[newflyer]

As the prices of oil decline Calgary's lack of diversity is once again coming to light. Of course we could all hope that a "summit" could magically keep oil prices up in a declining world economy, but that likely not going to occur.


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Sat, October 25, 2008

Expert says oil summit vital
UPDATED: 2008-10-25 03:00:38 MST


Calgary energy analyst insists stabilizing global prices must be top priority

By MARKUS ERMISCH, SUN MEDIA



An international conference stabilizing world oil prices is "essential" and will ultimately help Alberta's oilpatch, whose fortunes determine the economic health of Calgary, says a prominent University of Calgary professor.

Philip Verleger, a renowned energy expert teaching at the Haskayne School of Business, said he supports an international conference, scheduled for next month in Washington, to revamp the global financial system.

The conference, he said, should focus on trying to stabilize world energy prices in the face of the continuing collapse of oil prices.

Oil prices have plunged from heights above $147 a barrel and settled at $64.15 yesterday, despite an announcement OPEC would cut output by 1.5-million barrels a day.

Multibillion-dollar oilsands projects, two of which have announced real or potential scale-backs this week, would benefit from a price stabilization, the economist said.


"The goal has to be to stabilize cash flows to these high-cost projects that are going to produce (in the) oilsands and other kinds of energy, and stabilize the cash flows to the people who want to develop shale oil down here in Colorado," Verleger said from Colorado, where he is preparing his move to Calgary.

Suncor Energy announced Thursday it is cutting spending next year and delaying completion of the $21-billion Voyageur project. The Fort Hills partnership is contemplating a similar delay for its $24-billion oilsands project.

And as the oilpatch goes, so goes Calgary.

"The boom-and-bust cycle in Calgary is one of the worst in North America," Verleger said, agreeing the city's dependence on the energy sector makes it similar to a monoculture.

Alberta's distribution of Calgary downtown office space among industries is one indicator of that lack of diversification: Nearly 30 million sq. ft. out of a total 33 million sq. ft. of downtown office space is occupied by the oil and gas sector or related industries, says data from CB Richard Ellis Alberta Ltd.

Stabilizing oil prices, which would spur development of unconventional sources of oil, such as Alberta oilsands or shale oil, will benefit energy security of North America and Europe, Verleger said.

[newflyer]

How can Calgary diversify its economy??

I think much too much time has been wasted talking about diversity and little has been done .. and thats a shame because during the "booming" years the city and province could have been investing in building other industries.

Retail, contruction and finance are all much too dependant on the oil sector in this town... and there employees.

[Wooster]

Duh, yeah.

There needs to be a couple of efforts in diversification. One, within the energy sector, leverage the enormous resources of oil and gas companies into a wide array of energy types. Companies like BP do a lot of talking about this, but how much of their business is actually non-oil and gas.

The other side is attracting other industries altogether. Education, research, finance, transport, high technology and others.

[Kevin_foster]

divdersify?

[Coldrsx]

however, Calgary does not need to diversify into more threads... this should be in them main one.

[MalcolmTucker]

It is rather hard to diversify when your cost base is so high, if you push it too far you end up having huge subsidies and non-economic businesses take root.

Calgary is in a pretty good situation I think, it isn't like everyone is in oil and gas, or that as oil prices fall people are fired in head office. where the hit comes is drilling activity, and all those hotels in a box that have went up in tiny towns all over Alberta in the past 10 years.

Lots of engineering work doesn't stop during a downturn, unless an entire project is canceled. The projects being canceled have not gone beyond preliminary design stage, and the ones going forward need continued engineering support. In the 1990s, firms in Calgary with little oil work helped design and manage the construction of the confederation Bridge, designed one of the largest manufacturing plants in the world to be put up just outside of Red Deer.

The skill sets our companies have in Alberta are not solely suited to bringing oil out of the ground, that is just the most profitable thing to do. Just as the 1980s boom collapsed and industrial welders had little work, a group formed a company to manufacture light weight fire trucks out of aluminum, since they had the skill set to do so.

