Are Alberta's Tories Out of Gas?

There is something strangely endearing about Ed STELMACH, the premier of ALBERTA. When, last month, he left a Council of the Federation meeting in Vancouver early rather than face his fellow premiers on the issue of climate change, he brought to mind a young boy evading playground bullies.

Are Alberta's Tories Out of Gas?

There is something strangely endearing about Ed STELMACH, the premier of ALBERTA. When, last month, he left a Council of the Federation meeting in Vancouver early rather than face his fellow premiers on the issue of climate change, he brought to mind a young boy evading playground bullies. And, earlier this week, when he dropped the writ and a scrum of reporters accused him of using legislature resources to partisan purpose - a no-no once an election's been called - he reacted as though he'd brought a new ball to the park only to find the other children didn't want to play.

All of this is to say that the Alberta Tories, in power since 1971 and hugely popular under former premier Ralph KLEIN, now find themselves at a loss. Hence the election call, almost two years before the government was required to make it and just as the legislature was to convene for a new session. That timing permits the Tories to skip question period, where Stelmach is a poor performer. "When you've got QP going on, it's day after day of watching Stelmach up there stutter and bumble his way through an answer," a Tory insider says. Stelmach, whose approval numbers plummeted last summer despite a stubborn perception that he's a halting but nevertheless good and honest man, still faces polls indicating that 27 per cent of voters, many of them in urban centres where oil boom woes are most pronounced, remain undecided about how to cast their ballot. "It's not going to get any better," says the Tory. "And I think that's what they recognize - that's why they're going now."

But another less apparent factor than mere poll numbers drove this week's election call, and that is Alberta's economy - as surprising as that might seem. Canadians continue to see oil-rich Alberta, as Newfoundland Premier Danny WILLIAMS puts it every time he gets the chance, as a "golden goose," the source of the country's new petro-dollar sturdiness alongside growing U.S. malaise. But things are slowing down in Alberta too, and Stelmach, fairly or not, risks wearing much of the blame. Best, said one Tory, to pre-empt the trouble and drop the writ.

To understand his difficulties, it helps to recall that $100-a-barrel oil doesn't quite capture Alberta's economic reality, which, on the conventional side of things (i.e., not oil sands) is really all about natural gas - $16.1 billion in investments, roughly equivalent to money put into the oil sands. Soft gas prices for the last 18 months have now combined with a soaring Canadian dollar to diminish the appeal of the Alberta basin for energy players. Then came Stelmach's royalty increase, unveiled last October and slated to begin in 2009, which ups the dues paid by oil and gas outfits by 20 per cent, or $1.4 billion annually. "The impact of the royalty uncertainty has taken that low commodity price and high dollar and made them that much worse," says Don Herring, president of the Canadian Association of Oilwell Drilling Contractors. "Any economic model will tell you the thing has to start winding down."

Rig numbers, an economic indicator that's presented to Alberta cabinet ministers on a weekly basis, representing just how many crews are out working in the field, have consequently declined. In the first quarter of 2006, some 700 rigs, each representing roughly 75 jobs - 52,000 in total - were trolling Alberta's hinterlands. In the first quarter of 2007, largely due to low gas prices, that count had dropped to 531; and now, thanks, some say, to Stelmach's royalties decision, projections for the first quarter of 2008 put the number of rigs at 445 - with an average of 296 projected for the year. Herring acknowledges that Alberta's infrastructure and building needs have so far managed to absorb jobs lost on the rigs. But, he says, "I don't know how long this momentum continues before it starts to show itself in reduced employment." He adds, "At some point or other, all of this spending that's going into building, house construction, all that kind of stuff, has to start going down." Says one PC strategist of Stelmach's gang in Edmonton: "They see vacancy signs coming on in hotels - in particular in the rural areas, where they've never seen vacancy signs before - and that's a concern."

Layoffs, when they come, says David Taras, a communications expert at the University of Calgary, "normally are the conditions for protest" among voters. But jobs won't be Stelmach's only worry. His royalties scheme has also led to reduced government revenue from land lease sales - from $488 million for five sales in the November-to-January period in 2007, to $180 million for the same period this year, just after Stelmach released his royalties scheme, says Tristone Capital analyst Chris Theal. "There have been some suggestions from independent observers that revenues will not live up to the forecasts that were contained in the royalty reviews," says University of Lethbridge political scientist Geoffrey Hale. Hale attributes the shift of oil and gas investments from Alberta to B.C., Saskatchewan and the U.S. as less about business than about business leaders exerting "tactical leverage on the government to get them to fine-tune the details of the royalty review." Yet whatever the reasons for declining oil and gas investment, the electoral and financial impacts remain the same.

So, as the government's revenue pie shrinks, says Hale, it "may have to actually apply a little fiscal discipline" - not an easy thing to do for a crew that, within two weeks or so of the election call, had announced over $1.3 billion in new spending, according to Scott Hennig, Alberta director of the Canadian Taxpayers Federation. Had the Tories waited to call the election, Stelmach likely would have had to defend yet again his royalties scheme and - something new - the Alberta economy, a "two-front war," as Hale puts it.

And what of that other front - Alberta's opposition parties and, particularly, the Liberals? Leaving aside the question of a slowing energy industry, observers expect leader Kevin Taft and his Liberals to make inroads in the cities, including as many as 12 ridings in Calgary. That would put Alberta's business capital in league with the political capital, Edmonton, which has for years been something of a red zone in a sea of rural, Tory blue. Such a possibility shifts minority government into the realm of possibility. One Tory strategist whips through the scenario: "We've got 60 seats now, you need 44 for a majority, so that's only 16 seats. You take away 10, 12, out of 18 in Calgary alone - you do the math. Put another one in Lethbridge, put maybe one out of two in Red Deer, you take a couple out of Edmonton ... You're there."

Should Stelmach hold his majority but lose the province's cities, the premier would face a new crisis. "Then you have enormous pressure on Stelmach to leave - in a year or two or whatever," says Taras. "If you have lost Edmonton and you have lost Calgary - an outside possibility but not without some chance - then you have a rural-based government making decisions for the cities, where most Albertans live." All this is deep into the hypothetical future. The truth is, Taft, leader of the Alberta Liberals since 2004, has not yet managed to excite the electorate. The real danger for the Tories, as it was last June, when the party lost Klein's old riding to a Liberal, is that their voters stay home. Stelmach, meanwhile, new ball in hand - endearing to some, just plain lost to many - may well appeal to Alberta's maternal instincts and still be embraced.

Maclean's February 18, 2008