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Oil expert: worst is over for Alberta economy

Oil and gas industry expert David Yager says Canadian petroleum is very important to those south of the border.   - Stu Salkeld
Oil and gas industry expert David Yager says Canadian petroleum is very important to those south of the border.
— image credit: Stu Salkeld

For those readers who have a stake in the Alberta oil and gas industry, the guest speaker at the Wetaskiwin Regional Chamber of Commerce luncheon Feb. 9 had good news for you: the worst seems to be over when it comes to a flagging economy.

David Yager, an expert energy industry writer and speaker, told the chamber luncheon crowd numbers show the Canadian oil and gas industry is picking up steam. “I think the worst is over,” he said. “I really do.”

He began his presentation by pointing out that the recent election of Republican Donald Trump as president south of the border is an interesting situation and probably bodes well for business.

Using visual aids, Yager pointed out the painful facts of the last two recessions in Alberta. He noted how the value of oil and gas products peaked in 2008, then fell into “a huge correction” in 2009. Then the value rose again and peaked again in 2014, noting the drop in 2015/16 was $70 billion. “These are big numbers,” he said.

The drop in the price in oil was connected to high production, so much production, in fact, that some ended up in storage. Lots of oil means low prices.

Next up for viewing was a corporate cash flow chart. Yager noted that the oil and gas industry’s best year was 2008, when cash flow allowed for about $82 billion for companies to reinvest. Last year, that dropped to $20 billion. Yager stated that’s the smallest amount of cash flow for reinvestment in industry history.

As Yager pointed out, having that much of a financial drop had a huge effect on Alberta’s economy.

But it looks like the worst is over, he noted. Revenues in the oil and gas sector has increased 50 per cent and the cash flow situation is up to $45 billion. “That is enough money to move the needle,” said Yager.

Understanding how the North American oil and gas industry works is also important, stated Yager. He said U.S. oil consumption still the to important 8.3 million barrels per day and will stay that way for the foreseeable future.

Canada exports 2 million barrels of oil per day and 40 per cent of U.S. imports come from Canada. “We’re on the producing side, they’re on the consuming side,” said Yager, who added that he doesn’t see the Americans doing anything to restrict Canadian oil and gas production because the U.S. needs our product.

He said this is true despite the oft-mentioned “U.S. oil independence,” that the U.S. could or is able to produce all of the oil and gas it needs domestically.

In Canada, Yager said difficulties in the oil and gas industry lately have included increased corporate and carbon taxes, emissions caps, anti-oil bias in Edmonton and Ottawa, the NEB process in doubt and strong regional opposition to pipelines.

Another issue that’s carried over from the Obama administration is a so-called “Border Adjustment Tax,” that was intended to keep people buying America. However, Yager said he doesn’t see it happening because it could cause huge price increases at the pump. “I think the likelihood of bringing in a BAT on Canadian oil is remote,” said Yager.

Yager continued with the theme that Canadian petroleum is important to the U.S. He noted comments about cutting back on foreign oil is probably aimed at OPEC members, not Canada.

Pointing out that Canada is the fifth highest hydrocarbon producer in the world, with the third largest reserves in the world, Yager stated oil and gas have a massive role to play in the economic future of the country.

Of course, pipelines were discussed. Yager showed numbers illustrating that North American pipeline capacity is almost full; future production growth needs new capacity. Railway is not the answer, as rail is over twice the cost of pipelines to transport product.

Globally, Yager said he feels the demand for oil and gas will grow, the prices will grow and stay there. Yager said there are some anti-oil people who say we have to go green and have no choice but to eliminate oil and gas. “I just want you to understand it’s all rubbish,” said Yager.

Rig counts, Edmonton crude value, oil shipped, synthetic crude and heavy oil are all up this year. “You’re going to feel it in the Alberta economy,” said Yager.

As for politicians living under the impression oil and gas are finished? “The anti-oil politicians, they’re already getting with the program,” he added.

 

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