U.S. energy-sector sprint leaves Canada sucking wind

Another week, another dozen stories about the crisis in global energy markets and job losses in Canada.

Let’s consider the role of the United States in this saga.

The Obama administration has overseen the largest expansion of U.S. domestic energy production (read: oil) since the Reagan era.

According to the U.S. Energy Information Administration (EIA), U.S. field production of crude oil has increased 63% since 2009 to approximately 8.7 million barrels per day in 2014 compared with 5.4 million barrels per day in 2009.

By comparison, Canada produced approximately 3.7 million barrels per day in 2014.

Most of that new U.S. production is coming from shale or tight oil deposits, through a process commonly known as fracking.

EIA data shows annual domestic production is nearing record levels not seen since the days Richard Nixon sat in the Oval Office.

Here’s another glowing fact: between 2010 and 2014, more than 19,000 kilometres of new oil pipelines were built in the U.S., according to the U.S. Association of Oil Pipelines.

That represents a 22% increase in U.S. pipelines, or the equivalent of 12 Keystone XL pipelines or 16 Northern Gateway pipelines.

This fundamental shift in the North American energy sector presents a market share problem for the Organization of Petroleum Exporting Countries (OPEC), notably Saudi Arabia.

Still, the U.S.’ 8.7 million barrels per day of production equates to only 9% of total world demand, which OPEC predicts will top 94.17 million barrels of oil per day in 2016.

The increase in U.S. production, coupled with a significant slowdown in China and devaluation of global commodities markets, is enough to get OPEC worried.

So the OPEC taps have been opened and the prices have dropped, as low as US$31 per barrel for West Texas Intermediate crude.

That’s a 75% decline in the price per barrel since June 2014.

The price shock has slashed profits for North American producers, with OPEC hoping it can use price attrition to push higher-cost U.S. shale producers into shutdown mode – at least enough to gain back some of its market share.

The market share war has hit Canada’s energy-producing regions particularly hard.

The drop in oil prices and other commodity sectors has wiped billions of dollars of value from the Toronto Stock Exchange and dragged down the loonie.

Since November 2014, Canada’s major energy-producing provinces have recorded a 31% increase in employment insurance claimants and declines in retail sales (4%), vehicle sales (10%), housing resales (23%) and housing starts (33%), according to the Bank of Canada.

Northeast B.C., ground zero for the province’s oil and gas industry, is home to the largest concentration of British Columbians employed in primary resource industries.

According to BC Stats, the Peace River Regional District recorded a 9% decrease in building permits to $225 million between January and November 2015, compared with the same period the year before.

The Northern Rockies Regional Municipality posted a 31% decline in building permit values to $3.8 million between January and November 2015.

Similarly, B.C. energy product exports recorded a 24% decline to $5.5 billion January to November 2015 when compared with the same period the year before (these numbers include steelmaking coal, which is another story).

Global energy companies are now reporting 2015 results. Royal Dutch Shell PLC’s 2015 income dropped 87% to US$1.94 billion. The company has now delayed its LNG Canada project in Kitimat, an investment of up to $40 billion in northern B.C., or the equivalent cost of staging the 2010 Vancouver Winter Olympic Games five times over.

The good news is that B.C.’s tourism industry could post a banner year in 2016 thanks to the low value of the loonie coupled with cheap gas prices.

Dawson Creek not only is home to Mile Zero of the Alaska Highway, but is also the gateway to our province’s oil and gas sector.

U.S. tourists have a tendency to stop and buy gas there. It’ll be cheaper this year.

I’m having a difficult time determining whether that constitutes an intended or unintended consequence of the U.S. energy strategy.

At the very least, it’s ironic. 

Joel McKay (joel@northern development.bc.ca) is director, communications, at Northern Development Initiative Trust, a non-profit organization that stimulates economic growth throughout northern B.C. He is also a Jack Webster Award-winning journalist and a former Business in Vancouver editor.