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November 2010 Alberta Economic Fundamentals

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Alberta forest products shipments rise

EDMONTON — The value of Alberta forest products shipped in the third quarter soared compared with last year on strong prices for pulp and paper and increased production of lumber.

Shipments manufactured by member companies of the Alberta Forest Products Association totalled $598.2 million, up nearly 32 per cent from $454.1 million in the third quarter of 2009.

But makers of panel products such as plywood, oriented strand board and medium-density fibreboard continue to see prices and production decline.

"This is generally positive news," said Brady Whittaker, AFPA president and CEO. "Our numbers are up significantly from this time last year and we have seen a modest increase from last quarter."

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Edmonton`s industrial real estate market flat

EDMONTON - Edmonton`s industrial real estate market shows signs of stability and emerging demand after a turbulent downturn, said a new report Friday.

Overall vacancy in greater Edmonton remained flat at 4.4 per cent at the end of the third quarter, said an industrial market report from commercial real estate firm Avison Young.

"Rental rates and land pricing seem to have stabilized and demand appears to have resurfaced in the last few months," said the report. "Perhaps one of the most positive indicators of a healthy industrial market is the re-emergence of developers preparing new sites to once again build new speculative projects."

Larger industrial land deals pushed the total amount of acreage and dollar volume for the first three quarters of 2010 to levels already surpassing 2009 totals, the report said.

In one deal, Western Asset Management acquired 92 acres of serviced industrial land with plans to build 400,000 square feet immediately on the site.

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Oil falls for biggest weekly decline in three months

CALGARY - After rising early in the week, oil prices finished lower on Friday while Canadian natural gas prices reached the highest level in almost six months thanks to the arrival of winter on this side of the border.

Oil fell 34 cents to $81.51 US a barrel, for the biggest weekly decline since August and capping a volatile week where crude hit two-year highs and then fell back on fears of interest rate hikes in China - even as Energy Information Administration data showed big drawdowns in U.S. storage inventories.

Observers said they expected the see-sawing to continue amid signs that prices might begin to moderate later this year and next.

"To me it`s still all speculation," said Ralph Glass, a vice-president with AJM Petroleum Consultants in Calgary. "Going up this quickly to the $85 or $86 mark was speculation. I think prices are going to continue to oscillate in that $80 range ... the world economies are attuned to $80 barrels."

Glass said prices are high enough to encourage oilsands development and prompt producers to switch to oil drilling this winter over natural gas. But he suggested a flattening of the forward futures prices would seem to indicate that $100 probably isn`t in the cards over the mid-term. AJM is forecast an average price of $83.50 for the year.

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Athabasca sees potential for major oil find

Sveinung Svarte holds up a piece of rock, dull grey and pocked with small holes.

The rock is a sample of limestone carbonate that looks nothing like Alberta`s oil sands. But for the chief executive officer of Athabasca Oil Sands (ATH-T12.660.110.88%) it represents the promise of a major new oil find that could add billions of barrels to the already-huge pool of oil in the Fort McMurray area.

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Alberta being taken for granted

Agriculture gets a Saskatchewan minister, fisheries is represented by a Prince Edward Islander, the Halifax naval port gets a local MP for Defence Minister and Bay Street has national finances governed by a minister from a Toronto area riding.

Geography in government matters.

But consider the energy sector`s Central Canadian voices at the federal Cabinet table and you`d have to question what, if anything, this government will hear from an industry confined to the east coast and western sedimentary basin.

The oil patch used to have a powerful, plugged-in ally at the government`s epicentre but, with the resignation of Calgary MP Jim Prentice, the Environment portfolio has been temporarily picked up by overworked House Leader John Baird, an Ottawa MP.

With the end to a symmetrical relationship between Mr. Prentice, who was unofficial supervisor of pipeline and other oil patch issues, and Natural Resources Minister Christian Paradis, the energy file now sits with the lead minister of hydro-producing Quebec.

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Calgary retail sector strong

CALGARY - Calgary`s consistently low retail vacancy rate is an "anomaly" very few cities in North America can boast about, says a report by commercial real estate firm Colliers International.

Overall market vacancy declined slightly from 1.48 per cent in the spring to 1.43 per cent at the end of the third quarter.

"The Calgary retail market is expected to remain very strong over the foreseeable future with vacancy rates expected to remain at an all-time low of between 1.2 per cent and 1.35 per cent," says the report.

