Alberta prepared to use ‘curtailment tool’: Kenney
CALGARY With layoffs, bankruptcies and a full-blown recession expected in Alberta, the provincial government says it’s prepared to use stricter production limits to ensure “a survival price” for the province’s oil industry.
“Unfortunately, we do expect to see a number of layoff announcements in the next two to three weeks,” Alberta Premier Jason Kenney said Wednesday of the impact of this week’s oil price crash on the province’s biggest industry.
Kenney left for Ottawa on Wednesday, where he’ll ask the federal government to hold off on methane regulations and clean fuel standards as Alberta’s economy is headed for a recession given the dual effects of the novel coronavirus driving down oil demand and Saudi Arabia entering into an oil price war with Russia.
The province’s economy “is caught in the crossfire” of the price war between the oil heavyweights, ATB Financial chief economist Todd Hirsch said in a research note Wednesday.
“Early indications suggest both sides are digging in for a prolonged fight. If this is the case, oil prices are likely to be soft for some time, leaving Alberta with little choice but to weather the storm,” Hirsch said.
The West Texas Intermediate benchmark price continued its multi-week decline on Wednesday, tumbling four per cent to settle at US$32.98 per barrel, after Saudi Aramco announced it would produce 13 million barrels of oil per day.
Western Canada Select was trading at around US$20 per barrel.
“Without OPEC+, the global oil market has lost its regulator and now only market mechanisms can dictate the balance between supply and demand,” Rystad Energy head of upstream research Epsen Elingsen said in a note Wednesday, which predicted oil prices could fall to US$20 per barrel.
Numerous Canadian producers have announced spending cuts including Seven Generations Energy Ltd. on Wednesday as well as MEG Energy Corp., Cenovus Energy Inc., Whitecap Resources Inc., Tamarack Valley Energy Ltd. and Journey Energy Inc. earlier this week.
Economists say that, once again, Alberta is facing a recession even as it has yet to fully recover from the last recession, which began over five years ago.
The impact of the downturn will be felt “right across the economy,” Kenney said, stretching beyond the oil and gas industry, into the tourism sector and affecting airlines such as Westjet Airlines Ltd., which is based in Calgary.
Kenney said he expects that crude-by-rail exports will fall by 500,000 bpd in March — which would represent an all-time high — to 100,000 bpd next month.
The fall in crude-by-rail shipments will likely cause oil storage tanks to fill up, contributing to a glut of oil in the province and leading to lower prices for Canadian heavy oil.
“We will use the curtailment tool responsibly to ensure at least a survival price for our producers,” Kenney said, noting that the government is ready to increase production limits as necessary.
Economists and analysts believe the oilfield services sector — which includes drilling, trucking, construction and fracking companies — could be hit particularly hard. Financial Post