Gas prices in Metro Vancouver plunged again over the weekend, to less than 80 cents per litre of regular, and some energy analysts say prices will stay low for a while as the price of oil struggles to recover from unprecedented lows.
But while a cheap tank of gas is a perk for drivers, it’s a blow to jurisdictions that rely on oil sales for revenue, like the provinces of Alberta, and Newfoundland and Labrador.
Economists and energy experts say the pandemic is changing the oil and gas industry landscape, and oil prices may never bounce back to levels seen before the COVID-19 pandemic.
Last week the price to deliver West Texas Intermediate (WTI) crude plunged below zero for the first time in history as traders engaged in a feverish flurry to dump oil contracts. The U.S. benchmark oil price closed at -$37.63 a barrel on April 20.
“This was a unique event. It certainly got people’s attention,” said Doug Matthews, an Alberta energy analyst who worked in the Arctic oil industry for 40 years.
Although oil prices have risen since last week, with WTI crude venturing up to about $17 per barrel, Matthews does not expect them to rebound fast. The price this time last year was about $60 a barrel.
“We are still way in the hole. This is not a happy situation. It’s a bloodbath,” Matthews told host Stephen Quinn on CBC’s The Early Edition on Monday.
Tax revenues down
Oil demand is down because of COVID-19 restrictions that have led to fewer people travelling, along with a dispute between Russia and Saudi Arabia, and growing fears of a global recession.
The volatile market has left buyers with no place to sell or store more product, according to Matthews, who says North American storage tanks are full or getting close.
At the very time prices for oil are falling, driving tax revenues down, provinces are facing escalating costs and accumulating debt because of the COVID-19 crisis.
Alberta was counting on up to $5 billion in revenue based on oil prices at $58 per barrel, Matthews said. “That simply is not going to happen,” he added.
“Canada is going to end up a very highly leveraged country in about a year’s time.”
Time to transition, analyst says
Massachusetts economist Philip Verleger, who has followed the oil industry since the 1970s, says the changes that COVID-19 have brought to transportation alone mean it’s time for Canadian provinces that rely on oil sales — especially bitumen — to transition.
He said it’s not clear whether airlines currently grounded will return to previous levels of service, or how many people will return to offices after working from home during the pandemic.
“I am not sure oil prices will ever be back to $60 or even $40 per barrel,” said Verleger.
He said Canada will face stiff competition to sell its reserves of oil, which is expensive to process and move compared to oil elsewhere.
“The Stone Age didn’t end because of a lack of stones. The oil age is not going to end because of a lack of oil. We are going to leave a lot of oil in the ground,” said Verleger.
Matthews hopes the oil crisis makes energy producers consider more renewable energy.
However, he noted that Newfoundland and Labrador Premier Dwight Ball recently asked for federal funds for new oil and gas exploration, while Alberta Premier Jason Kenney has come out strongly against the idea of transitioning away from oil and gas.
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