It says demand for new retail space in Calgary continues to be very strong with 26 projects totalling nearly 8.7 million square feet in the planning, permitting or construction state.

"As Alberta`s economic engine drives forward, the retail sector follows suit," says Colliers. "Alberta continues to post modest gains in retail sales. As has been the trend in recent years, Alberta`s monthly retail sales on a per-capita basis remain on a different plateau from the rest of the nation - 25.8 per cent above the national average."

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Lower obstacles to natural gas investment: Fraser Institute

OTTAWA — Canada is in a favourable position to capitalize on its natural gas resources, though the potential for economic prosperity from this commodity can only be fully realized by removing barriers to investment and production, a report said Monday.

The Fraser Institute said natural gas accounted for one-quarter of all energy usage in North America in 2007, and the continent is well positioned to become fully self-sufficient in meeting its natural gas needs.

The report said Canada is the only net exporter among the North American Free Trade Agreement (NAFA) members that include the United States and Mexico. As well, Canada stands to benefit from rising demand but "flagging production" in Mexico.

The think-tank recommends removing aspects that inhibit investment in natural gas exploration and production, and transportation infrastructure such as pipelines.

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Drilling companies scramble for workers

As sustained crude prices ease the pain of the oil patch downturn, Canada`s drilling companies now find themselves in a worker crunch so severe that some have begun calling for a dramatic boost to labour costs.

There are so few workers available that some companies have been forced to turn away jobs at a time when many are scrambling to make up for the dramatic fall in revenue in the past couple of years.

"This is about as tight as I`ve seen it," said Joe Bruce, chief executive officer of Nabors Canada, one of the largest drilling companies in the country. "We could probably work somewhere in the region of 63 or 64 of our drilling rigs this winter. We don`t believe we can crew any more than maybe 55 or 56."

Drilling is part of the broader field of oilfield services, which employs one out of two oil patch workers. They are what some call the "horsepower" of the industry, and their work is growing in importance as new oil sands projects use wells over mines. As a result, problems with drillers can have far-reaching consequences for an industry that relies heavily on what they do.

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Ag Minister sees China market reopening to Canadian beef soon

CALGARY - Chinese inspectors will be visiting Canadian meat plants soon, an important requirement preceding the country reopening its borders to our beef.

Federal agriculture Minister Gerry Ritz said Friday that he expects shipments to resume "very quickly" after the delegation finishes its work.

In June, China promised to ease barriers to Canadian beef put in place seven years ago when BSE was found in some Alberta cattle.

Dennis Laycraft, executive vice-president of the Canadian Cattlemen`s Association, said every country that reopens its markets goes through the inspection process.

"Once they do that we`re very confident we`ll see some access," he said, adding it allows countries to confirm for themselves Canada`s safety procedures.

China has the potential for $100 million a year in sales of beef and tallow, he pointed out.

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Alberta safe for Tories to ignore

EDMONTON – Agriculture gets a Saskatchewan minister, fisheries is represented by a Prince Edward Islander, the Halifax naval port gets a local MP for Defence Minister and Bay Street has national finances governed by a minister from a Toronto area riding.

Geography in government matters.

But consider the energy sector`s Central Canadian voices at the federal Cabinet table and you`d have to question what, if anything, this government will hear from an industry confined to the east coast and western sedimentary basin.The oilpatch used to have a powerful, plugged-in ally at the government`s epicenter but, with the resignation of Calgary MP Jim Prentice, the Environment portfolio has been temporarily picked up by overworked House Leader John Baird, an Ottawa MP.

With the end to a symmetrical relationship between Mr. Prentice, who was unofficial supervisor of pipeline and other oilpatch issues, and Natural Resources Minister Christian Paradis, the energy file now sits with the lead minister of hydro-producing Quebec.

The word from the Prime Minister`s Office is that southern Alberta still has plenty of muscle in the cabinet already so Mr. Prentice need not be replaced by an Albertan. "Calgary is well-represented by the Prime Minister and (Immigration Minister) Jason Kenney," declared a PMO spokesman.

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Canadian oil and gas industry generates about $100B a year in revenue

CALGARY - The holiday season is rapidly approaching and all the ingredients for festivity in Calgary are coming into order: snow, the early appearance of Christmas lights and welcoming invitations to parties. Before the first rum and eggnog goes down, it`s wise to have some handy chitchat material lest you get caught in the usual idle nattering about the cold weather. However, if you are cornered into complaining about -20C temperatures, you could use it as an opportunity to segue into, "Yes, I`m glad the furnace is on and my car started, but hey, speaking of energy, [pour eggnog here] do you really know the size of Canada`s oil and gas industry?"

