Canadian Economy More Damaged By Oil Prices Than Expected
Canada’s oil industry has had a rough couple of months with production and exports taking a hit.
Low oil prices are cutting into the profits of major producers. Producing from Alberta’s oil sands is costly and requires a high oil price to justify the expense.
In fact, the fall in prices could significantly impact production levels decades from now. Oil companies are shelving large investments because they no longer look profitable. For example, earlier this year Royal Dutch Shell abandoned a potential 200,000 barrel-per-day oil sands mine. Overall, Canada’s oil patch could see a $23 billion cut in investment in 2015, a decline of almost a third from last year. Unless oil prices bounce back, a lot of projects may not move forward.
Lack of investment now translates to lower oil production in the future. Canada may only produce 5.3 million barrels per day in 2030, according to the Canadian Association of Petroleum Producers (CAPP), much lower than the 6.4 million barrels per day the group predicted last year.
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But again, a lot depends on what happens with oil prices. The decision by OPEC to play for market share doesn’t bode well.
“It really depends on how long OPEC decides they want to keep pricing at this level with their quotas that they’ve established,” Greg Stringham, CAPP vice-president of markets and oil sands, told the Financial Post.
The contraction underway in Canada’s oil sands has been hugely damaging to the broader Canadian economy. First quarter GDP declined by the most in over six years, falling 0.6 percent on an annualized basis. The figures stunned most economists who had expected modest growth, and it indicates that Canada’s economy is feeling the pain of low oil prices much worse than previously expected.
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