Even at the height of the boom, non-energy companies were building distribution centres in Calgary, due to its strategic location and good infrastructure base. There has to be a reason Wal-Mart put its northern plains distribution centre in calgary, and not in lower cost locations further down the railway/highway. Same with Canadian Tire, and many other smaller businesses.

I think when outsiders look at Calgary, they only see oil. When oil and gas were in the doldrums in the 1990s, Alberta still had the highest GDP per capita in the country. Smart people with lots of education can adapt and do. We aggressively marketed our comparitive advantage and brought head offices in. Nortel once had 1000s of employees in the city (their manufactuing outsourced group still has just under 1000).

I really think we talk ourselves down when we bash how 'diversified' we are not. We adapt and move forward just as anyone else does.

I think also that the cyclical nature of the industry is not well understood from the outside. It isn't depression when prices are down, it just is like the rest of Canada normally is. There aren't mass layoffs like we have seen in financials in the USA and there isn't going to be.

[Rusty van Reddick]

The boom-and-bust cycle in Calgary is one of the worst in North America

Where is the evidence of this? I'm serious. Especially regarding "busts." To my understanding there has been one "bust" in Calgary since most of us has been alive and that was in the early '80s.

[srperrycgy]

Nortel once had 1000s of employees in the city (their manufactuing outsourced group still has just under 1000).


Nortel will disappear in Calgary by June 2009 if not sooner.
As for us at Flex, we are about 400 and rapidly decreasing to half that next year.

[Look way up]

How can Calgary diversify its economy??

I think much too much time has been wasted talking about diversity and little has been done .. and thats a shame because during the "booming" years the city and province could have been investing in building other industries.

Retail, contruction and finance are all much too dependant on the oil sector in this town... and there employees.

Your post would've had much more relevance in 1980 when the city was half the size and over half of the jobs in the city were tied directly or indirectly to O&G. Calgary had a terrible oil bust back then and yes retail, construction, etc took a hard hit, but Calgary still survived. Calgary lost population for 2 years and then started to grow again.
When the downturn hit in the early 80's the government was involved in diversification efforts. One of them was Novatel, there were others as well. Little success came out of those efforts.

The diversification successes that have developed have developed on their own. Companies like Westjet, Shaw, CP Rail, Nortel all have helped diversify the economy. Yes Nortel has fallen hard, but much of their operations in Calgary were sold to other non O&G companies and are still operating. One of the benefits of a boom like this is that it builds infrastructure indirectly. A skilled labour force and plenty of good office space and infrastructure.

We can all agree, Calgary would take some kind of hit if the oil industry went belly up, but its economy would diversify naturally.The hit would also have to be pretty hard. Remember back in 1998? Oil was 10 bucks a barrel and Calgary still grew by 28,000 people.


There are things we should be doing now of course. Improving on things like the Education system and public infrastructure, the culture of the city, etc.. and I believe we are doing that.

[Doug]

Nortel will disappear in Calgary by June 2009 if not sooner.
As for us at Flex, we are about 400 and rapidly decreasing to half that next year.

I got whacked by Nortel in 2001. At one time (around 1998), it was the largest private sector employer in Calgary with over 4,000 employees.

The late 90's were actually amongst Calgary's highest periods of growth, driven mostly by low taxes, affordable real estate and an ambitious workforce. The risk now is that the oil boom has permanently eroded the city's competitive advantages.

[Xelebes]

however, Calgary does not need to diversify into more threads... this should be in them main one.

No, it does not.

[h0twired]

I think when outsiders look at Calgary, they only see oil. When oil and gas were in the doldrums in the 1990s, Alberta still had the highest GDP per capita in the country. Smart people with lots of education can adapt and do.

QFT

:tup:

[S_B_Russell]

I'm sure being 'dynamic' will get Calgary through any downturn in oil prices. Right???

[Bigtime]

I'm sure being 'dynamic' will get Calgary through any downturn in oil prices. Right???

