Business

Oil and gas sector says investment will drop by $50B

Canada's energy industry has calculated the drop in investment that it says the oil and gas sector has suffered over the past two years: The number comes to $50 billion, a 62 per cent drop since 2014.

Canada's energy industry says it's facing its biggest drop ever in capital spending

Low oil prices will likely lead to a 62 per cent drop over two years in capital investment in Canada's oil patch, an industry group says. (Hasan Jamali/Associated Press)

Capital spending in Canada's oil and gas industry will drop by more than half — $50 billion — by the end of 2016 as compared to 2014, according to a forecast released by the Canadian Association of Petroleum Producers.

In 2014, capital spending in the oil and natural gas sector amounted to $81 billion.

In 2016, that number is set to drop to $31 billion, a 62 per cent decline, as companies continue to cut back because of persistently low energy prices.

It's the largest two-year drop since industry started tracking the data in 1947, CAPP says.

The total number of wells drilled in Western Canada this year is forecast to decline to 3,500, from 10,400 in 2014.

Capital spending in oil and gas sector is expected to drop by 62 per cent by the end of 2016. (CBC/Chartbuilder)

CAPP is calling for "urgent action" so that the industry remains competitive.

"Canada needs urgent action to remain a competitive market for oil and gas investment, and to be competitive relative to other oil and natural gas producing jurisdictions," Tim McMillian, CAPP's chief executive, said in a news release.

Greenpeace: industry is being wilfully blind

Keith Stewart, climate and energy campaigner with Greenpeace Canada, says Canada should take no action to prop up the fossil fuel industry.

"CAPP is being wilfully blind to how energy markets are changing in response to the climate crisis," Stewart said. "Canada needs to take action so that we win in the new world of low-carbon, renewable energy. Oil companies have a choice: transform themselves into clean energy providers or go the way of the dinosaur."

Specifically, CAPP is looking for some movement on the pipeline issue, saying Canada remains hampered by dependence on just one customer — the United States — which itself has started to export oil.

"The United States, our only customer and No. 1 competitor, is certainly not standing still," McMillan said.

More pipelines, better economy, says analyst

Had Keystone XL or another export pipeline been built before the downturn, Alberta would not be hurting as much, according to Rob Mark, an energy analyst with 3Macs. 

"Keystone XL was delayed by four years and eventually cancelled," said Mark. "In between that time, you still had production moving forward, but instead of the oil moving on efficient pipelines to U.S. markets, it moved on railcars, which is much less efficient and costly. So when you have a pricing downturn, that production is less profitable."

Mark said that the oilpatch couldn't have avoided the pain of low prices, but with more pipelines in place, there would be a stronger industry right now because more of its production would be in the black.

The Bank of Canada said that it expects the Canadian economy will take longer than two years to recover from the oil price shock. Over that period of time, the bank said that the economy will gradually shift its focus away from the export of oil.

By then, the industry hopes to have at least one pipeline under construction.

"You're not going to solve the woes of the current Alberta economy by building a pipeline tomorrow," said Mark. "You don't need it tomorrow, but you will need it two, three, four years from now."

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