The downturn of the energy sector in light of COVID-19 could be detrimental to the economy, experts say. (File)

’The energy sector is destroyed beyond repair’: expert on COVID-19’s impact on economy

‘That’s never been heard of before; no one sells oil for $4 a barrel.’ – Dan McTeague

While British Columbians may be loving the low gas prices in the wake of the COVID-19 crisis, it’s an omen for bad things to come in the energy industry, according to an expert.

Dan McTeague, the president of Canadians for Affordable Energy (CAE) and former Member of Parliament, said the ever-decreasing prices of resources in the energy sector will be detrimental to the economy in several ways.

Rooted in the energy sector

As of March 30, the lowest-price gas station in B.C. is in Prince George at just 69.9 cents per litre. On March 27, WCS (Western Canadian Select), one of North America’s largest heavy crude oil streams, ended the day at US$4.58 per barrel while New York-traded West Texas Intermediate dropped to US$21.55.

“It could go lower,” said McTeague. “Unfortunately, it’s bad news — any way you slice it.

“That’s never been heard of before; no one sells oil for $4 a barrel.”

Usually, a barrel of oil is worth between $40 and $50.

McTeague said 10 to 15 per cent of the economy depends on oil, and Canada will struggle if things don’t turn around quickly.

“If this goes on much longer you won’t have much of an economy left,” he said.

However, for energy producers, the outlook is much grimmer.

“The energy sector is destroyed beyond repair,” said McTeague.

Record low prices for oilsands crude could lead to up to 20 per cent of Canada’s thermal bitumen production being shut down over the next few months.

Analyst Matt Murphy of Tudor Pickering Holt & Co. said that would equate to about 340,000 barrels per day of the 1.7 million barrels produced each day by projects that use steam to pump the heavy, sticky oil from wells in northern Alberta.

After removing the cost of blending, Murphy estimated the price that flows through to the producer is about 83 cents per barrel, a level at which no producer can be profitable.

He blamed the steep decline over the past few weeks on weakness in U.S. Gulf Coast demand for WCS, as higher production from Saudi Arabia floods the market and refineries buy less crude in anticipation of lower demand because of the COVID-19 pandemic.

He said he also expects companies to announce cuts in conventional heavy oil production as they prepare to announce first-quarter financial results starting next month.

“It’s certainly a tough time for Western Canada producers right now,” he said.

Western Canadian Select prices in February were at US$27.28 a barrel, although that was almost 40 per cent lower than the average in February 2019.

The loss of value in Canada’s primary resources, according to McTeague, could result in less investment, less economic activity, more unemployment, and possible long-term hits to government revenues.

“This is a veritable threat to a sector of the economy we just can’t do without,” explained McTeague.

The Canadian dollar takes a hit

While B.C. may not feel the direct hit of the damaged energy sector as harshly as some other provinces, the greater effects on the national economy will be felt in the province, said McTeague.

On Jan. 1, the Canadian dollar was worth USD$0.77. Now, as of March 29, that same dollar is worth just USD$0.71.

McTeague attributes this to the struggles of the energy sector.

“Our purchasing power has been diminished,” he said. “We’ve done nothing to really understand how that’s happening, except for the fact that most of our exports — around 20 per cent — is oil and gas.”

What hurts Canada most, said McTeague, is that its commodities are priced in U.S. terms.

“Whether it’s made here or not made here, it’s all priced in U.S. dollars,” he said. “We’ve just become a whole lot poorer.”

-With files from the Canadian Press

READ MORE: 24,000 Canadian Forces members ready for COVID-19 response: Defence Minister

READ MORE: Canada expands 75% wage subsidy to COVID-19 affected businesses of all sizes: Trudeau


@michaelrdrguez
michael.rodriguez@kelownacapnews.com

Like us on Facebook and follow us on Twitter.

Coronavirusoil & gas

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Comments are closed

Just Posted

Revelstoke RCMP food bank drive raises 4,000 pounds of grub

Demand at the food bank has roughly tripled since the start of the pandemic

Horrifying video shows near head-on collision by Golden

The video was captured on dash cam along Highway 1

Revelstoke cancer support group in need of support

The group provides funds for people undergoing cancer treatments

Two dead after weekend crash on Highway 1 near Revelstoke

The driver and passenger of one vehicle died at the scene

84-year-old Okanagan resident finishes 12,000-piece puzzle

Willie Tribiger started the puzzle in 2013, completing it in six and a half years

Aces aplenty at Okanagan golf course

Vernon Golf and Country Club has 14 recorded holes-in-one since April 30

Fraser Valley woman complains of violent RCMP takedown during wellness check

Mounties respond that she was not co-operating during Mental Health Act apprehension

B.C. sees 12 new COVID-19 cases, no new deaths

Three outbreaks exist in health-care settings

Lost dog swims Columbia River multiple times searching for home

The dog was missing from his Castlegar home for three days.

Booze on beach extended through summer in Penticton

Pilot project will stay in place until Oct. 15

Sad ending in case of missing Okanagan senior

Body of Vernon man Wayne Orser found floating in Okanagan Lake Tuesday, July 7

COVID-19: B.C. promotes video-activated services card

Mobile app allows easier video identity verification

ICBC to resume road tests in July with priority for rebookings, health-care workers

Tests have been on hold for four months due to COVID-19

Most Read