How much money Canada’s big energy firms collect from oil sales is falling off a cliff, a new report says, so much so that the enormously profitable industry in good times will actually report a pre-tax loss amid this year’s slump. That will take a big bite out of employment, not just in Alberta but across the country.
Oil’s 50-per cent plunge since the early fall will amount to a 37 per cent decline in industry-wide revenues this year, the Conference Board of Canada says in fresh estimates published Wednesday.
The impact on jobs – already being felt – will amount to the direct loss of 8,000 positions across the country’s energy sector, the Ottawa-based researcher said.
Job growth declined to below 1 per cent last month amid a series of layoff announcements from resource firms, while economists and other experts suggest more job cuts loom.
MORE: Timeline – Tracking layoffs in Alberta’s oil patch
As a group, oil firms will book pre-tax losses of $3 billion, according to the report. Like other experts, the Conference Board sees oil remaining depressed for some time, rising gradually from its current benchmark price of about US$50/barrel.
The impact on jobs also applies to positions slated to be added now being mothballed. Spending on new projects – a major driver of job creation – will shrink this year by 21 per cent compared to 2014, to $44 billion.
“The Canadian oil industry is coming to grips with the new price environment,” Mike Shaw, an economist at the Board said.
Hard cap
Benchmark U.S. oil prices were trading at US$47.70 a barrel on Wednesday. The Conference Board expects the per-barrel price to average $55 for the year. The breakeven cost for many Canadian oil extraction projects is between US$60 to $100 a barrel.
“At current prices, many new projects in both the oil sands and Canadian tight oil plays are seen as uneconomic,” Shaw said.
The rise of hydraulic fracturing and horizontal drilling among U.S. extraction firms has resulted in a flood of oil on the international market, driving down the price of crude sharply. The new technologies mean companies “will be able to quickly respond” if oil prices begin to rise again – “putting a hard cap on prices,” the report said.
Consumption of oil is also dipping, as fast-growing economies like China and Brazil face slowdowns, while advanced economies post sluggish growth with the exception of the United States.
“The days of triple digit oil prices have passed for the immediate future,” the report said.
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