Falling oil prices won’t cause shut-downs in Alberta: Prentice

Alberta Premier Jim Prentice says his province’s oil companies are not facing closures, even as prices approach $70 a barrel.

“We don’t see oilsands operations shutting down,” Prentice told CTV’s Question Period in an interview that aired Sunday. “These are massive capital investments that have been built on a 50-year time horizon.”

Crude oil prices have dramatically fallen since June, when prices reached this year’s high of $107.54 USD per barrel of West Texas Intermediate crude oil. On Friday, WTI oil was about $75.70 per barrel.

WTI is a U.S. grade of oil used as a benchmark for oil prices in North America. The price of Brent crude oil, the European benchmark, has also fallen since the summer.

On Friday, the International Energy Agency released a report predicting that prices will continue to fall into the new year. The global price of oil has plummeted 31 per cent over the past five months – a drop that comes after a four-year period of prices hovering around the $100 a barrel mark.

The report said falling oil prices have been caused by large supply, low demand, and strong U.S. dollar. In order for the price to stabilize, “further oil price drops would likely be needed for supply to take a hit — or for demand growth to get a lift,” it said.

Analysts suggest that once prices fall below $72 a barrel, companies will begin to face serious financial consequences, and that some may be forced to close. But Prentice said Albertan oilsands companies are expected to survive the continuing drop in prices, even if they reach that $72 threshold.

Conservative Alberta MP Kevin Sorenson, the minister of state for finance, disagrees, saying falling oil prices could hurt employment numbers.

“We know that if oil prices continue to fall … in the long term that’s going to be very difficult,” Sorenson told Question Period. “It’s not so much that $70 is the plateau, but if it continued to fall, we could expect that there would be job losses.”

Though Prentice was more optimistic about the “resilience” of Albertan companies, he also said falling prices are cause for concern.

“I don’t want to underestimate the importance of this. The low-price environment has a significant implication for all of us,” Prentice said.

The premier said new projects may need to be postponed, and that the Albertan government must be prepared to control spending and budgeting.

According to the Alberta government’s budget website, if oil prices drop even $1 per barrel over 12 months, it can result in more than $200 million less in revenue for the province.

Right now, a low Canadian dollar and high oil prices early in the year have lessened the blow of current prices. Other factors, such as interest rates, household income and differences between Western Canadian Select and West Texas Intermediate pricing, also affect Alberta’s oil revenue.

But Alberta’s provincial government factors all these variables into their economic forecasts.

“People need to be aware it’s a time for fiscal prudence. It’s a time for caution,” Prentice said Sunday. “And it’s a time to control what we can control, which is our public expenditures.”

With files from CTV’s Ottawa Bureau Chief Robert Fife. Question Period airs weekly on Sunday at 11 a.m. ET.

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