Canada’s oil and gas sector has slashed spending plans across the industry by $8.9 billion amid the economic fallout of the novel coronavirus, according to new estimates.
IHS Markit says while the bulk of the cuts have been made by large oilsands producers, there have also been “sizeable” spending reductions to conventional, unconventional, midstream and petrochemical projects.
It pegs the reductions in capital spending in oilsands alone at around $4.4 billion.
“Western Canada is accustomed to price volatility,” IHS Markit said in an analysis released Tuesday. “However, the scale of this demand shock is unprecedented.”
The impact on the sector, it adds, is expected to be “protracted, deep with long lasting ramifications” for the industry, jobs and the overall economy.
Canada’s oil producers have been hit hard by oil prices that have plunged worldwide.
OPEC and its allies tried over the weekend to shore up global prices with an agreement to cut back production, but concern remains it’s not nearly enough to address a massive fall in demand due to the pandemic’s economic impact.
Indeed, the International Monetary Fund’s latest outlook says the global economy is projected to contract three per cent in 2020, much worse than during the 2008-09 financial crisis. It expects world oil prices to improve in the coming years but remain well below last year’s average level through 2023.
In recent weeks, the price of heavy crude from western Canada has fallen to well below $10 US a barrel, prompting a number of major producers to announce deep spending cuts.
IHS Markit’s preliminary estimate indicates that capital spending in the upstream oilsands in 2020 may be at their lowest levels in over 15 years.
It also expects drilling activity in western Canada will fall further this year, adding it was already near record lows. IHS pegs the amount of capital spending cut by conventional and unconventional energy producers at more than $3 billion.
Alberta’s provincial government has said it expects Ottawa to come to the aid of the sector soon, including some form of credit backstop and help with cleaning up after orphaned oil-and-gas infrastructure.
It’s been weeks since Finance Minister Bill Morneau said assistance was “hours, possibly days” away. Prime Minister Justin Trudeau was asked Tuesday about when the federal government would deliver such a package.
“We will and we are looking at more specific, sector-related relief and supports for those sectors that are hardest hit, whether it’s the tourism sector, the airline sector or the oil and gas industry, or others,” Trudeau said.
“We will have more to say on that shortly.”