Musings: Low Prices And Liberal Politics Change Canada's Energy Biz



Musings: Low Prices And Liberal Politics Change Canada's Energy Biz
G. Allen Brooks takes a look at the changing energy world in Canada in light of its new pipeline review criteria and the Alberta royalty review.

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

Natural resources play a significant role in Canada’s economy, especially in its Western provinces where most resources are located. As a result, the ending of the commodity super-cycle has dealt a devastating blow to the Canadian economy. For companies in the crude oil and natural gas sectors, dealing with low oil and gas prices has become a harrowing experience forcing substantial capital spending cuts, massive layoffs and financial devastation. The stress from managing companies in a low commodity price environment has been exacerbated by the altered political landscape, first in Alberta, and now nationally following the election of Justin Trudeau’s Liberal Party. This last power shift has placed the junior Trudeau in control of the economic policies of Canada. Prime Minister Trudeau entered the leadership office after having campaigned on a platform calling for more environmentally-friendly energy policies. That shift, which includes policies driven by climate change concerns, are now being unveiled. Energy company chief executive officers are confronting new challenges as they plot strategies for survival and eventually growth.

According to estimates from Natural Resources Canada, based on data from Statistics Canada, in 2014 the activity of natural resources industries contributed 20% to the country’s gross domestic output, both directly and indirectly. The direct contribution was estimated at 15%, with the energy component accounting for two-thirds of the total. Equally important, the natural resource sector accounts for 10% of the nation’s employment, and the jobs the industry creates are well-paying ones. Therefore, the commodity business downturn may be taking an early and meaningful bite out of Canada’s economic growth.

Musings: Low Prices And Liberal Politics Change Canada's Energy Biz
Natural Resources Importance To Canada
Source: Natural Resources Canada, Statistics Canada
Musings: Low Prices And Liberal Politics Change Canada's Energy Biz
Natural Resources A Significant Employer In Canada
Source: Natural Resources Canada, Statistics Canada

The epicenter of the natural resources pain is Alberta. There the broad economic outlook is deteriorating. The latest economic statistics show that the province’s unemployment rate is up to 7% and average weekly earnings are down. People are leaving the province as jobs are no longer available. The housing sector is suffering as starts, new building permits and existing house sales are all lower by double-digit percentages as of November 2015 compared to the same month in 2014. New vehicle sales were also lower by double-digit percentages.

Further to the importance of the natural resource industry to Canada’s economy, in 2014, the industry invested C$126 billion (US$90.6 billion), or 47.5% of the nation’s total capital expenditures. The energy sector’s capital expenditures of C$108 billion (US$77.7 billion) represented nearly 86% of the natural resource total and nearly 41% of total expenditures for Canada.


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