Canada’s Covid Package Only Modestly Beneficial for Oil and Gas
The Canadian government’s package of stimulus investments aimed at countering the economic impacts of the Covid-19 pandemic will be only modestly beneficial for the oil and gas industry, the Canadian Energy Research Institute (Ceri) said September 15.
Ottawa has rolled out several broad stimulus packages, which Ceri estimates are worth about C$122bn (US$92bn) over the next three years.
Ceri estimates about C$9.5bn of the total would be applicable to the oil and gas industry under three loan programs, three rent and wage subsidy programs, two tax deferral programs and a program that provides grants and loans to assist in the clean up of orphan oil and gas wells and other facilities.
In a four-part study – Economic Recovery Pathways for Canada’s Energy Industry – Ceri is digging into the economic impact of the various federal programs and some provincial programs designed to aid in post-Covid recovery of the energy industry – oil, natural gas, renewable energy and electricity.
Part 1, setting out the methodologies for the study, was released earlier this month. Part 2, released September 15, focuses on the effectiveness of the aid packages for the oil and gas industry. Parts 3 and 4 will be released over the next two months.
The loan programs that Ottawa has provided, in particular, are not likely to be much help, Ceri CEO Allan Fogwill told NGW.
“When we investigated the loan programs, there didn’t seem to be a lot of opportunities there for energy sector companies because they already have significant debt they have to manage, including changes to their debt covenants,” he said in an email. “As such, the attractiveness of those programs is low.”
In the 101-page second part of its study, Ceri concludes that the relief measures could help the oil and gas industry recover in the short-term – between now and 2022. There remains, however, a substantial gap between the impact the oil and gas industry would have had on the Canadian economy pre-Covid and its anticipated impact post-Covid, even with the federal relief measures taken into account.
In Alberta, the gross domestic product (GDP) gap is nearly C$20.4bn, while the employment gap is set at more than 49,000 jobs. Across the four Canadian provinces most active in the oil and gas industry, the GDP gap is measured at C$27.7bn, while the employment gap is estimated at more than 54,000 jobs. In Alberta, 14,000 oil and gas jobs disappeared between March and May this year; Saskatchewan saw the steepest drop in employment through those three months, at 17.39%, followed by BC and Alberta.
None of the measures, Ceri says, are a panacea for a sector that has been struggling for years to deal with weak commodity markets and an inability to reach global markets. The industry’s success, it adds, will come not from government aid programs but from the industry’s own operations.
“Governments that rely on the sector’s ripple effects throughout other sectors and the overall economy are not likely to see the current support mechanisms restore the sector to pre-Covid-19 economic levels,” Ceri says. “The pathway to pre-Covid-19 levels within the Canadian oil and gas sector, first and foremost, will depend on the industry’s ability to compete on the world stage for capital investment to develop oil and gas reserves.”
And that ability, Ceri concludes, will be almost entirely dependent on access to markets, regulatory certainty, new technology, the energy industry’s environmental, social and governance performance and value-added products.