Alberta, the heart of Canada’s oil sand industry, is not headed for a recession this year as many have speculated, but economic activity in the country’s richest province is projected to grind to a virtual standstill, a new report released Monday claims.
According to TD Economics’ latest Provincial Economic Forecast, real GDP growth in Alberta will inch forward by only 0.5% this year before speeding up to 1.8% in 2016. The province led the country in 2014, with estimated GDP growth of 3.8%.
TD analysts reduced its oil price forecast to average US$47 per barrel for 2015 and $65 for 2016 — about US$15-US$20 per barrel lower relative to that anticipated in its December forecast.
“This oil price downgrade is expected to translate into a sharp widening in economic performances between the major oil-producing provinces of Alberta, Newfoundland and Labrador and Saskatchewan and other regions,” it said.
Major Canadian oil sands companies can run their existing operations profitably in a sub-$50 oil-price environment, but it’s the cost of large, new projects what is weighing down their shares.
“Recently, a slew of downbeat operational plans coming out of the oil patch have pointed to a pullback in hiring and lower capital outlays in the oil sands in 2015,” said the report.
The bank’s report is not all gloom and doom. It says that oil production is still on track to expand this year and many of the sector’s leaders don’t seem too concerned.
“Six months ago, we had 76,000 people living in [Fort McMurray], producing 1.9 million barrels of oil a day. Today, we have 76,000 people living in this town producing 1.9 million barrels of oil a day,” Nick Sanders, president of the Fort McMurray Chamber of Commerce, told The Globe and Mail last week.
However cheaper oil is expected to affect other, less wealthy oil producing regions such as Saskatchewan, Newfoundland and Labrador.