Message to the Oil Price Doomsayers: Chill Out

By: Cody Battershill

Article featured in the 2015 Spring Edition of CAGC's quarterly magazine, The Source. 

As the price of oil declines, prediction of doom-and-gloom pervade the media. Here's me message to the catastrophe-is-coming crowd: Chill out!

No doubt, the declining price of oil is having and economic impact on the oil sands and given the importance of the oil sands to the country as a whole, declining oil prices mean Canada's economy will be challenged too. 

But there's no reason for panic.

Commodity prices are cyclical and Canada's oil sands industry has always been focused on the long-term. Over the long-term, there's no doubt the industry will continue to grow and strengthen and the sector will remain of vital importance to the nation's future prosperity. 

Despite lower oil prices, the Canadian Association of Petroleum Producers indicates 2015 capital investment in the oil sands is forecast to be $25 billion, down from last year, but a sizeable investment nonetheless. 

These investments continue to be made because oil sands projects have upfront and fixed costs, long-term breakeven points and very long production lives. 

Such investments will allow Canada's oil and gas sector to continue innovating as it gets leaner, increasing efficiencies and producing more oil and gas at lower costs. 

Economists note, the Bank of Canada's recent interest rate cut should allow these investment dollars to go even further. 

In fact, as oil prices come down, so too do supply and construction costs. Suncor, for example, is moving ahead with its $13.5 billion Fort Hills project. 

"This is precisely when you want to build it, when nobody else is building it," Alister Cowan, chief financial officer for Suncor, was recently quoted as saying in the media. 

That's why, contrary to the perception of doomsayers, production in the oil sands will actually increase in 2015 and 2016 by 150,000 barrels per day in each year over what was produced in 2014. 

The oil sands are incredibly resilient. We've seen tough times before, but the industry and its people always meet the challenges, coming out stronger. 

Nick Sanders, president of the Fort McMurray Chamber of Commerce was quoted in the news as saying, "We don't see anything to indicate the current production is going to get reduced in any way, shape or form. That's a good thing. That will keep our town extremely viable."

Lower oil prices have no bearing on the need for Canada to diversify its oil markets. 

We can't continue to rely solely on the market - the United States - to sell our oil because selling it to only one buyer means we must provide it at a discounted rate. 

As a result, government loses out on money that could help fund Canada's health, education, and social programs. 

Instead, lower oil prices should be further incentive for us to seek the best possible price for Canada's oil - and that price is on the international market. 

So, despite what the doomsayers might say, new pipeline projects are just as vital now as they've ever been. 

Pipeline projects must undergo rigorous public consultation and review processes by the National Energy Board. For example, Northern Gateway has been given final approval to proceed by the federal government subject to meeting tough environmental and socio-economic conditions.

Pipelines are the safest, most efficient and environmentally sound means of transporting oil over land. Tankers can safely deliver that oil by sea to new markets that need it. 

Canada's regulatory processes ensure these projects mist adhere to some of the highest environmental standards in the world. 

Irrespective of the price of oil, new pipeline and tanker infrastructure is key to strengthening Canada's future prosperity and supporting our world-class standard of living. 

The oil sands are such a strong driver of the country's economy that there's no doubt lower oil prices will result in challenges. Nonetheless, the sector's long-term prospects are as bright as ever. 

Let's get on with the investments in people, equipment and pipeline infrastructure that will improve and diversify our market access, making Canada's oil sands even more valuable in the years to come. 

Cody Battershill is a realtor based in Calgary. He is the founder of canadaaction.ca, a non-profit group that is run by volunteer Canadians who work together in support of informed conversations about the resource sector. 

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