CALGARY, Canada—The Conference Board of Canada delivered bad news Wednesday, March 25, for those hoping that the latest crude oil downturn will create only short-term pain.
The Ottawa-based think tank predicts that Canada’s oil industry will see a 37 percent drop in revenues, a pre-tax loss of $3 billion, and 8,000 fewer jobs this year compared with 2014.
“This is a new oil market,” Conference Board economist Mike Shaw said in an interview.
But he said it’s not the “end of the world.”
“I know it looks rough right now, but hopefully by the end of 2015, we start to see prices back towards US$60 and maybe we start to see the light at the end of the tunnel.”
Over the Conference Board’s outlook through 2019, US$80 oil is the best it gets. The main reason is fracking technology that has helped unleash huge crude volumes from U.S. shale formations—a big contributor to the current slump.
“The period of triple-digit oil has passed for now. With the technological genie of horizontal drilling and multi-stage fracturing forever out of the bottle, the U.S. industry will be able to respond quickly and increase production if prices reach US$80 a barrel again, putting a hard cap on prices,” the Conference Board said in its report.
The outlook through 2019 is about US$30 below what the board had forecast during the first quarter of 2014.
The $56 billion invested in 2014 “may prove to be the high-water mark for oil spending in Canada,” the report said. Spending is expected to ring in at $44 billion this year and $40 billion next year, with a moderate recovery in 2017.
Many new oilsands projects aren’t economically feasible at today’s prices. Break-even costs for projects that extract bitumen by injecting steam underground are between US$60 to US$80 a barrel. For a new open-pit mining project, it’s US$90 to US$100 a barrel.
The oilsands will continue to grow, just at a slower pace than before. And that’s not necessarily a bad thing, said Shaw.
“It means really that we’re going to see marginal players that just don’t go ahead anymore. It’s going to be a focus on the best assets,” he said.
“It’s not going to be a rush in anymore. You’re going to see companies that take their time and really stage things out.”