What has changed since last week? Not much I guess. In our 'super power island', things are crawling to a halt in terms of sales, at least in Calgary. There is now 7 months of inventory for SFH in Calgary as per CREB ticker. This is perhaps the highest since the deflation of this bubble began.
Not unexpected at this time of the year, but it's likely to be worse than previous years if you account for the short term boost that the days before the end of 'subprime lending' gave to the sales.
The important thing is that even with oil at around $60 and natural gas a little over $6, no major bad news has hit Alberta yet in terms of lay offs and the employment picture. But for how long? People are still confident that they will ride through this storm unaffected. Perhaps the Canadian smugness will save them.
In other parts of the world, Aussie dollar has taken a brutal hit and is down all the way to 60 cents. At this point, the currency markets are pointing to something other than inflation for the world economy and it begins with a capital D. Can our loonie go to 65 cents or so?
Showing posts with label alberta oil sands. Show all posts
Showing posts with label alberta oil sands. Show all posts
Monday, October 27, 2008
Wednesday, September 17, 2008
Impact on Alberta Island Continues....
As Petro Canada tries to talk itself out of Oil Sands project.
The other day I was a reading a post somewhere that the recent fall in prices shouldn't impact most energy companies inasmuch as they base their investment decisions over long terms- 20 years or more. And then I suddenly wondered the giant rush to develop oil sands- an energy inefficient, economically risky and environmentally unfriendly way to make oil. All based on expectation that the prices will remain in high double digits or triple digits from here to infinity.
And since most new oil sands projects are based on the same expectations that Calgary condo projects are, the inimitable Warren Buffett in his recent visit to Fort McMurray said:
"Because you could be the world's greatest mining engineer, but if you were wrong about the price of oil in a big way, it would negate all that knowledge."
"So I can tell you that ... if you had $120 oil from now till, you know, 50 years from now, that the tar sands would work out very well. But I don't know the answer to that."
Finally, "The stage is set for Petrocan to walk away from this project. There are any number of deeper-pocketed, more visionary energy companies that will make $14-billion-plus bets on the 50-year potential of the oil sands. If control of Fort Hills comes up for grabs, watch EnCana, Canadian Natural Resources, Suncor or one of the foreign energy giants to step up."
Make that a $21 billion project (new cost), seriously impaired credit markets, slowing or contracting global economy, falling energy prices and we'll see how many brave company boards exist out there to venture into such a project.
The other day I was a reading a post somewhere that the recent fall in prices shouldn't impact most energy companies inasmuch as they base their investment decisions over long terms- 20 years or more. And then I suddenly wondered the giant rush to develop oil sands- an energy inefficient, economically risky and environmentally unfriendly way to make oil. All based on expectation that the prices will remain in high double digits or triple digits from here to infinity.
And since most new oil sands projects are based on the same expectations that Calgary condo projects are, the inimitable Warren Buffett in his recent visit to Fort McMurray said:
"Because you could be the world's greatest mining engineer, but if you were wrong about the price of oil in a big way, it would negate all that knowledge."
"So I can tell you that ... if you had $120 oil from now till, you know, 50 years from now, that the tar sands would work out very well. But I don't know the answer to that."
Finally, "The stage is set for Petrocan to walk away from this project. There are any number of deeper-pocketed, more visionary energy companies that will make $14-billion-plus bets on the 50-year potential of the oil sands. If control of Fort Hills comes up for grabs, watch EnCana, Canadian Natural Resources, Suncor or one of the foreign energy giants to step up."
Make that a $21 billion project (new cost), seriously impaired credit markets, slowing or contracting global economy, falling energy prices and we'll see how many brave company boards exist out there to venture into such a project.
Thursday, April 19, 2007
Alberta Boom and Budget
The provincial government is on a spending spree, taking an almost anti-Keynesian approach towards spending. Rather than saving some money for the rainy day(yeah, there's a heritage fund but this year almost zilch will go into it) , and you can bet there will be one sooner or later, they want to spend now due to political reasons.
