Persistent low oil prices will make a whopping $1.5 trillion in near-term fossil-fuel energy projects unprofitable, according to fresh analysis from energy sector consultancy Wood Mackenzie.
Unconventional extraction endeavours in North America, such Alberta’s oil sands projects, are particularly hard hit by oil prices that have been depressed since last summer. Brent crude currently trades at $47.47 a barrel, down from $115 last June—the lowest level in some six years, and a product of weakening Chinese demand, high levels of production in the United States (US) and an output glut from Saudi Arabia.
The price crash means capital spending in the global oil and gas sector is set to droop by between 20 and 30 percent, according to the analysts. The study estimates that some $220 billion in investment (projected ahead of the oil price crash) has been parked already, an uptick of some $20 billion from the projections of losses from in July.
In any given year, the industry will invest in 50 to 60 new projects. A tenth of that will have been approved this year, with a slight uptick to 10-11 next year. Most of the drop has come from North American retrenchment. Wood Mackenzie predicts that the sector will begin to see a turnaround in 2017.
But in the meantime, firms will continue looking to slash costs via layoffs and wage reductions, particularly from oilfield service contractors.
Two weeks ago, the Canadian Association of Petroleum Producers warned that there have been around 35,000 job losses in the Albertan energy sector this year alone as a result of the downturn. Some 25,000 of these come from the oil services suppliers, while 10,000 come from workers engaged in exploration and production directly. The figures come from a survey of those members who have announced layoffs and a recently issued report by the Canadian Association of Oilwell Drilling Contractors.
An economist with ATB Financial told the Calgary Herald that the bulk of the losses this year will be happening this quarter, and that come 2016, people may start leaving the province. Last week, PHX Energy announced cuts of 500 jobs, atop salary cuts of 20 percent that had already been implemented earlier this year, while Penn West announced 400 full-time employees were to be laid off in Calgary, and ConocoPhillips Canada cut its workforce by another 500.
Some analysts are noting that the current volatility strengthens the argument toward shifting to a clean-energy economy sooner rather than later. However some oil firms are blaming their woes, in part, on clean energy policies.
For example, Canadian Natural Resources Limited announced last week that it will cut wages by up to 10 percent to prevent having to lay off staff, after a $405 million net loss in the second quarter. The firm claimed that it would have been okay if it were not for the hike in corporate taxes imposed on July 1, 2015, by Alberta’s new NDP government, which is widely seen as wanting to take tougher action on greenhouse gas emissions than previous administrations. But that hike, from 10 to 12 percent will still leave the Alberta corporate tax rate about two full percentage points below the provincial average in Canada.
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