Alberta

Russia’s Energy Minister Alexander Novak, OPEC President Qatar’s Energy Minister Mohammed bin Saleh al-Sada and Saudi Arabia’s energy minister Khalid al-Falih (L-R) address a news conference after a meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria, December 10, 2016. REUTERS/Heinz-Peter Bader.

Alberta oil sands in good shape to ride out price volatility, but high paying oil and gas jobs won’t be back until 2018

Alberta is watching the Saudi vs. US shale cage match over marketshare with some trepidation, hoping this isn’t late 2014 all over again, when OPEC opened the taps to drive US shale drillers out of the global oil market – and failed spectacularly. Unfortunately, the economic news is mixed.

Alberta

Todd Hirsch, ATB economist.

Todd Hirsh, chief economist for ATB Financial, says the Alberta economy is beginning to recover and should post a healthy growth rate this year, but employment is always a lagging indicator and good paying jobs probably aren’t coming back for a year or two yet.

“Business confidence and consumer sentiment continue to improve in Alberta this year. There’s kind of a growing sense that the recession is behind us and now 2017 we’re looking at better days ahead,” he said in an interview. 

“That is still fairly modest and fairly gradual and for a lot of people still out there looking for work it’s going to feel kind of like a sluggish economy because even if growth comes back we’re not expecting a lot of jobs to come back, not quite yet.”

Hirsch says energy employment lagged heading into the recession because oil and gas producers and service companies hung on to skilled workers as long as they could, about 12 to 18 months after the oil market tanked.

Alberta

Oil sands SAGD well.

“One of the things that we’re not yet seeing is a huge amount of new jobs coming back to the oil and gas sector,” he said.

“Those really good paying jobs, they tended to be in those sectors like oil and gas, like construction, where we are going to see a more gradual, slowly picking up, and a lot of that will depend on what that the oil price does.”

The price of oil these days is a function of the competition between the Organization of Petroleum Exporting Countries (OPEC) and American shale producers, who have come roaring back much faster than the Saudis expected.

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EOG Resources Inc. and Pioneer Natural Resources, two of the largest U.S. shale producers, announced Q1 2017 year-on-year output increases of 18 and 19 per cent respectively. Smaller companies, including DiamondBack Energy, Parsley Energy and RSP Permian, achieved 60 to 80 per cent increases, according to World Oil.

Alberta

Scott Sheffield, CEO of Pioneer Natural Resources ShaleMag.com photo.

“Our break-even oil price is $20 a barrel,” Frank Hopkins, Pioneer’s senior vice-president, told an industry conference in London this week. “Even in a $40 world, in a $50 world, we are making good returns.

Guessing where oil prices are headed is everyone’s favourite parlour game these days.

“Any announcements by major players (OPEC and non-OPEC) will have an impact on prices. Hence, the volatility and different projections. Depending on what you believe these players will do, the outcome is different,” said Maria Sanchez, manager of energy analysis for Drillinginfo, in an interview.

Sanchez thinks current market fundamentals are more bearish for prices than they were six months ago, when prices were starting to recover. Just keeping 2017 prices between $50 to $52/b will require OPEC to extend production cuts well into 2018 and global demand must grow at least 1.34 million b/d (as currently forecast by the IEA).

“Price recovery may be sustainable once the inventory levels are normalized,” she said.

“However, when OPEC ends the production cuts, this will inject a significant amount of supply back into the market putting pressure on prices, which will be unlikely to reach $60/b levels in 2018.”

AlbertaThe International Energy Agency provided some good news last week when it estimated that the market was “almost” balanced, with a global stock build of 100,000 b/d.

“[T]his Report confirms our recent message that re-balancing is essentially here and, in the short term at least, is accelerating,” the IEA said in a press release.

Much higher refinery activity during the summer is expected to move oil markets into an unbalanced situation on the deficit side of the ledger.

“Starting in March, refinery activity is building up and by July global crude throughputs will have increased by 2.7 million b/d,” according to the IEA.

Alberta oil sands producers are taking a cautious approach based on the expectation that short-term volatility will be replaced by medium to long-term higher prices.

“We have seen some oil sands projects come back, but these are principally completion of deferred projects and based on long-run future expectations of oil prices – which are expected to rise to offset global declines from other producing regions that will eventually outweigh [American] tight oil and OPEC’s ability to meet demand,” said Kevin Birn, director of the IHS Markit Energy Oil Sands Dialogue.

Bottom line, the Alberta oil patch will continue to ride out moderate price volatility in 2017 while the oil market continues to whittle away the global glut of crude oil. The provincial economy will recover slowly, but high-paying professional oil and gas jobs probably won’t return until 2018.