl in January, compared to US$43/bbl in Alberta. Keystone XL would increase access to the Gulf Coast, where heavy oil was selling recently for US$59/bbl.
Benefits of market access
Based on analysis done for Budget 2017, gaining market access would reduce market volatility and allow Alberta producers to earn up to US$7 more per barrel on average. Higher expected revenues and more certainty about transportation infrastructure would help promote investment, with an estimated $10 billion more in capital spending added between 2018-22. Over that same span, higher production and prices could boost royalty payments by up to $9 billion.
The rest of Canada also benefits
The benefits to market access do not stop at the Alberta border. The province’s oil and gas industry has deep ties to the rest of Canada. This was on display in 2017 when Canada led advanced economies in real GDP growth, thanks in part to the rebound in Alberta’s economy.
Energy exports account for 20% of Canada’s goods exports, the bulk of which come from Alberta. In addition, Alberta is the destination for almost one-third of Canada’s non-residential investment and $75 billion annually in goods and services from other provinces—second only to Ontario. Saskatchewan and BC depend on Alberta to develop their own oil and gas sector and, in turn, Western Canadian production is a key input into Eastern Canadian petroleum manufacturing.
Many out of province residents earn a living in Alberta. As of 2014 – the last year estimates are available for – 157,000 residents of other provinces worked in Alberta, earning a combined income of over $8.0 billion. The oil and gas industry creates fiscal benefits for the federal government. In 2016, Alberta paid $21.8 billion more in taxes to the federal government than it received in federal spending. Alberta accounts for 17% of federal tax revenues despite having just 11% of the population.
For more information, read the Economic Outlook section of the 2017-18 Third Quarter Fiscal Update and Economic Statement.