Instead of using the dry language of barrels and cubic feet, it`s more appropriate to banter in the universal language of dollars, especially if you don`t know who you`re talking to, so you could say, "The Canadian oil and gas industry generates about $100 billion a year in revenue from the sale of hydrocarbons."

Unless you`re talking to a billionaire that impressive-sounding statistic is difficult to comprehend. Even a trite description such as, "Did you know that a hundred billion dollars of stacked pennies would extend to the moon 40 times over," is unlikely to impress and apt to attract a response like, "Excuse me, I`m going to mingle for a bit."

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Alberta leads country in retail sales growth

CALGARY - Alberta shoppers led all provinces in the annual growth rate for retail sales in September - a good sign for retailers that we`re in for a busy Christmas shopping season.

"Sales are getting better because this is the moment when people have the time and they like to come to the mall to do some Christmas shopping," said Nancy Nasr, owner of Via Uno, which sells leather shoes and accessories from Brazil, out of its Market Mall location in Calgary.

Via Uno opened there two years ago and also opened its second location in Chinook Centre in September. The stores are known in Europe and Latin America but these are the only stores in North America.

"The economy is much better than last year. Definitely we`ve been experiencing a better increase in our sales this year than last year. Last year, many people lost their jobs and this year we`re finding it better. It could also be because we`re building our name," said Nasr.

According to Maritz Research Canada, Canadian holiday shoppers plan to spend an average of $602 this year over Christmas, an increase of six per cent from the 2008 and 2009 seasons.

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Calgary job growth to improve in 2011

CALGARY - Job growth is expected to gradually strengthen into 2011 as economic activity improves, says a report by Canada Mortgage and Housing Corp.

In its Housing Market Outlook, the CMHC said changes to the provincial royalty framework and sustained energy prices are expected to attract more investment and support employment growth.

In 2011, employment is forecast to rise 1.8 per cent in the Calgary region.

"Calgary`s unemployment rate peaked at 7.6 per cent in May 2010, reaching its highest level since 1996," said the housing market outlook.

"With the economy steadily improving and employment rising, the unemployment rate is forecast to average seven per cent in 2010 and decline to 6.4 per cent in 2011."

Net migration for the Calgary census metropolitan area is forecast to rise from 14,000 in 2010 to 15,000 in 2011.

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Ottawa targest oilsands opponents

Three major departments in the federal government have been co-ordinating a communications strategy with Alberta and its fossil-fuel industry to fight international global-warming policies that "target" oilsands production, newly released federal documents reveal.

The documents, obtained by Postmedia News, suggest that Environment Canada, Natural Resources Canada as well as the Department of Foreign Affairs and International Trade, have collaborated on an "advocacy strategy" in the U.S. to promote the oilsands and discourage environmental-protection policies.

"The activities of the oilsands sector has emerged as one of the high-priority files for the federal government," wrote Natural Resources Canada policy adviser Paul Khanna in an e-mail, on behalf of Kevin Stringer, director of Petroleum Resources in the same department.

"As a result we have developed several products that provide the department`s views on oilsands development ... and we have contributed (along with EC) to a DFAIT led `Advocacy Strategy` on oilsands for the U.S."

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ConocoPhillips laying off gas staff

CALGARY - ConocoPhillips Canada confirmed Monday it is laying off western Canadian staff after shutting in 28,000 barrels of oil equivalent per day of natural gas production due to poor commodity prices.

Spokesman Rob Evans said the shut-ins, which started in the fall, have cut about 15 per cent of after royalty production from its Western Canada gas group but he wouldn`t say how many jobs will go.

"I can confirm that we did inform our western Canadian gas employees that there will be layoffs this week," he said.

"That went out this morning. Out of respect for the employees we`re not providing any more detail until we can get more information to them."

ConocoPhillips has about 2,000 employees in Canada and about half of them are in the gas group in Alberta and British Columbia. They are expected to find out today whether they still have jobs.

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Factbox: List of Asian oilsands investments

Thailand`s PTT Exploration and Production will pay $2.3 billion for a 40 per cent stake in Statoil ASA`s oilsands project, extending a string of Asian investments in Canada`s oilsands industry but representing Thailand`s first foray.

