New Brunswick has enjoyed a run of good fortune in the past few years, driven by high oil prices and a diversifying economy. But the recent sharp decline in both commodities prices and demand from U.S. markets has led to a noticeable chill in the province’s outlook.

Dropping oil prices and languishing demand for local resources such as potash are beginning to be felt across the province. When the housing and financial sectors collapsed stateside, the markets for New Brunswick’s lumber and building materials dried up. Unemployment is once again on the rise, after a trough in 2007, and is now breaking past 7.6%. Bank of Montreal is forecasting provincial unemployment rates of 8.5% in 2008 and 9.6% in 2009.

But while short-term growth forecasts have been revised downward, the province will fare better then the traditional “have” provinces. BMO is forecasting real GDP growth of 0.3% in 2009, while bank economists foresee real GDP contracting or showing no growth for the rest of the country — with the exception of Saskatchewan, Newfoundland and Labrador, and Prince Edward Island.

On the other hand, if there is one thing New Brunswickers are used to, it is hard times. As such, the provincial government is taking the downturn in stride. On Dec. 3, 2008, provincial Finance Minister Victor Boudreau gave a fiscal update in which he announced that instead of a surplus, there will be a $285-million deficit in the 2008-09 fiscal year, largely due to added pension expenses and health-care overruns.

“It is our responsibility to create an environment to help grow business and consumer confidence in our economy,” Boudreau said during the fiscal update, “and to encourage continued spending, investment and job creation.”

That will require a shift in focus, particularly away from exports. As a result, the province is making strategic investments in infrastructure, health care and education, and hoping that a sounder underlying infrastructure will encourage the private sector to invest further in the energy sector.

New Brunswick unveiled its largest capital-investment plan to date in December — $1.2 billion over two years. “We felt we were in a position to step up to the plate,” Boudreau says, “to fill the void both by creating employment and making strategic investments in universities, tax reform, highways and so on.”

On a positive note, retail spending in New Brunswick was up by 5.4% for 2008; the retail industry considers 3% to be a healthy increase. “But people are spending paycheques that were not earned in the province,” says Norm Betts, a former provincial finance minister and now a member of the faculty of business administration at the University of New Brunswick in Fredericton. Remittances from the oilpatch continue to buoy New Brunswick’s economy. However, with economists forecasting a drop in Alberta’s real GDP in the coming years (see page 17), this trend cannot be expected to continue.

Historically, New Brunswick has relied heavily on exports, especially in the forestry sector, and exports will recover only when their target markets recover. Rural New Brunswick, in which the one-mill town is still a reality, will suffer most from the decline in exports.

“The forestry sector is to New Brunswick what the auto industry is to Ontario,” Betts says. With housing starts down in Eastern Canada — and the housing market pummelled in the U.S. — New Brunswick’s forestry sector is headed in the same direction as the auto industry, but without the bailout package.

“We have been putting a lot of effort into the energy sector,” Boudreau says. “Energy is going to be the catalyst for our recovery.”

Adds Tim Curry, president of Saint John, N.B.-based Atlantica Centre for Energy, an industry association promoting the sustainable growth of the energy sector in the Maritimes and New England: “We are sitting next door to energy-hungry markets.”

New Brunswick already exports electricity, oil and natural gas to the northeastern U.S. — and demand has not yet been affected by the downturn.

But major projects totalling billions of dollars are winding down — including Canaport LNG in Saint John and Emera Inc.’s Brunswick Pipeline. Canaport is a receiving and regasification terminal for liquefied natural gas that’s 25%-owned by Irving Oil Ltd. and 75%-owned by Repsol YPF SA. The Brunswick Pipeline will connect the Canaport terminal to the existing pipeline near St. Stephen, N.B.; both will be running at full capacity this spring.

@page_break@What remains to be seen is whether projects still in the development pipeline will come to fruition. The $1.4-billion refurbishment of the Point Lepreau nuclear power plant has been delayed again, but its completion is assured. Although the refurbishment is on the federal and provincial governments’ collective dime, there is talk coming from the private sector of adding a second reactor.

Meanwhile, Irving Oil, in partnership with BP PLC, is looking into building a second refinery in Saint John. The two-phase Eider Rock project would cost $4 billion per phase and employ between 2,500 and 3,000 for each three- to four-year phase. Upon completion, the refinery will employ more than 1,000 people. The project is in the middle of environmental impact assessments; if it does go forward, pre-construction would start in 2010 and construction would begin in 2011.

“We are looking beyond the current economic climate,” says Lesley MacLeod, an Irving Oil spokeswoman for the Eider Rock project. As it is, six of 10 cars on the streets of Boston are fuelled by gas from the existing Saint John plant. North America has not added any oil-refining capacity for more than 25 years — and older plants will not be able to keep up with the cleaning and greening of the energy mix, which bodes well for new investment.

Along with financing, labour availability poses the biggest challenge — repatriating skilled labour will have to become a reality. But if the forecasted slowdown in Alberta does indeed materialize, there will be jobs for ex-pat New Brunswickers to come home to.

The expansion in energy will also come from renewables, which will feature prominently. New Brunswick is adding transmission capacity for exporting hydro-electricity to New England. The province also has 300 megawatts of wind energy in the pipeline at three sites, as well as a fourth wind farm already feeding electricity to the grid.

Research shows that there is as much as 4,500 megawatts of wind power that can be harvested. At the going rate of $2 million per MW, this bodes well. Wind projects may, in fact, benefit from the economic slowdown because demand for turbines has decreased significantly and suppliers are selling products only to soundly financed projects. New Brunswick will benefit because it has strong developers, such as Acciona Wind Energy Canada Inc. and GDF Suez SA of France, on board. IE