History Repeats Itself: The Rise and Fall of the Alberta Oil and Gas Industry
As a former long-time Calgarian with family members working in the oil and gas industry, I’m still interested in reading the current news reports about the economic struggles in Alberta.
With the falling price of oil and massive job cuts, it is the toughest financial situation that province has seen in decades – the 1980’s to be exact.
It’s déjà-vu all over again
My husband and I got married in the mid 1970’s, a time of big changes and exciting times in Alberta.
The oil boom resulted in quickly soaring oil prices, which created more multi-millionaires than any time before. People from all over the country flooded into the province daily in search of high paying jobs and to get a piece of the action.
Related: Boom and Bust
With four thousand people a month moving to Alberta the province’s population increased by one-third, transforming the cities of Calgary and Edmonton. The housing market (and prices) soared with ongoing new construction, while apartment vacancy rates approached zero.
By the early 1980’s, too rapid expansion and a worldwide economic recession hit the industry hard – the Alberta oil boom was over.
Unemployment rose to over 10% and people left the province en masse. Alberta led the nation in foreclosures and bankruptcies.
Popular mid-1980’s bumper sticker
The housing market crunch
By this time I had started my banking career and I was working in the mortgage department. I had the unenviable (and heartbreaking) title of “Mortgage Foreclosure Specialist.”
In Alberta, there is a clause in many mortgages called “non-recourse” action where the homeowners lose their home, but otherwise have no personal liability. The homeowner can basically just hand the keys to their house over to the bank and say, “Here you go, it’s yours.”
When their houses dropped in value by 20% or more, people just walked away and abandoned them.
Part of my job involved selling these homes at a time when prices were already depressed.
Is this downturn different?
The two downturns share some similarities – a drop in crude oil prices that followed an extended period of exceptional growth, a cooling housing market and rising economic uncertainty.
But the 1980’s were a difference era. The downturn was more severe because of a much weaker world economy and quickly rising inflation. 5-year mortgage interest rates never fell below 10% from 1973 to December of 1991, peaking at just under 22% in 1981. Current interest rates are at historic lows and are unlikely to climb to these levels again.
Related: Renewing your mortgage this year?
Can the oil and gas industry recover again? Oil prices will have to increase substantially to make the very expensive Oil Sands oil production viable.
There’s now a greater interest in alternative and renewable energy sources – hydrogen fuel cells, solar and wind power, to name a few. Will this affect the future of the oil and gas industry?
Only time will tell.
With the amount of debt people are carrying now compared to the 80’s, my friend at the bank figures interest rates would only have to hit 7% to have the same impact as 22% back then. People are mortgaged to the hilt and then have copious amounts of personal debt on top of that. It’s gonna look worse this time… Much worse. The most annoying part is the people who will be looking for someone else to blame for the financial problem they created.
There’s a reason the current Alberta crash looks like the one in the 1980s: the province is very dependent on one commodity, and commodities are notoriously cyclical. It’s the classic “boom and bust” cycle, and right now oil is in the “bust” stage. Somehow people never salt away the money when things are booming so they won’t go hungry when they bust. Meanwhile, it scares me to find out that Alberta has non-recourse mortgages — that was one of the main ingredients in the U.S. housing collapse.
Exactly. The concept of “saving for a rainy day” is lost on most Albertans.
Just look at the kind of “stuff” being reposessed and filling up the pawn shops.
Memories were very short when it came to learning lessons from the last “economic bust”. We’ve never fully implemented a sustainable, diversified economic plan here in Alberta, and once again, we’re paying the price.
I sincerely hope that our new provincial government has the political will to move us in that direction no matter how much it hurts.