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How Does Low Oil Prices Affect Canada's Economy

633 Words3 Pages

Low oil prices are threatening the health of Canada's oil and gas sector, which is causing trouble in Canada's economy. The low oil prices are forcing billions of dollars in reduced spending for Canada's oil and gas industry. February 2015, Royal Dutch Shell (RDSA) moved away from plans for a project in Alberta that would have produced 200,000 barrels per day. In 2014, Petronas stopped plans to build a massive LNG export terminal on Canada's west coast. In fact, just a few of the 18 proposed LNG projects in Canada will be constructed. It is expected that in 2015, 37% ($43 billion) of revenue will be lost in the oil industry, extremely bad news for Canada's oil and gas. Canada's overdependence on oil and gas will threaten its broader economy …show more content…

Canada's GDP plummeted in January 2015, its economy appears to be shrinking by 1% annually. "Overall, unless oil prices rebound soon, the economy is likely to struggle much longer than the consensus view implies, even as the improving US economy supports stronger non-energy exports," Capital Economics concluded. (Cunningham, N., 2015)
Experts also worry that the collapse in oil prices will lead to less drilling, declining demand for supporting services, falling housing prices, a sinking stock market, and weakness in other sectors like construction and engineering. (Cunningham, N., …show more content…

Breakeven price for tar sands is between $90 and $100 per barrel, while steam-assisted extraction is between $60 and $80 per barrel. What has created an even worse problem is Canada's heavy oil trades at a discount to WTI (West Texas Intermediate, also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing), which is nearly $12 per barrel lower right now. A large reason for that discount is because of inadequate pipeline capacity that is trapping some tar sands in Canada. The main pipeline in Canada (Keystone XL) has been stalled and is currently the most controversial pipeline in Canada, but it is not the only pipeline that has been blocked. It has been stated that the inability to build enough energy infrastructure, plus Canada's near total dependence on the U.S. market, puts Canada's economy at future risk. (Cunningham, N., 2015) A survey done by The Bank of Canada asked top executives at 100 of Canada’s largest businesses, they found that two-thirds think it is critical to diversify the economy away from oil. Canada’s large dependence on commodities, along with the oil problem has force layoffs and has greatly increased unemployment in Canada. Hiring is at its lowest level since 2009, creating very low consumer confidence. Unfortunately, diversification can only be achieved over the longer-run, in the short-run Canada's economic fate will still be tied

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