That's what I'm counting on! :cool:

[ST1]

I'm sure being 'dynamic' will get Calgary through any downturn in oil prices. Right???

It did back in 98 when oil was $9.00 a barrel and Calgary was having one of its biggest growth years ever.

[NumberFive]

Smart people who like to (and are good at) making money don't just give up when their business changes... they adapt when the time is appropriate and makes sense economically. But even with a downturn, if oil and gas are still highly economic, then nobody is going to change their business or investments to go away from it.

[wild wild west]

Alberta's distribution of Calgary downtown office space among industries is one indicator of that lack of diversification: Nearly 30 million sq. ft. out of a total 33 million sq. ft. of downtown office space is occupied by the oil and gas sector or related industries, says data from CB Richard Ellis Alberta Ltd.



I'm calling BS on that statistic. You can't tell me that the Western HQs of the major Canadian banks, as well as various foreign banks with offices in Calgary, the Headquarters of CP Rail, Shaw, all the law, accounting, IT, architecture and engineering firms and all other non-O&G industry employment in the downtown core occupies a measly 3 million square feet? No effing way.

[0773|=\]

I'm calling BS on that statistic. You can't tell me that the Western HQs of the major Canadian banks, as well as various foreign banks with offices in Calgary, the Headquarters of CP Rail, Shaw, all the law, accounting, IT, architecture and engineering firms and all other non-O&G industry employment in the downtown core occupies a measly 3 million square feet? No effing way.

hmmm... 3 million square feet? That's about 60% of WEM's total area... may be a little more space than you think.

[wild wild west]

CP Rail alone occupies 1 million SF in Gulf Canada Square. 3 million SF is a fraction of what much smaller cities such as Halifax and Winnipeg have - even though Calgary is the financial centre for Western Canada. Then there are all the other downtown tenants such as law and accounting firms, business services etc...Bankers Hall for example (2 million SF in both towers) is mostly banking, financial and business services. Again, the numbers just don't add up.

[240glt]

^ One could argue that Calgary wouldn't be the western Canadian banking centre if it wasn't for the O & G industry.

A few exceptions asside (Like CP, which incidentally is tied to the resource industries as well) it's fair to say that the vast majority of Calgary's DT offices are either directly or indirectly linked to O & G. Having been in most of those office towers at some point in the last 7 years, it's pretty obvious who the tenants are and why they're there.

[mersar]

Yep. Plus whatever the amount of FCC that BMO takes up, and Scotiabank in Scotia Centre, both combined are probably close to another million square feet.

[drew]

^ One could argue that Calgary wouldn't be the western Canadian banking centre if it wasn't for the O & G industry.


Exactly. Most of the major western regional bank offices were in Winnipeg for much of the 1900's before they moved to Calgary. I am sure that if market conditions dictated it, they might decide to move again, or consolidate offices elsewhere.

Certainly banks should never be considered anything but "fair weather" businesses...

Winnipeg already learned that lesson.

[Surrealplaces]

CP Rail alone occupies 1 million SF in Gulf Canada Square. 3 million SF is a fraction of what much smaller cities such as Halifax and Winnipeg have - even though Calgary is the financial centre for Western Canada. Then there are all the other downtown tenants such as law and accounting firms, business services etc...Bankers Hall for example (2 million SF in both towers) is mostly banking, financial and business services. Again, the numbers just don't add up.

I tend to agree. The numbers could be off. You've got insurance companies in there as well. Standard Life, Sun Life, Sovereign, etc... that have large amounts of space. The banks are pretty much here because of O&G.

There's no doubt that Calgary's downtown office space is dominated by O&G at them moment, but all of this building, will help diversify Calgary in the future.

-For example look at companies like Shaw. They got a sweet deal on their building when the bought it from Shell at a time when vacancy rates were high.

-Take CP, one of the benefits of Calgary that helped sway CP to move was the fact that they could get 1 Million sq ft of office space in one building.

