Resource Dependence Could Prove Fatal For Canadian Economy
Low oil prices are threatening the health of Canada’s oil and gas sector, which in turn, is causing turmoil in Canada’s economy as a whole.
The fall in oil prices are forcing billions of dollars in spending reductions for Canada’s oil and gas industry. In February, Royal Dutch Shell shelved plans for a tar sands project in Alberta that would have produced 200,000 barrels per day. Last year, Petronas put off plans to build a massive LNG export terminal on Canada’s west coast. Moody’s recently predicted that very few of the 18 proposed LNG projects in Canada will be constructed. Most will be cancelled. The oil industry is expected to lose 37 percent of its revenues in 2015, or a fall of CAD$43 billion.
That is bad news for Canada’s oil and gas sector. But even worse, Canada’s overdependence on oil and gas will threaten its broader economy now that the sector has gone bust. The severe drop in oil prices has made the Canadian dollar one of the worst performing currencies in the world over the past year. The loonie used to trade at parity to the U.S. dollar, and even appreciated to a stronger level a few years ago, but now a Canadian dollar only gets you less than 80 U.S. cents.
Related: Top 12 Media Myths On Oil Prices
While a weaker currency has complicating effects on the economy (it will also boost exports, for example), on balance low oil prices have been an unmitigated disaster for Canada’s economy.
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