Investment in the oil and natural gas sector in Canada is expected to drop to $31 billion in 2016, down from a record $81 billion in 2014, according to new data compiled by the Canadian Association of Petroleum Producers.
The 62% reduction is the largest two-year decline since CAPP and its predecessor organizations started tracking this data in 1947.
The total number of wells drilled in Western Canada is forecast to decline to 3,500 wells in 2016, a 66% drop from the 10,400 wells drilled in 2014.
“It’s larger than the 1980s, which only had a two-year pullback of 43%,” Tim McMillan, CAPP president and chief executive officer, said in an interview this morning. However, because the industry was much smaller at the time, the effects also were much smaller and were more regional. “Today, it’s a national industry.”
In the 1980s, the whole world was going through a low price, over-supply environment, McMillan noted. “Today, we are going through that on a global basis and then Canada has the market constraint and a further reduction because of a lack of pipeline capacity and LNG facilities which further discounts our products.”
And while countries all around the world have seen reductions in oil and gas capital spending, the largest capital pullback has been in Canada, he said. “Ours is bigger and faster and deeper than theirs [competing countries].”
In the United States, for example, the pullback has not been as sharp as in Canada and companies have been able to maintain market access because they have been able to export oil and LNG, according to McMillan.
"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.”
Although the federal government is not expected to make a decision on the Trans Mountain crude oil pipeline to the West Coast until December of this year, “that means we have several months of work as Canadians to show support and to get this project done,” he said. “That’s a crucial piece of infrastructure that moves substantial increases in production and I think that’s paramount.”
On the natural gas side, “LNG is something that is almost happening in real time and the time frames of getting into that market are crucial, and if we can’t get our natural gas off the continent, we have hundreds and hundreds and hundreds of years supply with current technology; there is an immediate issue,” said McMillan.
The timely expansion of Canada's pipeline network to deliver to more markets at home and abroad, along with the development of liquefied natural gas export facilities, remains a national priority, according to CAPP. “Doing so would allow Canadians to earn full value for their resources and create economic activity that would otherwise be lost.”
Over the last several years, there has been a dramatic increase in the importance of the oil and gas sector to the Canadian manufacturing industry, said McMillan. “That’s a great story, but when we are hurting, they are hurting too.”
More than 2,300 businesses across Canada outside of Alberta supply goods and services to the oilsands. Including indirect jobs, more than 110,000 people across Canada have lost their jobs as a result of the downturn in the oil and natural gas sector, according to CAPP.
“Connecting our resources — by all means and in all directions — to more markets is critically important to improve the prosperity of all Canadians, even with the current declines in prices and investment,” said McMillan, noting that Canadian oil production continues to grow as previously approved oilsands projects come into operation.
"The United States, our only customer and No. 1 competitor, is certainly not standing still," he said. "We as a country need a common effort to have a level playing field in North America. Doing so will help ensure Canada is not at a competitive disadvantage relative to the U.S."
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