Misery Deepens in Canada’s Oil Patch

albertaflag, cc Flickr Jerry

Summary

The energy sector is the lifeblood of economic activity in Canada’s oil patch. In 2014, the upstream energy sector employed over 133,000 people in Alberta, providing over $5 billion in royalty revenue to the province. In all, the energy patch has attracted over $200 billion in investment from 1999-2013.

But Canada’s oil patch has fallen on hard times over the past two years.

The ongoing price war between OPEC and non-conventional producers has driven energy prices down, hurting high-cost upstream companies. The result has been a long period of belt-tightening and consolidation in the industry, one that is having a detrimental impact on Alberta’s fiscal outlook. As if this wasn’t enough, historic wildfires ripped through the heart of the oil patch in May 2016.

Going by macroeconomic factors (global oil supply) and more local ones (Alberta’s worsening fiscal outlook), there’s little reason to believe that relief will be coming any time soon.

 

Impact

Wildfires make a bad situation worse. The wildfires of 2016 were an economic disaster for Canada’s oil patch. They interrupted production at various sites, resulting in millions of barrels of lost production; they hammered insurance companies to the tune of $3.58 billion, and destroyed over 2,800 homes, buildings, and critical infrastructure.

The fires also diverted capital spending from companies that had to repair existing facilities instead of building new ones. Matt Foss, Alberta’s chief energy economist, estimated that up to $1 billion of capital expenditure spending had been deferred or cancelled outright due to the wildfires.

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