Are Cana­di­ans feel­ing any re­lief?

Down­turn in oil in­dus­try leaves many ques­tions to be an­swered

The Compass - - OPINION - BYDANIELMACEACHERN dmaceach­ern@thetele­gram.com

Even in Fort McMur­ray — the crude-pump­ing heart of Canada’s oil econ­omy — re­lief at the gas sta­tion doesn’t come easy.

“The thing about Fort McMur­ray is the cost of liv­ing is higher, so gas sta­tions have to charge more be­cause of their over­head costs,” says Steve Kelly, a heavy-equip­ment op­er­a­tor with Sun­cor.

It’s just in the past week that gas prices have dropped un­der a dol­lar per litre in the north­ern Al­berta city, fi­nally bring­ing at least a lit­tle re­lief to house­hold bud­gets en­joyed by the rest of the coun­try — an av­er­age price of 92.8 cents per litre across the coun­try, a drop of just more than 30 cents from a year ago.

Else­where, Tom Crocker can only watch with envy as driv­ers fuel up with the low­est gas prices in Canada in a decade.

The truck­ing company owner has a New­found­land-based fleet of a dozen rigs that — like almost the en­tire in­dus­try — run on diesel. And while the cost of diesel has come down some­what in re­cent weeks, it hasn’t matched the fall of gas prices.

“Our trucks run on diesel, so we’re not re­ally see­ing that much of a change,” he said.

Even worse, the cra­ter­ing price of oil has com­pa­nies think­ing twice about in­vest­ing in costly projects.

Canada’s Sun­cor, France’s To­tal and Norway’s Sta­toil have all re­cently halted projects in the oil­sands, as the ex­pense of un­con­ven­tional min­ing means oil cur­rently hov­er­ing around $50 a bar­rel isn’t worth it.

That’s bad news for Crocker — and the myr­iad of com­pa­nies and em­ploy­ees that pay the bills, di­rectly and in­di­rectly — from Cana­dian oil.

Much of Crocker Trans­port’s business comes from shipping freight to and from Bull Arm, the largest in­dus­trial fab­ri­ca­tion site in At­lantic Canada, as well as other oil-re­lated business and job sites, mean­ing an oil slow­down has him ner­vous.

“I’m wor­ried about less projects be­ing started,” he said, point­ing to Husky En­ergy’s an­nounce­ment in De­cem­ber that it would de­fer an in­vest­ment decision on its off­shore West White Rose oil­field ex­ten­sion project for a year.

“That prob­a­bly would have had pos­i­tively af­fected business. And now, with that can­celled — or what­ever — it’s prob­a­bly go­ing to have a neg­a­tive ef­fect.”

Nat­u­rally, Canada’s most di­rectly oilde­pen­dent prov­inces — Al­berta, Saskatchewan, and New­found­land and Labrador — are go­ing to feel the big­gest pinch, says Avery Shenfeld, CIBC World Mar­ket’s chief economist, while prov­inces whose for­tunes are less tied to price fluc­tu­a­tions, will en­joy a lit­tle ex­tra pur­chas­ing power, since Cana­di­ans spend more on trans­porta­tion than on any other ex­pense other than shel­ter.

More broadly, ex­port­ing prov­inces like On­tario may see a ben­e­fit to a weak­en­ing Cana­dian dol­lar. But it may be too op­ti­mistic to hope that ex­tra money in your pocket will boost the Cana­dian econ­omy enough to make up for fall­ing oil rev­enue, says Lau­ren­tian Univer­sity eco­nomics pro­fes­sor Louis-Philippe Ro­chon.

“Most econ­o­mists be­lieve this is go­ing to give a boost to the econ­omy. I just don’t see that,” said Ro­chon, who said the av­er­age Cana­dian will save $15-$17 a week in gas costs.

“Fif­teen dol­lars is bet­ter than noth­ing, but I just don’t think that’s enough. I think most peo­ple are go­ing to spend that on very ca­sual con­sump­tions.”

The short-term gain may be dis­tract­ing peo­ple from con­sid­er­ing the broader ef­fects of cheap oil, he said. After all, a cheaper fill-up won’t be enough to make it up to some­one who’s lost a job — and Ro­chon pre­dicts lay­offs — be­cause of a slow­down.

Shenfeld said Cana­di­ans don’t need to live in the coun­try’s main oil-pro­duc­ing prov­inces to feel a squeeze.

“There are peo­ple whose in­comes are tied to the oil in­dus­try, the ser­vices in­dus­try that sur­rounds the oil in­dus­try, or are tied to gov­ern­ment spend­ing that has been fi­nanced in no small mea­sure by rev­enues from the oil in­dus­try,” said Shenfeld.

“So for those con­sumers, the con­cerns about their in­come growth, about the sta­bil­ity of their in­comes, could eas­ily out­weigh the ben­e­fits of cheaper gaso­line prices.”

While Crocker and oth­ers like him won­der about how long it will be be­fore oil re­bounds enough, econ­o­mists are of­fer­ing their best guesses — with “guess” be­ing the oper­a­tive word, says Shenfeld, who fig­ures an av­er­age $80 a bar­rel will be needed to gen­er­ate the cap­i­tal spend­ing needed to meet grow­ing world de­mand for oil be­tween now and the end of the decade.

“If we get pro­duc­tion de­clines in the first half of the year that are sig­nif­i­cant, and a pickup in the global econ­omy, you might start a sub­stan­tial re­cov­ery in the lat­ter half of 2015,” he said, at­tribut­ing the de­clin­ing prices to a boom in pro­duc­tion cou­pled with lower than ex­pected de­mand.

“But it’s not inconceivable that we don’t see a re­cov­ery un­til very late this year, in which case the av­er­age price of oil will be a lot lower.”

Back in Fort McMur­ray, Kelly — also the pres­i­dent of the Wood Buf­falo and Dis­trict Labour Coun­cil — says oil­sands work­ers are ex­pect­ing some short-term pain as com­pa­nies wait to see the price of oil re­cover.

But the city has seen eco­nomic down­turns be­fore, he points out, and peo­ple there know things will turn around.

“It’s just a ques­tion of when,” he said. Un­til then, he added, McMur­rayites will ride it out.

There’s a rea­son, he said, that Fort McMur­ray’s United Way cam­paign has raised the most money per capita of any branch in Canada for eight years run­ning.

“We band to­gether.”

— Photo by Keith Gosse/The Tele­gram

Cana­dian driv­ers are top­ping their tanks with the cheap­est gas in decades … and loving it. But the low prices aren't popular with ev­ery­one, as the im­pact of the drop­ping price of oil sideswipes the econ­omy and the bot­tom line for many busi­nesses.

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