Facing the prospect of low crude prices for a long time, Canada’s oil industry is expected lose $2.1 billion before taxes this year, according to a report from the Conference Board of Canada.
The Ottawa-based economic think-tank says companies have coped with the drop in prices by firing employees and cutting their wages, as well as investing less in new projects. The cuts and layoffs could help the sector recover in 2016. The Canadian Association of Petroleum Producers (CAPP) estimates the energy industry downturn has led to 35,000 layoffs in Alberta’s oilpatch so far this year.
“While Canadian oil companies have acted swiftly, delaying capital investments, cutting expenses, and reducing employment levels, profitability has plummeted,” said Michael Burt, a spokesperson for the Conference Board of Canada, in a statement.
“Cost-cutting efforts should begin to bear fruit next year, as the industry is expected to slowly return to profitability, even as oil prices remain low by recent standards.”
READ MORE: Map shows nearly every corner of Alberta littered with inactive oil and gas wells
Oil has plunged to around US$43 a barrel, barely 40 per cent of the US$107 a barrel it hit in the middle of 2014. Canadian oil companies’ revenue will drop by 22 per cent this year before rising 4.9 per cent in 2016, according to the report.
But it’s not all bad news: The Conference Board says U.S. crude prices should rise to $70 a barrel by 2019.
Shell scraps Carmon Creek oilsands project
Royal Dutch Shell said Tuesday it’s cancelling its Carmon Creek project in northwestern Alberta. The energy giant first announced the 80,000-barrel-a-day, steam-driven Peace River operation in 2013.
“We are making changes to Shell’s portfolio mix by reviewing our longer-term upstream options world-wide, and managing affordability and exposure in the current world of lower oil prices. This is forcing tough choices at Shell,” CEO Ben van Beurden said in a release.
READ MORE: Shell scrapping Carmon Creek oilsands project, cites pipeline uncertainty
The company also cited a lack of direct pipelines to Canada’s coasts as a reason for the decision.
Pipelines like Enbridge’s Northern Gateway pipeline to B.C.’s coast is facing legal headwinds, and prime minister-designate Justin Trudeau has vowed to kibosh the project altogether. TransCanada’s Energy East pipeline is back at Square One as the company revises its route to avoid endangering baby belugas. They’re expected to submit their proposal to the National Energy Board by end of year.
Strains on Alberta’s public purse
The province announced a $6.1B deficit and invest $34B on capital projects over the next five years as it tries to spend its way back to surplus without weakening a woozy economy.
READ MORE: New taxes and benefits – Alberta budget 2015 highlights
Alberta’s government depends heavily on resource royalties for its revenue, which makes it particularly vulnerable to drops in oil prices.
Some have argued a provincial sales tax would help make ends meet. Finance Minister Joe Ceci said Wednesday the NDP promised not to introduce such a tax, and that the budget as laid out Tuesday will get Alberta to balance in 2019-2020 “with the resources we have now.”
With files from the Canadian Press