Low oil price sends chills through energy investment
OTTAWA, Feb. 23, 2015 /CNW/ - The collapse in oil prices will send Alberta's economy into a tailspin, with real gross domestic product (GDP) forecast to contract 1.5 per cent this year, according to The Conference Board of Canada's Provincial Outlook-Winter 2015.
"The party appears to be over in Alberta, at least over the medium term, as low oil prices send chills through the economy. Several oil-industry firms have already announced sharp reductions to their capital plans and to employment," said Marie-Christine Bernard, Associate Director, Provincial Forecast. "In the next couple of years, a return to 4 per cent-plus growth is not in the cards, since oil prices will not hit triple-digits any time soon under current market conditions."
Planned reductions to oil-patch investments are already having immediate impact – the oil drilling rig count is down by 40 per cent in the first week of February. Job losses resulting from lower oil sector investment will weaken the housing market, the overall consumer sector and the flow of new arrivals to Alberta.
Government revenues, from labour and corporate income taxes and resource royalties, will be severely at risk this year. Over the past ten years, the provincial government has derived, on average, 29 per cent of its revenues from the resource sector, notably oil and gas royalties. The government has announced a 9 per cent reduction to programs spending for the upcoming fiscal year. Infrastructure programs announced in the 2014 budget are also at risk.
One bright spot for Alberta producers is strong demand for heavy oil in U.S. Gulf Coast refineries. Thanks to past investment, the energy sector has available capacity and it is able to increase non-conventional production.
Oil prices are expected to gradually rise as the global supply glut eases and worldwide demand improves. Prospects in the oil industry, both for capital expenditures and jobs, should gradually improve later this year and in 2016. The Alberta economy is expected to grow by a moderate 1.2 per cent next year.
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SOURCE Conference Board of Canada
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