Plunging oil prices will cost the Canadian economy $43 billion in revenues and nearly 8,000 jobs in 2015, according to The Conference Board of Canada’s latest outlook report.
Canada’s oil and gas industry will see its revenues fall by 37 percent this year, as oil companies post a pre-tax loss of more than $3 billion and shed nearly 8,000 jobs, according to the latest outlook from The Conference Board of Canada. Oil industry revenues are forecast to plunge $43 billion this year and oil investments are forecast to drop to $44 billion from $56 billion a year ago.
“With WTI prices now hovering below US$50 and most projections climbing slowly to US$80 a barrel in the next few years, the Canadian oil industry is coming to grips with the new price environment,” said Conference Board economist Mike Shaw. “Canadian companies have quickly cut billions from their investment plans, as well as instituted layoffs and hiring freezes to minimize losses. Consolidations and reevaluations of spending plans will likely continue through 2015 and 2016.”
The halving of oil prices over the past eight months has delivered a serious blow to the Canadian economy, resulting in large scale spending reductions for Alberta’s oil and gas industry. Malaysian oil and gas company Petronas has already scrapped plans to build a liquefied natural gas (LNG) export terminal in British Columbia. Most of the 18 proposed LNG projects in Canada will also be delayed, according to Moody’s Analytics.
The economy of Alberta, the capital of Canada’s once booming oil industry, is expected to enter a mild recession this year. Plunging oil prices will also weigh on the rest of the economy, according to the latest Bank of Canada forecast. The BOC expects Canada’s GDP to grow just 1.5 percent in the 12 months through June, nearly one percentage point below prior estimates.
Alberta is home to the world’s third largest known oil reserves, but much of is trapped in the province’s oil sands. At around $80 a barrel, Alberta’s oil sands are among the most expensive types of crude to produce. By comparison, one barrel of oil in Saudi Arabia costs around $20 to produce.
With oil prices expected to average only $55 a barrel in 2015, the Canadian economy could weaken further in the latter half of the year. This could place added pressure on the BOC to loosen monetary policy even after adjusting interest rates for the first time in more than four years.
The BOC will publish its next interest rate statement and quarterly Monetary Policy Report on April 15.