The week ending Jan. 17 was a bad one for Alberta, the Canadian province that once was enjoying an oil boom.
Schlumberger, the oil services giant in Canada's west, cut spending dramatically, postponed projects in the region and announced 9,000 layoffs for its worldwide operations. Suncor Energy announced it will cut 1,000 jobs and reduce its budget by $1 billion, and uncertainty in oil markets will delay Canada's federal budget until at least April. Even Target and Sony were closing stores in Canada.
The effect on the country's financial sector also was profound. The Toronto Stock exchange plunged, and the Canadian dollar dropped to a six-year low against its US counterpart. As a result, Alberta's premier, Jim Prentice, conceded that the plunge in oil prices will cut provincial revenues by $7 billion in 2015, meaning his government will be operating at a deficit.
In fact Glen Hodgson, the chief economist of the Conference Board of Canada, warned that Alberta may face a recession this year.
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"[The] wave of bad news … was enough to shake the faith of even the most ardent optimist, especially so in Canada," said Doug Porter, the chief economist at BMO Capital Markets, the investment banking subsidiary of the Bank of Montreal.
In the midst of this, though, Canadian Finance Minister Joe Oliver promised renewed prosperity for Alberta - eventually. "Demand for oil will rise in the intermediate and longer term," he told a meeting of oil executives at the Calgary Chamber of Commerce. "For Albertans and their energy sector, that has meant - and will mean - prosperity at home."
Oliver said the low oil prices will correct themselves. "They reduce production from high-cost producers, and therefore constrain supply, and they stimulate economic growth and therefore ultimately drive up global demand," he said. In other words, prosperity won't return until the most efficient oil companies survive a Darwinian culling of the producers saddled with high costs.
But he stressed that the process will take time to work. In fact oil analysts don't see any improvement any time soon. One is Anthony Yuen, a strategist with Citi Research. "The market is still trying to find a balance," he told The Globe and Mail. "And at this point, if you look at both supply and demand balance, you are still looking at an oversupply environment."
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But the Alberta oil sands by their very nature are expensive because the oil must be freed from the pores of sandstone, and the cost of cleaning it can only go so low. And Canadians' closest competitors - in geography and in price - are the US producers of shale oil, who have been working hard to keep their product competitively priced and profitable.
And because OPEC refuses to support the price of oil by cutting production, the fight for global market share is becoming more fiercely competitive as demand abates. The Paris-based International Energy Agency, in its January report on oil demand issued Jan. 16, put it this way:
"It is clear that the market is undergoing a historic shift. … While there might be light at the end of the tunnel for producers as far as prices are concerned, the next few years could nevertheless prove a period of reckoning for a market and an industry that, through the course of their 150-year history, have had to periodically reinvent themselves."
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com More
Comments
This stored oil will have to be used up before any new production can make it into the pipes. I'm saying 5 years for any improvements but the world is set perfectly for a #protracted war.
#Prentice tells us here today his best story is there will be 3 years before any oil norms are reached he's mouthing popular numbers. #Impossible! I'm saying the #oil will still be in those tankers in 3 years down the road and that will have to be
used before they can tap into new production. I'm saying up to 7 years before
there is an improvement and predicting thousands laid off in the meantime.
Harper and Kennys bizarre immigration plan does nothing better than compound the problems faced by Alberta and all provinces. The criminal element they brought in with their stand on no vetting; no background checks is coming back to bite us. No matter which way you look at it Conservatives have made it worse.
In 2008 the Americans brought up the surplus oil in the tankers shortening considerably the drought. Not so this time, the Americans have their own shale oil they are topping up their storage with! As for #Saudi being the bad guys simply not so!
The West embargoed Russia who immediately responded with long term cheap oil and LNG deals with China. China to this point was the sacred market of the west;
not being able to supply their own. I say cheap and long term because *China
responded by saying their LNG plants (5 of them) in Indonesia are not making
money enough so put them all up for sale!.
The #Chinese operating company of these LNG plants started their own price cutting scheme about the same time Gazprom opened up exports increasing them in Indonesia. All this is #Saudi turf; what would you have them do?
The US limited Saudi input into the Gulf refinery hurting them further. This while
#Obama inked a deal with Mexico to import their heavy crude into the Gulf
Refinery and haul away Condensates to upgrade their crude in their own country.
This put the cold wash on the Canadian Keystone Pipeline. Something we should remember when the #US comes looking for our water.
In case you missed it; all of our existing markets have gone! Stopping the embargo on Russia is not going to change anything now. Its in the works for years to come. China was the big new market expectation of the west in general.
Only a catastrophic failure like a war starting in the middle east and escalating
though the Crimea and the world. It has not gone unnoticed that the US Republicans want tough talks with Russia backed Iran which is exactly what Putin is waiting for. Russia people are suffering hugly while the Ruble pluments. It's hard to keep the doves up when the hawks are in the air.
No my friends, there are no up sides for this industry!
The only way we are going to survive this is get rid of the conservatives and put
in The Liberals. #Raj Sherman knows the ropes and has a heart for Alberta
unlike the conservatives who have ripped trillions off of us through the 30%
discount they have been running on the oil. This also reflects badly on the GDP.
Not to mention the 700 billion they took from the Heritage Trust (which we could sure use now) by capping the fund at 5% profit putting the rest into general
revenues to be used as taxes. Then; brag about lowest taxes.
And the oil royalty Was 32% when Klein came into office and 16% when he left. Next, Liepert who told us royalty was now 6% and Albertans should tighten their
belts. Royalty immediately dropped to zero. That is money ripped from consumes pockets further restricting the national economy.
We compare ourselves to Norway a socialistic governed country. They have hundreds of billions held in offshore tanks; now bankers for Europe. They keep the money off shore so as not to interfere with small and medium sized business at home.
They have an economy of scale and pay taxes as we do. A hamburger will cost you 50 dollars but the person serving it is making 100,000 dollars a year and
McDonalds and other small business are doing well also. Norway guarantees their
population a free university education! That's socialism! It's not the marching
boots the conservatives tell you about.
#Norway,the highest education in Europe turn out 70% of their vote for every election keeping their Governments honest. .Alberta Conservatives got in with 23% of the vote and a majority at that!.
Alberta is broke! #AESO recently claimed a billion dollar error costing you another 20 bucks moving up to 30 bucks a month times 2.5 million meters spinning! Is at a minimum 50 million dollars a month going someplace; where? We live in a
province of indirect taxation with the cities in charge of the utilities and
charging whatever they want.