How Alberta's economy has changed, in spite of sky-high oil prices

To take the temperature of the local economy, Lloydminster Mayor Gerald Aalbers only needs to look out the window.

From his office at City Hall, Aalbers — who, because Lloydminster straddles the Alberta-Saskatchewan boundary, has the unique distinction of serving residents in two provinces — has a direct line of sight to Highway 16. The highway is a major east-west corridor frequented by heavy-haul trucks and half-tons on their way to the oilfields that dot the surrounding region.

But in spite of 2022's sharp uptick in crude prices (hitting as high as US$120 per barrel earlier this year before declining to the mid-$80 range this fall), and even as Canadian oil companies boast record revenues and all-time high production levels, the volume of traffic along the highway has only moderately increased, Aalbers said.

"We're seeing traffic pick up earlier in the morning and a little more traffic throughout the city," Aalbers said.

"That's good, because it means wells are being drilled. It reflects some general optimism in the industry," he added. "So I think we're hitting some speed, but we're not accelerating yet by any means."

"Not accelerating yet" may be the perfect way to describe the odd economic reality Canada's oil country finds itself in in 2022.

While the industry itself is faring better than it has in almost a decade, with energy prices higher than they've been in many years, experts say any kind of resulting economic explosion for the surrounding region has been conspicuously absent.

"If I would have told you two years ago that oil revenues in Alberta would be reaching record highs … you would have expected that Calgary and Edmonton would be booming, and the rest of the province too. And it's not happening," said Charles St-Arnaud, chief economist for Alberta Central, the central banking facility for the province's credit unions.

In 2014, for example, the last time oil prices boomed, many communities in Alberta and to a lesser extent Saskatchewan felt like gold rush towns. Hotel rooms were booked solid, local bars buzzed with oilfield workers flush with cash and swagger, and people from all across the country streamed west in search of jobs.

But St-Arnaud, who recently published a report titled "Where's the Boom?" said many things are different this time around.

The industry itself is doing very well — total oil production in Alberta hit an all-time record in the first half of 2022, averaging 3.6 million barrels per day.

And thanks to sky-high commodity prices, the total value of the province's oil production between August 2021 and August 2022 was a whopping $140 billion, 75 per cent higher than the same period in 2014. In the first six months of this year, Canada's four biggest oilsands producers alone reported more than $21 billion in profits, more than three times their profits in the same period last year.

But after almost a decade of depressed oil prices, producers have been under pressure in 2022 to use their extraordinary profits to pay down debt and focus on returns to shareholders rather than investing in their operations.

In 2022, oil producers reinvested only about seven per cent of revenues into their operations, compared to 25 per cent in 2014, St-Arnaud said. The nature of those investments has also changed, as companies forego capital-intensive projects aimed at boosting production in favour of smaller projects intended to improve efficiencies or lower greenhouse gas emissions.