The recent oil downturn is no surprise – it was, in part, expected somewhat – at least to Little Bow MLA David Schneider.
“The oil industry is cyclic, it just is,” said Schneider. “That is the nature of the beast. It is our number one resource, our number one form of income for the province, and at this point of time, a barrel of oil is under $50; and governments have to be cautious – when they make their budgets – when oil is low.”
Schneider made those comments before the Albertan 2015 Budget was released. The budget runs a $6.1 billion deficit, although the provincial government has made a five-year plan to get it balance for the 2019/20 fiscal year, in part due to an expected long-term oil depression.
According to Energy’s Alberta’s website, conventional oil royalties alone has generated – from the 2010/11 to 2014/15 fiscal years – over $11 billion for the province.
When adding other sources such as oil sand royalties and bonuses and sales of crown leases, the oil and gas industry has helped generated over $8 billion in the 2014/14 fiscal year alone.
“From an opposition perspective, we sure hope the new government gives us moderation, when they speaking with the oil industry.”
Alberta is home to the third largest oil reserve in the world, with Venezuela and Saudi Arabia as home to the largest and second largest reserves respectfully.
The Alberta government owns 81 per cent of mineral rights in Alberta, and currently, a royalty review is underway to determine if they should raise or decrease their royalty rates. Schneider disapproves of the review, saying it’s the wrong move.
“The new government’s ongoing review of royalty rates creates, understandably, is creating uncertainty in the industry. And the industry gets a little upset when the premier of the province asserts that the province has become “an embarrassing cousin” because of it’s many impacts on the environment,” said Schneider.
“I’m not sure about that statement. Alberta is a global leader in environmental protection in almost every category, and that’s what we should be talking about.”
The price of oil has dropped about $30 in the last year, according to Nasdaq, with the lowest price falling below $40 a barrel in mid September. It is priced at $40.66 as of 3:30 p.m. on Nov 18.
With the price of oil down, companies in turn aren’t drilling or doing exploration, and don’t need so many workers in the oil fields.
In the first eight months of 2015, 65,000 jobs were lost as companies in various sectors laid off workers due to the low oil price.
“There have been many documented jobs that have been lost in the province,” said Schneider. “(My riding, Little Bow) basically agriculture, and there’s certainly oil and gas scattered throughout this riding as well, and people’s jobs are quite possibly at stake. Look at in Taber, there’s lots of oil field service, and when oil company income drops, they have to slow things down and wait for the price of oil to increase.”
Because oil is a globally traded commodity, it is also affected by international changes such as when Saudi Arabia flooded the market with oil.
“Unfortunately, it is susceptible to other countries, turning the taps for oil on for one political reason or another, and that drives the prices for oil down. There’s probably a dozen or more reasons then that, that’s how this industry works; it’s very cyclic because it’s tied to a world market, that’s what we deal with when oil prices drop,” said Schneider.
“As far as diversification in the province, that’s something to consider. If you base everything on the price of a barrel of oil – this is what you get.”
A new ministry of Economic Development and Trade was introduced last October, with a focus on supporting small and medium sized businesses, sector development initiative and implementing a strategy to increase trade, attract investment and access to the market. He hopes that the ministry can come up with a plan to diversify Alberta’s portfolio, so it isn’t so dependent on the price of oil.
Until then, because of outside factors affecting the oil industry in Canada, Schneider says that the Alberta oil industry will have to wait out the downturn.
“I’d say we’d have to ride it out. Nobody has control over the world price of oil; we’ll just have to wait. It’s cyclic; it’s done this and done this. We’ve lived through it before and we’d live through it again, and times will get better, and we hope we’ll be ready for that,” said Schneider. “That we’ll have people coming back to Alberta, to go to work, and we’d have our schools and hospitals up to snuff, to handle all the people.”
“There’s no way of judging when the price of oil is coming back; you can read every forecast in the book, and they’re all different. So (it’s) impossible to say.”