The Syncrude oil sands mine in Fort McMurray, Alberta
Calgary - AFP
Falling oil prices have slowed the phenomenal expansion of Canada's oil sands extraction trade but the industry remains optimistic it is only a temporary setback.
The price of oil fell $60 from June 2014 to January 2015, resulting in a massive budget deficit for the Canadian province of Alberta which will receive Can$7 billion (US$5.7 billion) less in energy royalties this year, forcing the local government to hike taxes and cut services for the first time in a generation.
It has been a tremendous shock for this oil-rich region after a decade-long boom that saw home prices soar, a new car in every driveway and jobs for everyone.
"The downturn has been brutal," said Brad Herald, vice-president of the Canadian Association of Petroleum Producers (CAPP).
Oil company executives initially expected the global energy slump to be temporary and oil prices to soon bounce back, but they now admit a return to prosperity could take longer than imagined, commented Robert Schulz, a professor of petroleum land management at the University of Calgary.
Herald acknowledged the initial forecasts were wrong.
However, he added: "We've seen ups and downs. If you look back at the past 30 years, we had five or six dips in the market, they all happened because of slightly different reasons but the fundamentals of supply and demand usually get restored."
In the meantime, the industry has been slimming its liabilities, laying off workers and putting new mega-projects on hold.
Over the past six months, Canadian firm Suncor shed 1,000 jobs in the Alberta oil sands. American firm ConocoPhilips and its partner Paris-based Total cut 200; China's Nexen slashed 350; and Anglo-Dutch group Shell announced 300 layoffs.
From September to February, a total of 20,000 jobs in the oil sands were lost, according to the Canadian government statistical agency.
"When companies are taking decisions on personnel, (firing people) is the last thing they want to do," Herald commented.
Total, meanwhile, has suspended development of two out of four oil sands bitumen deposits. Chief executive Laurent Maurel said the two on the chopping block were simply "not financially viable" at current oil prices.
In his Calgary office, surrounded by maps and geological surveys of the oil sands, however, he insisted that foreign interest in Canadian oil remains strong.
Each year, global oil reverses diminish "by 4.5 billion barrels per day, and new deposits must be mined or extracted to meet growing consumption," Maurel explained.
"The 2015 price of oil is irrelevant. What matters is what happens in the long term," he said.
Despite recent setbacks, he noted, Total remains committed to extracting 130,000 barrels of oil per day from the oil sands by 2018, representing five percent of the company's global output.
- Doubling production -
The petroleum industry has forecast new investment in the oil sands to fall this year by one-third, to Can$46 billion.
Long-term forecasts unveiled in February, however, point to a doubling of oil sands output to about six billion barrels per day by 2035. This year and next, the industry will likely see small increases of 150,000 barrels of oil per day, before it picks up.
The double whammy of low oil prices and a lengthy delay in obtaining US permits to build the Keystone XL pipeline connecting the oil sands to refineries in the US Gulf Coast, and other proposed pipelines to Atlantic and Pacific ports in order to reach foreign markets, are widely seen as minor obstacles that cannot hold back a nation hellbent on exploiting its natural resource wealth.
"When we announced Keystone in 2008, oil prices were below $40 per barrel. They rose to $100 and came down again, so we're less influenced by short terms spikes," said Mark Cooper, a spokesman for pipeline builder TransCanada.
"Our shippers will remain committed to Keystone."
Even as the sector struggles in landlocked Alberta, it is eyeing another potential new energy source offshore and further north.
The US Geological Survey thinks the Arctic seabed could hold 13 percent of the world's undiscovered oil and up to 30 percent of its hidden natural gas reserves.
Several Arctic oil exploration expeditions were recently suspended.
But Herald said: "The sector will remain interested in (the Arctic) for decades to come given the sheer size of the potential deposits."