Here is a list of Asian oilsands investments (In U.S. dollars unless noted):

* May 2010 — Penn West Energy Trust sells a 45 per cent stake in oilsands properties near Peace River, Alberta, to China Investment Corp. for $801 million.

* April 2010 — Sinopec Corp., China`s second-largest oil producer and top refiner, agrees to buy ConocoPhillips` 9.03 per cent stake in Syncrude Canada Ltd, the largest oilsands project, for $4.65 billion.

* August 2009 — PetroChina agrees to buy a 60 per cent stake in two undeveloped oilsands properties held by Athabasca Oil Sands Corp. that could eventually produce as much as 500,000 barrels per day. The Canadian government offers no opposition to the investment by state-controlled PetroChina and formally approves the acquisition in December.

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Alberta`s oilsands beckon B.C. workers

World energy consumption of oil, natural gas, coal, nuclear energy, and hydroelectricity fell by 1.1 per cent last year, the first decline since 1982. But environmentalists might want to postpone their celebration. The decline was the result of recession, not conservation, mainly affecting North America and Europe. Energy use soared in developing nations; indeed, it doubled in China, with oil retaining its position as the No. 1 energy source.

Once the economic recovery gains momentum, energy-consumption growth should resume its vigorous ascent.

This is good news for Canada, and particularly for Alberta and British Columbia, which are blessed with bountiful reserves of oil and natural gas. Of course, the main repository of wealth is Alberta`s oilsands, which have drawn global energy companies en masse to Fort McMurray and environs.

Their plans include hundreds of billions of dollars in investment, generating an estimated $1.7 trillion in economic activity and 465,000 direct and indirect jobs over the next 25 years.

From the past decade through the next, the oilsands are expected to contribute $800 billion to gross domestic product and $123 billion to provincial and federal governments through royalties and taxes.

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Calgary ninth in world for decline in office space costs

CALGARY - Calgary`s downtown market has experienced one of the sharpest global year-over-year declines in prime office space occupancy costs.

A report by commercial real estate firm CB Richard Ellis Ltd., said costs in Calgary dropped by 13.5 per cent from last year, which was the ninth biggest decrease around the world.

Topping the list for the steepest decline was Edmonton at 19.4 per cent.

Calgary`s central business district office costs are now ranked 55th overall globally or $46.64 US per square foot per year. Last year, Calgary was ranked 49th overall at $51.91 and in 2008 it was 38th overall at $66.58.

"The key issue to note in that report is that we`ve got a supply issue. It`s not a demand issue," said Greg Kwong. "Demand fell by the wayside from March of this year and 18 months prior to that. But since March it`s probably the best year ever for a lot of our office leasing guys. So much activity.

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Oil surges on economic data ahead of U.S. holiday

NEW YORK - Oil prices rose more than 3 per cent Wednesday and as data that suggested economic recovery is improving and pre-Thanksgiving holiday short covering helped oil post its biggest percentage gain in four months.

U.S. initial jobless benefits claims fell to their lowest level in more than two years last week while consumer spending rose for a fourth straight month in October, fueling hopes the economic recovery is strengthening.

A separate report showed U.S. consumer sentiment rose to its highest level since June.

While U.S. crude inventories rose last week against expectations they would fall, the rise in the government`s weekly inventory report was less than the jump industry reported on Tuesday, leaving broker and analysts relieved.

U.S. crude oil for January delivery rose $2.61, or 3.21 percent, to settle at $83.86 a barrel, snapping a string of three lower finishes to post the highest close since since Nov. 15 and biggest percentage gain since July 22.

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Thailand the oilsands` newest Asian player

CALGARY - The Thailand state oil company became the latest Asian nation to take a spot at the oilsands buffet after PTT Exploration and Production Public Company took a minority stake in Statoil`s Kai Kos Dehseh oilsands project near Fort McMurray.

The companies announced late Monday that PTTEP will pay $2.28 billion for a 40 per cent stake in the thermal oilsands project which is scheduled to start producing 10,000 barrels per day in early 2011.

"This transaction underlines the quality of our Canadian resources and demonstrates our ability to create value as an oilsands operator," Statoil CEO Helge Lund said in a statement. "We look forward to forming a strong partnership with PTTEP in the further development of our Canadian oilsands assets."

Statoil originally entered Kai Kos Dehseh through the acquisition of North American Oil Sands Corp. in 2007.

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