TORONTO – Alberta’s oil-heavy economy will likely dip into recession as oil prices plunge, according to a report by a Canadian economic think-tank.
In another sign of trouble, Canada’s largest oil sands company, Suncor Energy Inc, announced massive layoffs Tuesday.
The Conference Board of Canada said the western Canadian province’s latest employment and new housing start numbers are holding steady, but that Alberta will slip into recession if oil prices stay low. Alberta has the world’s third-largest oil reserves after Venezuela and Saudi Arabia, and Canadian oil is the single largest source of U.S. oil imports.
“It’s going to be very hard for Alberta to avoid a recession this year,” said Glen Hodgson, the think-tank ‘s chef economist.
The price of a barrel of oil has plummeted from $105 as recently as June to $45.89 on Tuesday — its lowest price in six years.
“Going forward, the province is certain to suffer, especially on the employment front, from the drop in oil prices — and it is likely to slip into recession,” Daniel Fields, an economist at the not-for-profit research organization, said in the report released late Monday.
Suncor announced after markets closed Tuesday that it is reducing its workforce by 1,000 and cutting $1 billion from its capital budget in response to plummeting crude oil prices.
The Calgary-based oil sands giant said the job cuts will mainly affect contractors, but include some employee positions as well.
In November, Suncor predicted capital spending for 2015 would range between $7.2 billion and $7.8 billion.
Projects that haven’t yet been given a final go-ahead by Suncor’s board are being deferred, such as expansions to the MacKay River project in northeastern Alberta and the White Rose development off the east coast.
But major projects under construction such as the $13.5-billion Fort Hills mine north of Fort McMurray, Alberta are moving ahead as planned.
However, Alberta’s premier disputed the Conference Board’s predictions that his province could slip into recession.
“I didn’t find their analysis to be particularly cogent to be frank, and the opinion that they put forward is an outlier among all of the other opinions that have been put forward by every one of Canada’s chartered banks,” Jim Prentice said during a press conference Tuesday. “And by other respected forecasters.”
Prentice, however, warned Albertans they face several difficult years in response to low oil prices. He said it’s a very different situation than the 2008 global financial crisis, when Canada avoided the worst effects because of a strong financial system.
The deputy head of Canada’s central bank, Timothy Lane, said if crude prices persist, they will significantly discourage investment in the oil sector, which he said accounts for about 3 per cent of Canada’s gross domestic product. The central bank said that low oil and commodity prices are putting the Canadian economy’s post-recession recovery at risk.
His remarks follow Bank of Canada governor Stephen Poloz’s statement last month that low oil prices could knock 0.3 percentage points off the pace of economic growth.
Last year, Alberta’s economy grew by 3.9 per cent, according the province’s website. Alberta has led all of Canada’s provinces in GDP growth over the past two decades, due in large part to its oil industry revenues.
But Hodgson said that could easily change. Even if oil prices rebound to $65 per barrel, he forecasts that investment, profits and consumer spending will be down.
Already, Calgary-based Canadian Natural Resources Limited, an oil and gas exploration, development and production company, announced this week that it will spend $2.4 billion less than expected this year. Other Canadian energy companies such as Cenovus and Husky Energy have also recently announced reduced capital budgets.