March 9, 2009

Canadian Energy Research Institute

Effects of slowdown in Alberta’s oil industry will be felt nationwide, report finds

RICHARD GILBERT

staff writer

Falling crude oil prices and a sagging global economy have curtailed investment and construction in Alberta’s oilsands, but a recent report shows that the repercussions will be felt outside of the province.

The report from the Canadian Energy Research Institute (CERI) provides some insight into the far-reaching implications.

“With over 70 percent of the initial capital investment (required for construction) taking place in Alberta, and the remaining (investment) taking place primarily in other parts of Canada, project delays will have real economic consequences,” it said.

This means that almost a third of the oilsands slowdown will be felt outside of Alberta.

The Calgary-based institute drastically reduced its estimates for investment in the oilsands between 2009 and 2020.

“The CERI 2009 Economic Slowdown Projection indicates that $218 billion will be invested in the oilsands for new production,” it stated.

That figure is $97 billion less than previously projected by the institute last year and $241 billion less than predicted in a different report.

The study assumes that oil stays below US$60 a barrel for most of 2009 and credit markets still lack liquidity.

Under this projection, economic recovery begins in early 2010, and oilsands development stalls until 2013, with no major growth until 2015.

“We assume this resumption to be limited to established oilsands projects and others with adequate financing in place prior to the credit collapse of 2008. It takes at least two years for most mining and in situ projects to start production after construction begins,” said the report.

“However, many projects will not start construction in 2010, but will begin a reassessment and refinancing period that could take several years. Some projects are likely to be deferred until 2015, which will create a further backlog in projects, pushing those with 2015 plans (as announced in 2006 to early 2008) beyond 2020.”

Even though the recession will bring some hardship for the industry, the study argues that it is also a time for entrepreneurs to prepare for the economic recovery.

“During this time there will be layoffs, and project delays and cancellations,” explained the report.

“However, this province was built on the entrepreneurial spirit of Albertans, many of whom will recognize this for the opportunity that it is: a chance to secure materials and equipment – and the best labour available – at rates not seen since early last decade, when the oilsands was just starting to boom.”

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