By GRAHAM HICKS
As pipelines are stalled, as Canadian regulations overwhelm, as federal/Alberta corporate taxes increase, as “climate challenge” costs (i.e. carbon tax) mount up … Edmonton energy companies are slip-sliding away to the more business-friendly USA.
It’s business, says Hi-Kalibre Equipment boss Patrick Rabby. His company, in a southeast Edmonton industrial park, employs 100 workers, manufacturing specialty anti-blow-out valves for drilling rigs.
The energy business in Canada is down. The energy business in the U.S. is booming.
In Canada, stymied by environmental extremists, bottlenecks in the pipeline system are not being addressed.
In the U.S., pipeline bottlenecks are being addressed.
In Canada, stymied by environmental extremists and over-regulation, liquefied natural gas (LNG) ports to export natural gas are not being built.
In the U.S., one LNG terminal is now in operation. Three more are being built.
In Canada, oil/gas investment is down 40% from previous years.
In the U.S., oil/gas investment is up 40%.
Consider the domino effect:
- No LNG ports or (major oil) sand extraction operations are currently being built in Canada. Billions of dollars that could circulate through the Canadian economy are not being spent.
- No new major pipelines are currently being built in Canada. Billions are not being spent.
- There’s very little drilling for oil/gas going on in Canada. What’s the point, when it can’t be transported ? Trinidad Drilling has moved half its drilling rigs to the U.S. In the U.S., drilling activity is up 30%. In Canada drilling is up 6%.
- Hi-Kalibre makes specialty equipment for drilling rigs. There’s little demand in Canada. Most current production is being sold in the U.S. or overseas.
- As an exporter, Hi-Kalibre is subject to the whims of international trade agreements, such as NAFTA and the possibility of being priced out of the U.S. due to tariff walls.
Within this context, Rabby must consider the future of Hi-Kalibre. The only advantage his company has in Alberta these days is the cheap Canadian dollar. Every other consideration points to an inexorable conclusion: Unless the Canada/Alberta business environment dramatically changes, Hi-Kalibre’s future will be in Houston, Texas, not Edmonton Alberta.
- Hi-Kalibre’s customers are now almost all in the U.S. Most of its sales come from a four-person sales office in Texas.
- Political uncertainty surrounding Canadian resource development has driven out foreign investment. Resource development is not happening.
- Uncertainty surrounds future resource development in Canada and Alberta – uncertainty over environmental zealotry, future royalties, future electricity costs. The federal and Alberta governments are focused on environmental and social justice causes rather than making the Canadian economy business-friendly. The opposite is happening in the U.S.
- Labour costs – including skilled professionals like engineers – are cheaper in Houston, even with current exchange rates. Skilled labour is plentiful in the Houston area.
- Industrial real estate in Houston is 30% to 40% cheaper than in Edmonton.
- Corporate taxes have dropped in the U.S. but have increased in Alberta and Canada. Hi-Kalibre would see a 20% tax reduction, and more business-friendly tax policies, if it moves to the U.S.
- Industrial equipment such as forklifts and trucks is cheaper.
- Electricity costs are cheaper in the U.S. – no heating is needed in Houston, and, surprisingly, most industrial workshops are not air conditioned. At the same time, in the name of climate change, industrial electricity costs in Alberta are expected to soon soar.
“Immediately, we have no plans to leave,” says Rabby. “But when it’s time for the next expansion, we will have to make some choices. If the return on investment in Alberta is eight years, and the return on investment in Texas is four years, which would you pick?”
Hi-Kalibre is hardly alone.
Every single oilfield-related business in Edmonton and Northern Alberta is facing the same, naked business facts. Even with a 20% currency advantage, it’s getting harder and harder to do business within the dwindling Canadian oil patch, while it’s getting more and more attractive to do oil-related business in the U.S.
It won’t happen overnight. In fact, many companies like Hi-Kalibre won’t actually move their corporate headquarters. But they will set up American subsidiaries, expand and grow operations south of the border while quietly hollowing out the parent company in Alberta.
And, one day, Alberta will wake up and realize its oil-patch has shrivelled beyond recognition – that most Canadian companies have reluctantly given up this country and this province, have pulled up stakes to head to the more business-friendly U.S.
Next week: Could the big pipeline companies also be slip-sliding away to the U.S.?