And what's this-they are talking about deficit when they should have been sending out those $400 checks again. No, it's time for realpolitik and that demands fervent spending to reduce the 'infrastructure deficit' accumulated during Klein years.
While at almost any other place on earth such spending would be a welcome news, in Alberta it is going to make things worse, at least in the short term. Where is the labour for these projects going to come from? There will be cost overruns, labor shortages, further housing problems and further run up in inflation. Already, inflation is running at around 6% in Alberta.
Most in the government do acknowledge that this boom was unexpected (just as the bust will eventually be). But I think nobody showed any vision as far as oil sands projects were concerned. If the peak oil theorists are indeed right, then there should have been no urgency to rush the development of so many oil sands projects concurrently. They could have fetched even higher lease rates for the oil sands patches by restricting the supply of available area/deposits and arranged the development in a more organized manner. Instead, everyone from a ground zero flipper to the oil companies want to make a quick buck at all costs.
The problem is that if the oil price does fall to the historical levels, we will certainly see another bust. The migratory labour will leave again in search of better pastures, but long time residents of Alberta will suffer. Like in the past.
At this time, a government with vision should have been putting billions of dollars for the rainy day and for diversification of Alberta's economy. The way Norway is doing.
And what's this-they are talking about deficit when they should have been sending out those $400 checks again. No, it's time for realpolitik and that demands fervent spending to reduce the 'infrastructure deficit' accumulated during Klein years.
While at almost any other place on earth such spending would be a welcome news, in Alberta it is going to make things worse, at least in the short term. Where is the labour for these projects going to come from? There will be cost overruns, labor shortages, further housing problems and further run up in inflation. Already, inflation is running at around 6% in Alberta.
Most in the government do acknowledge that this boom was unexpected (just as the bust will eventually be). But I think nobody showed any vision as far as oil sands projects were concerned. If the peak oil theorists are indeed right, then there should have been no urgency to rush the development of so many oil sands projects concurrently. They could have fetched even higher lease rates for the oil sands patches by restricting the supply of available area/deposits and arranged the development in a more organized manner. Instead, everyone from a ground zero flipper to the oil companies want to make a quick buck at all costs.
The problem is that if the oil price does fall to the historical levels, we will certainly see another bust. The migratory labour will leave again in search of better pastures, but long time residents of Alberta will suffer. Like in the past.
At this time, a government with vision should have been putting billions of dollars for the rainy day and for diversification of Alberta's economy. The way Norway is doing.
Tuesday, March 20, 2007
Non-Eventful news...
Not much in terms of news bearing any major impact on Alberta real estate. Still, there were a few items that were anticipated by both bulls and bears that could have some impact on the prices.
The anticipated capitals gains benefits never really came in the budget, so no great incentive for flippers to either accelerate or decelerate whatever they have been doing.
The Oil Sands tax tax deferral benefit will go away, but without impacting anything that is already there. All projects currently approved will go unaffected. So nothing like NEP redux. But it might have some impact down the road if oil prices stay at this level and more companies begin to look at oil sands investment.
Finally, inflation rate picked up quite a bit led by gasoline and house prices. Even the 'core numbers', including all the hedonic adjustments and removal of most essential items-food, energy etc-came in much higher. So in case the housing prices go down a little bit from here on, the rate cuts may not cut very quickly. One month doesn't make a trend, but these numbers are pretty close to inflation numbers in the US.
Hard to say if we will see an asset price deflation and cost of living increases at the same time.
On two different notes:
First, I came across this really funny post on Ben Jone's blog that says:
“It seems in Southern California now you need three breadwinners: husband, wife, and house. Unfortunately, the house isn’t making money like it used to.”
I don't think we are anywhere close to that in Alberta. Perhaps they are getting close to this in Vancouver or Victoria.