-Calgary's infrastructure from a telecom perspective is the best in western Canada. Much of that is a result of the O&G industry, but it will help in diversification.

[wild wild west]

^ One could argue that Calgary wouldn't be the western Canadian banking centre if it wasn't for the O & G industry.

A few exceptions asside (Like CP, which incidentally is tied to the resource industries as well) it's fair to say that the vast majority of Calgary's DT offices are either directly or indirectly linked to O & G. Having been in most of those office towers at some point in the last 7 years, it's pretty obvious who the tenants are and why they're there.

CP and banks are not directly tied to O & G. They may be here partially because of O & G, or do much business with O & G companies, however they are still not part of that industry. Just look at the logos on many of those downtown towers - BMO, Scotiabank, TD, Sun Life, Standard Life, HP, Bell, Telus...

Not denying that most of our DT office space is O & G - of course it is. Just saying that the 30 out of 33 million figure is off - probably way off. I would bet more like 20 - 25 million.

[240glt]

^ I agree that is plausable.

But there's no doubt the banks are tied to O & G. CP is insofar as it does lots of business with mining and other resource industries.

[MichaelS]

I'm calling BS on that statistic. You can't tell me that the Western HQs of the major Canadian banks, as well as various foreign banks with offices in Calgary, the Headquarters of CP Rail, Shaw, all the law, accounting, IT, architecture and engineering firms and all other non-O&G industry employment in the downtown core occupies a measly 3 million square feet? No effing way.

Don't forget the City itself. I am assuming the Municipal Building is counted in office space totals. Plus, they hold space in a few other buildings down town as well (Palliser Square 1, Public Building, etc.).

[wild wild west]

Don't forget the City itself. I am assuming the Municipal Building is counted in office space totals. Plus, they hold space in a few other buildings down town as well (Palliser Square 1, Public Building, etc.).

Absolutely. There is quite a bit of public sector space (which probably isn't included in the totals) such as the Municipal Bldg, Harry hayes and of course the new Courthouse...probably good for at least a couple million SF (1 million in the Courthouse alone). And The City leases space in surrounding buildings such as Rocky Mountain Plaza as well.

[freeweed]

Even at the height of the boom, non-energy companies were building distribution centres in Calgary, due to its strategic location and good infrastructure base. There has to be a reason Wal-Mart put its northern plains distribution centre in calgary, and not in lower cost locations further down the railway/highway. Same with Canadian Tire, and many other smaller businesses.

I think when outsiders look at Calgary, they only see oil. When oil and gas were in the doldrums in the 1990s, Alberta still had the highest GDP per capita in the country.

I think also that the cyclical nature of the industry is not well understood from the outside. It isn't depression when prices are down, it just is like the rest of Canada normally is. There aren't mass layoffs like we have seen in financials in the USA and there isn't going to be.

3 comments that sum up the inanity of this thread, and the stupidity of all these chicken littles who seem to think that Calgary is about to become a ghost town.

Calgary's year-over-year population went down once. Singular. Uno. I've been in far more diversified cities that did it for 15 years straight. "The worst economic bust" happens and the city barely blinks.

[Spring2008]

If the government ever stopped being so anal and started allowing more foreign banks to enter Canada and compete, I just have this hunch that they may look to Calgary to set up their foreign subsidiary. Bring on a new Citibank and Bank of America tower.:slob: Of course the probability of this happening now especially with the big American banks struggling just to stay solvent is nearly 0, but you never know sometime in the future perhaps.:shrug:

[freeweed]

Hmm... I have to admit, considering just where things are in the finance world right now, I'm pretty damned pleased at how the federal government regulates our banking industry.

You do NOT want US or UK (to pick examples of folks I've been talking with recently) banks in Canada. While we in Calgary are all worried that oil might dip a bit more and fewer Lexuses will be sold in 2009, Americans and Brits are actively planning for unemployment by the millions. It's a whole different world out there right now.

