- Spending this year to plummet 62 percent from 2014 levels
- Pipeline limits, critics present headwinds for drillers
Canada’s oil industry, which made deep spending cuts to cope with the worst commodity price slump since the 1980s, will need new export pipelines to profit from a recovery, according to a lobbying group.
Producers have shed 44,000 workers since the slump began in 2014, the Canadian Association of Petroleum Producers said Thursday. Investment in the petroleum sector will see the largest two-year decline since 1947. Meanwhile, opposition to drilling and pipeline export limits pose unique hurdles to any recovery, said Tim McMillan, president and chief executive officer of the producer group.
“Canada needs urgent action to remain an attractive market for oil and gas investment, and to be competitive relative to other oil and natural gas producing jurisdictions,” McMillan said in a statement. “Connecting our resources – by all means and in all directions – to more markets is critically important.”
After cutting thousands of jobs in the past year, companies such as Cenovus Energy Inc., Suncor Energy Inc. and Encana Corp. will be slow to increase output should crude prices recover. Their operations are focused in Alberta where the unemployment rate is now higher than the national average and the provincial government is facing a record deficit.
Industry spending will sink to C$31 billion ($23.6 billion) this year from C$81 billion in 2014, according to the association. More job losses and spending cuts are likely, McMillan said.
Production in Alberta’s oil sands region is already the most expensive in the world, according to energy consultancy Rystad Energy. As oil pipelines fill up, producers have turned to more costly rail cars to transport crude to the continents’ coasts.
Pipeline constraints will limit output gains once prices recover, said Dirk Lever, managing director of institutional equity research at AltaCorp Capital Inc. in Calgary. Environmental groups have blocked or slowed the development of new pipelines.
“One of the biggest challenges Canadian producers face is how do you get the product out of Canada and where does it go?” Lever said in a phone interview on Thursday. “What do you do in a country where, for a lot of people, there is absolute distaste for any oil production whatsoever? There is a contingent out there that believes Canada should have zero hydrocarbon production.”
Kinder Morgan Inc. is working to win approval from regulators and the Canadian government for an expansion of its Trans Mountain line with a planned capacity of 890,000 barrels a day. TransCanada Corp. faces push-back in Quebec for its Energy East project, while Enbridge Inc., which won approval from the previous government of Prime Minister Stephen Harper for its Northern Gateway line, hasn’t won enough local support to make a final investment decision.
Oil’s sinking fortunes has caused hardship for Alberta where on Thursday, Premier Rachel Notley is expected to outline her plans to help the province recover from the oil-induced recession. Alberta’s 7.9 percent unemployment rate for February is higher than the national average for the first time since 1988.
Canada has been hit harder in the downturn than other oil producing regions, McMillan said in an interview.
“We saw the reductions in capital spending go down faster and deeper than they did in the United States, than they did in Saudi Arabia, than they did in almost any other jurisdiction,” McMillan said.