OTTAWA (Bloomberg) -- Canada’s oil and gas companies will slash investments by 35% in 2016, a record two-year decline that underscores a need for new pipelines, the industry’s main advocacy group says.
Capital spending will fall to C$31 billion ($23.6 billion) in 2016, from C$48 billion last year and C$81 billion in 2014, the Canadian Association of Petroleum Producers said in a statement Thursday. The 62% drop over the last two years is the largest on record since 1947.
The collapse in investment highlights the urgency for Prime Minister Justin Trudeau’s government to press ahead with new oil pipelines and liquefied natural gas developments for an industry struggling with the commodity price slump, said Tim McMillan, CAPP’s president and CEO. At least 40,000 jobs have been lost in the petroleum industry.
“If there’s a call to action here for Canada, it is that we have to be able to put ourselves on a level playing field to get to market,” McMillan said in an interview. His concern is that Canada’s drastic decline in capital spending--compared to the U.S., Saudi Arabia and other producers--will leave it ill-prepared for a quick rebound if prices recover.
As a result of slumping prices, the number of wells drilled in western Canada is forecast to decline to 3,500 in 2016, down from 10,400 in 2014, according to the group’s projections.
“We saw the downside faster and steeper than our competitors. And the upside, if it comes back and when it comes back, are we going to not be part of it?,” he said. “If we cannot increase our ability to get our products to market, that will have a dampening effect on whether that investment comes back in.”
Different approach
Trudeau’s budget, revealed on March 22, included new employment insurance measures for workers affected by the crude price shock. It didn’t include any major new measures to spur investment in the oil and gas sector.
The Liberal government has also unveiled tougher environmental standards for energy projects, and has taken “a different approach” than its Conservative predecessor in spurring oil and gas development, McMillan said.
“The effects of that are yet to be seen, but we will work with them and try and ensure we can be as productive and positive as possible in moving projects forward,” he said.
Natural Resources Minister Jim Carr didn’t immediately respond to a request for comment on the latest capital investment figures.
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