A swanky supertall isn't much concession if it means opening up our financial system to the shit that was October 2008.

[Doug]

Diversification only reduces volatility it does not inherently promote growth. A relatively stagnant city can have a very diversified economy (ex. Winnipeg), but still grow far less quickly than one more exposed to business cycles. A more important quality than diversification is agility - i.e. the ability to constantly change direction in order to seize opportunities. Calgary with a young, ambitious and highly trained white collar workforce is well positioned, especially given that much of its economy consists of small business and the self employed. Cities that rely on blue collar industries, government and large business may be more stable economically, but also more lethargic. Besides, boom and bust is far more exciting than boring steady as you go.

[wild wild west]

Diversification only reduces volatility it does not inherently promote growth. A relatively stagnant city can have a very diversified economy (ex. Winnipeg), but still grow far less quickly than one more exposed to business cycles. A more important quality than diversification is agility - i.e. the ability to constantly change direction in order to seize opportunities. Calgary with a young, ambitious and highly trained white collar workforce is well positioned, especially given that much of its economy consists of small business and the self employed. Cities that rely on blue collar industries, government and large business may be more stable economically, but also more lethargic. Besides, boom and bust is far more exciting than boring steady as you go.

Excellent points. The high level of educational attainment in particular bodes well for Calgary's ability to ride out economic turbulence. The large number of engineers, MBA's etc. provides a skilled workforce with a lot of expertise that can apply to fields other than oil and gas.

And it is certainly true that there really isn't much correlation between economic diversification and growth. If I recall correctly, Canada's 3 most economically diversified big cities are (in whatever order) Edmonton, Winnipeg and Montreal. Of those, only Edmonton is what I would consider to be a fast-growing city.

[WhipperSnapper]

I just have this hunch that they may look to Calgary to set up their foreign subsidiary. Bring on a new Citibank and Bank of America tower.

and move their Canadian operations from Toronto? I guess anything is possible but, I certianly wouldn't be betting on that hunch.

[ScottFromCalgary]

If the government ever stopped being so anal and started allowing more foreign banks to enter Canada and compete, I just have this hunch that they may look to Calgary to set up their foreign subsidiary. Bring on a new Citibank and Bank of America tower.:slob: Of course the probability of this happening now especially with the big American banks struggling just to stay solvent is nearly 0, but you never know sometime in the future perhaps.:shrug:

Morgan Stanley, Goldman Sachs, and Merrill Lynch (now part of Bank of America) already have some investment banking operations in Calgary. Lehman did as well but we all know how that ended. Obviously the retail and commercial banking side that would bring in a lot of employees is not here.

[newflyer]

Morgan Stanley, Goldman Sachs, and Merrill Lynch (now part of Bank of America) already have some investment banking operations in Calgary. Lehman did as well but we all know how that ended. Obviously the retail and commercial banking side that would bring in a lot of employees is not here.

If you talk to people on the Investment Banking side, the overwelming majority of there business interests were tied to the oil sands projects. Multi-billion dollar finance projects are very profitable for them.

If these major oil projects don't gop forward I'd expect many of the Investment Banking offices to reconsider operations. OR to state it another way .. they are here for the $130 oil... not $65 oil.

[freeweed]

If these major oil projects don't gop forward I'd expect many of the Investment Banking offices to reconsider operations. OR to state it another way .. they are here for the $130 oil... not $65 oil.

They only moved up here with incredibly short notice, for a short several month period?

Man, you'd think oil was over $100 for YEARS the way people talk (and act) lately - not the seven months that it was in reality. Shit, oil was below $130 just 2 months after it first reached that level.

But, I guess this is what you get when a bunch of 23 year olds who can't follow history past last night's Idol are running a bunch of the financial world (I only wish I was joking).

[h0twired]

If you talk to people on the Investment Banking side, the overwelming majority of there business interests were tied to the oil sands projects. Multi-billion dollar finance projects are very profitable for them.

