Billions of dollars in cancelled and delayed Canadian oil sands projects has exposed Canada’s oil provinces as the areas hardest hit by lower energy prices and persistent credit worries.
At the heart of oil province Alberta’s recent economic slide is the removal of about C$45-billion ($35 billion) worth of proposed investment after the delaying or cancellation by several large oil companies of upgrader megaprojects. Upgraders produce a high-grade “synthetic” oil from heavy oil, although sharply increased heavy oil demand in North Amercian has curbed the attractiveness of upgraders, for now.
Whatever the reasons for put-off upgraders, the latest provincial forecast by Royal Bank of Canada says oil province Alberta's economic activity is forecast to decline 2.3 percent in 2009, the sharpest drop among Canadian provinces.
Alberta, a province of 3.5 million people — the fourth largest in Canada — faces its first budget deficit in a quarter century and sits C$1.4 billion in the red on lost oil revenue.
Oil company spending is most of the province’s “non-resident” spending, a figure seen plummeting 15 percent this year. It’s the first time in 10 years that there’s been a slowdown in oil company spending in the province.
Losing the thrust of oil revenues and the complementary construction “will prove hard to overcome for Alberta," said chief RBC economist Craig Wright in a recent report.
“However, as the global economy begins to recover later this year and re-invigorates demand and prices for energy, conditions in Alberta should improve,” he added.
Low oil and gas prices are already being internalized by Canada’s offshore oil province Newfoundland and Labrador, where “enthusiasm” is seen fading after a recent drop in oil production.
The RBC expects further declines in offshore oil production in 2010 and a corresponding contraction in overall economic activity for one of Canada’s least populated provinces.
“The violent swing in oil prices from all-time highs in mid-summer to four-year lows early in December has been a powerful reminder that booms in commodities can, indeed, quickly evaporate,” the report cautioned.
The bank’s forecasters said most affected oilfield projects have been at the early planning stages and scheduled to begin construction in coming years.
“(Cancelled and delayed projects) have, nonetheless, upset long-standing bullish sentiment in the province,” the bank concluded.
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