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Resource Dependence Could Prove Fatal For Canadian Economy
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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Ontario’s Ring Of Fire, Formerly ‘The Next Oilsands,’ Sold For Peanuts
Ontario’s Ring Of Fire, Formerly ‘The Next Oilsands,’ Sold For Peanuts
A junior miner will soon be the biggest player in Ontario’s fledgling Ring of Fire mining development, after agreeing to pay US$20 million for the properties of Cliffs Natural Resources, a U.S. mining giant who has abandoned hope of developing the area.
Toronto-based Noront Resources is getting quite the deal for about 103 mining claims — including Cliffs’ flagship $3.3 billion Black Thor chromite deposit — in the region estimated to be worth $50 billion during the height of the commodity boom. Cliffs paid $240 million for the assets in 2009.
The market has since shifted and a lack of concrete movement in talks between First Nations, government and developers has turned many miners off of the 5,000 square kilometre area said to be rich with chromite, copper, zinc, platinum and other valuable metals.
The Ring of Fire was once touted as Canada’s next oilsands, but interest in the area has fallen off and the prospects for development in the remote region, located on First Nations land, have dimmed.
Cliffs decided to suspend its projects in the area in late 2013, citing numerous delays and difficulties that prevented the project from moving ahead. It was also drowning in debt amid a flagging market for commodities. It has shuttered its Toronto office and laid off many of its Canadian employees. In January, the company sought creditor protection for its Bloom Lake iron ore mine in Quebec after failing to find a buyer.
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Why We’re Drifting Towards World War 3
Why We’re Drifting Towards World War 3
The Economist argues that there are ominous parallels between the conditions which led to the first world war and today:
The United States is Britain, the superpower on the wane, unable to guarantee global security. Its main trading partner, China, plays the part of Germany, a new economic power bristling with nationalist indignation and building up its armed forces rapidly. Modern Japan is France, an ally of the retreating hegemon and a declining regional power. The parallels are not exact—China lacks the Kaiser’s territorial ambitions and America’s defence budget is far more impressive than imperial Britain’s—but they are close enough for the world to be on its guard.
Which, by and large, it is not. The most troubling similarity between 1914 and now is complacency. Businesspeople today are like businesspeople then: too busy making money to notice the serpents flickering at the bottom of their trading screens. Politicians are playing with nationalism just as they did 100 years ago. China’s leaders whip up Japanophobia, using it as cover for economic reforms, while Shinzo Abe stirs Japanese nationalism for similar reasons.
The New Republic points out that global downturns can lead to war:
As the experience of the 1930s testified, a prolonged global downturn can have profound political and geopolitical repercussions. In the U.S. and Europe, the downturn has already inspired unsavory, right-wing populist movements. It could also bring abouttrade wars and intense competition over natural resources, and the eventual breakdown of important institutions like European Union and the World Trade Organization. Even a shooting war is possible.
The Telegraph notes that the economic crisis in Europe is increasing tensions:
Tensions between European countries unseen in decades are emerging.
(Indeed, Europe is stuck in a downturn worse than the Great Depression.)
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