If these major oil projects don't gop forward I'd expect many of the Investment Banking offices to reconsider operations. OR to state it another way .. they are here for the $130 oil... not $65 oil.

Morgan Stanley, Citibank, Lehman, Credit Suisse and others all moved into Calgary around early 2005 when oil was around the $50-60 mark.

I was personally involved in helping them set setup to start trading Natural Gas at the time and know many commodities traders that left their jobs at more traditional trading floors to start trading for these investment banks.

The comment about them only being here for $130 oil is VERY incorrect.

[Arriviste]

But, I guess this is what you get when a bunch of 23 year olds who can't follow history past last night's Idol are running a bunch of the financial world (I only wish I was joking).

Because age alone dictates ones ability to asses the past, and operate in the present.
Ignorant comment....

[freeweed]

Because age alone dictates ones ability to asses the past, and operate in the present.
Ignorant comment....

It's only ignorant when it's not true.

Of course, intentional hyperbole and sarcasm is usually lost on most people anyway.

[newflyer]

They only moved up here with incredibly short notice, for a short several month period?

Man, you'd think oil was over $100 for YEARS the way people talk (and act) lately - not the seven months that it was in reality. Shit, oil was below $130 just 2 months after it first reached that level.

But, I guess this is what you get when a bunch of 23 year olds who can't follow history past last night's Idol are running a bunch of the financial world (I only wish I was joking).

As I work in the industry .. I can assure you there has been significant expansion of Investment Banking in the city in the last 3 years. Thats not to say it didnd't exsist before 2005, but it has grown a great deal since.

I guess you are among the 23 yr old who can't follow history... even if it is very rescent.

This is not to say that everyone will be closing shop... but they will be looking to trim if major business financing is no longer required.... or even availiable for that matter.

[newflyer]

Morgan Stanley, Citibank, Lehman, Credit Suisse and others all moved into Calgary around early 2005 when oil was around the $50-60 mark.

I was personally involved in helping them set setup to start trading Natural Gas at the time and know many commodities traders that left their jobs at more traditional trading floors to start trading for these investment banks.

The comment about them only being here for $130 oil is VERY incorrect.


First of all I won't discuss the tiny satallite forign offices.. but take it from me that for the overwelming majority of major corportae finanacing in this city is handled by the major Canadian major banks.

In terms of this discussion of diversity .. Calgary Financal Banking industry is closely linked the oil.

[freeweed]

As I work in the industry .. I can assure you there has been significant expansion of Investment Banking in the city in the last 3 years. Thats not to say it didnd't exsist before 2005, but it has grown a great deal since.

I guess you are among the 23 yr old who can't follow history... even if it is very rescent.

This is not to say that everyone will be closing shop... but they will be looking to trim if major business financing is no longer required.... or even availiable for that matter.

Of course (what HASN'T expanded significantly here in the past 3 years), but 2 years ago people weren't setting up shop on the expectation of $130 oil. At least not anyone with any sense of history - or common sense.

Note that for most of the past 3 years, oil was around $60-70/bbl - exactly where it is today. So everyone coming here because oil hit new highs of $60-70, but now they're all going to pack up because oil is back down to the value that they moved here in the first place? I don't buy it.

I think there's a lot more going on beyond "everyone came here for $130 oil". Unless everyone in the financial industry is a lunatic who honestly believed oil prices could never drop.

[h0twired]

As I work in the industry .. I can assure you there has been significant expansion of Investment Banking in the city in the last 3 years. Thats not to say it didnd't exsist before 2005, but it has grown a great deal since.

I guess you are among the 23 yr old who can't follow history... even if it is very rescent.

This is not to say that everyone will be closing shop... but they will be looking to trim if major business financing is no longer required.... or even availiable for that matter.

I have been working in the Natural Gas marketing field in Calgary since 2000.

Sure things have ramped up over the past 3-4 years. However the investment banks won't be closing up shop because of low oil and gas prices. They will hang around because they know the key to making money is liquidity and volatility. Not high prices.