The economic fall out from the dramatic fall in crude prices can be seen in the Alberta Oil Sands project. The oil sands, which are estimated to have 173 billion barrels of oil, second only to Saudi Arabia, could only be harvested with crude oil prices at $70 plus. While oil prices continued to rise last year companies were only too keen to exploit the potential with benefits to the local economy including unemployment at almost zero and a building programme of more hospitals, schools and roads. Alberta also established a $14 billion “sustainability fund” – a contingency against any fall in the price of oil.
With oil prices at around $40 a barrel producers such as Shell are cutting back on any future expansion, at least until the cost of production falls into line with crude oil prices. In the meantime Devon Energy are pressing ahead with approved projects in the belief that prices will rebound in the near future. However, if oil prices stay low and the recession continues Alberta will be forced to cut back on services and programmes, as has been confirmed by Premier Ed Stelmach.
In the light of the Obama administration’s call to “buy American” Stelmach and Brad Wall, Premier of Saskatchewan have been keen to stress the importance of preserving good trade relations with the US and any move by the US to a more “protectionist” stance would severely dent any future growth. The stress is on cooperation and coordination to apply new technologies for reducing pollution, especially in the emissions-heavy oil sands operations.
Stelmach and Knight have shorted the Alberta Treasury by over 12 billion dollars when they reduced the royalty take from US to Canadian dollars. Their determination to leave the oil at 19% and forgo any start up revenue until oil reaches 55.00 further eradicates the operating revenues for this province.
Yes they are going to have to cut programs which is exactly what they wanted to do following a conservative agenda.
There are also geopolitical issues and consequences attached to a falling oil price. I understand the Saudis can just about cope with oil at around $45 other states such as Venezuela, Russia and Iran need oil to be considerably higher – $70+.