Calgary needs to diversify

[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]

Originally Posted by kyle_olsen

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]

Originally Posted by 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.

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]

Originally Posted by srperrycgy

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]

Originally Posted by Coldrsx

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

No, it does not.

[h0twired]

Originally Posted by kyle_olsen

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

[S_B_Russell]

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

[Bigtime]

Originally Posted by S_B_Russell

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

That's what I'm counting on!

[ST1]

Originally Posted by S_B_Russell

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|=\]

Originally Posted by wild wild west

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.