Aid needed since pandemic, Russia-Saudi Arabia price war pose existential threat to Canada’s oil, gas sector

piepleine
Cancellation of pipelines crippled Canada’s oil and gas sector

Canada’s oil and gas sector is being assailed on all sides and is truly in danger of suffering irreparable damage if the federal government and Alberta do not act.

As it stands, demand for oil is down because of the near shutdown of the global economy in the wake of the Wuhan virus outbreak.

But that is not the only thing suppressing prices. Russia and Saudi Arabia are increasing supply and waging a price war in an effort to secure market share.

As it stands, West Texas Intermediate, the US oil benchmark, is now below $25 a barrel, while Western Canada Select (what Alberta companies get) is hovering just above $9 a barrel.

The sector has weathered oil price shocks in the past, of course, but the pandemic and price war are coming on the heels of changes in federal policies that have made it nearly impossible to get pipelines built.

Ever since 2015 when the Liberals were elected, the sector has seen companies fleeing the country and taking with them hundreds of billions of dollars of investment.

The reason? Without pipelines to move product from Alberta and Saskatchewan to markets offshore and within Canada, the price of oil and natural gas is artificially depressed.

The cancellation of pipeline construction in Canada may have pleased the ecofanatics, but it ensured that the country was ill-prepared for economic downturns caused by events beyond our control. Oil and natural gas are important exports and help keep the dollar strong.

There are also hundreds of thousands of well paying jobs at stake. Alberta has already lost about 100,000 jobs since 2015. It can ill afford to lose another 100,000 in the months to come.

Little wonder that industry stakeholders and Alberta Premier Jason Kenney have called upon the federal government to provide assistance.

The situation is dire, says Business Council of Alberta president Adam Legge. He says more and more companies are on the margin with activity slowing to a virtual halt,

It’s the reason Kenney has been pushing for the two senior levels of government to institute a share acquisition program similar to one use used by the US and Canada during the 2008 market crash for automakers.

As it is, Ottawa extended the sector $1.6 billion in loans in 2018, but that hasn’t helped shore up the loss of confidence.

The sector needs somewhere in the neighborhood of $10 billion, say industry watchers.

More than that, though, what it needs is assurances that pipelines will get built, that there is a commitment from Ottawa that it understands the underlying problem is the sector’s inability to move sufficient quantity to market.

It’s not as if demand for both oil and gas are going to remain low. Once the pandemic is over and the global economy starts growing again, demand will increase and will continue to increase for decades to come.


 

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2 thoughts on “Aid needed since pandemic, Russia-Saudi Arabia price war pose existential threat to Canada’s oil, gas sector

  1. We will never get the Drama Queen to make pipelines get built! He doesn’t want them and buying a pipeline made it so we won’t get built!

    Like

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