Secondly, just an observation of the very local condo market. I see that condos have stopped moving at a blistering pace in downtown Edmonton. Two or three building that I pass through on my way to work have the same 'On Sale' signs that were there more than a month ago. I don't have any statistics, so these could be isolated cases.
How are things moving in your neck of woods?
The anticipated capitals gains benefits never really came in the budget, so no great incentive for flippers to either accelerate or decelerate whatever they have been doing.
The Oil Sands tax tax deferral benefit will go away, but without impacting anything that is already there. All projects currently approved will go unaffected. So nothing like NEP redux. But it might have some impact down the road if oil prices stay at this level and more companies begin to look at oil sands investment.
Finally, inflation rate picked up quite a bit led by gasoline and house prices. Even the 'core numbers', including all the hedonic adjustments and removal of most essential items-food, energy etc-came in much higher. So in case the housing prices go down a little bit from here on, the rate cuts may not cut very quickly. One month doesn't make a trend, but these numbers are pretty close to inflation numbers in the US.
Hard to say if we will see an asset price deflation and cost of living increases at the same time.
On two different notes:
First, I came across this really funny post on Ben Jone's blog that says:
“It seems in Southern California now you need three breadwinners: husband, wife, and house. Unfortunately, the house isn’t making money like it used to.”
I don't think we are anywhere close to that in Alberta. Perhaps they are getting close to this in Vancouver or Victoria.
Secondly, just an observation of the very local condo market. I see that condos have stopped moving at a blistering pace in downtown Edmonton. Two or three building that I pass through on my way to work have the same 'On Sale' signs that were there more than a month ago. I don't have any statistics, so these could be isolated cases.
How are things moving in your neck of woods?
Saturday, March 17, 2007
A few macro trends worth keeping in mind
There is now a growing concern that environmental policy is likely to play some role in inter-provincial politics that directly impacts Alberta. And it is most certainly going to impact Oil Sands investments. Whether it is going to be just a temporary hold off, a minor economic impact in the form of reduced profitability or a full blown investment withdrawal remains to be seen.
Secondly, if the forecasted US recession does occur and there is a consequent slow down in Asia, $40 oil could become a distinct possibility. When that happens, the economic incentive to continue to invest in oil sands will reduce further.
Thirdly, we still have the US sub-prime meltdown going unabated and it likely to have some impact on us. Even though cheerleaders would let us believe otherwise. My question to them is simple: Did anyone in the US believe, even as late as just 2 months ago, that their sub-prime sector was in trouble? So it ain't going to concern anyone here till it hits here. Even if we agree that lending standards have been tighter than in the US, the same speculative elements are commonly seen here as well- leveraging against current equity to buy more real estate, novices holding multiple properties, bidding wars for run down properties -not to mention the rampant consumerism flamed by HELOCs.
The above items would concern any long term investor. But for a foolhardy flipper and newly minted landlord, this is noise that will go away soon. We will see how some of the real estate investors will emerge once everything settles down in a few years-a lot richer with increased confidence or a lot poorer with humility and experience.
Secondly, if the forecasted US recession does occur and there is a consequent slow down in Asia, $40 oil could become a distinct possibility. When that happens, the economic incentive to continue to invest in oil sands will reduce further.
Thirdly, we still have the US sub-prime meltdown going unabated and it likely to have some impact on us. Even though cheerleaders would let us believe otherwise. My question to them is simple: Did anyone in the US believe, even as late as just 2 months ago, that their sub-prime sector was in trouble? So it ain't going to concern anyone here till it hits here. Even if we agree that lending standards have been tighter than in the US, the same speculative elements are commonly seen here as well- leveraging against current equity to buy more real estate, novices holding multiple properties, bidding wars for run down properties -not to mention the rampant consumerism flamed by HELOCs.
The above items would concern any long term investor. But for a foolhardy flipper and newly minted landlord, this is noise that will go away soon. We will see how some of the real estate investors will emerge once everything settles down in a few years-a lot richer with increased confidence or a lot poorer with humility and experience.
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