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Canada’s Oil & Gas Sector Faces Slow Recovery: Deloitte predicts sector will lag behind improvements in the global economy


 

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Calgary, July 6, 2020 After a volatile second quarter in which Canada’s oil and gas sector endured record low prices and suffered its largest ever demand shock as a result of the COVID-19 pandemic, Deloitte’s Resource Evaluation and Advisory (REA) group says demand and prices should improve in the second half of 2020 as countries continue to emerge from lockdown conditions. The group’s latest forecast notes, however, that the extent of the sector’s recovery will depend on how well governments manage the easing of lockdown restrictions, how long global production remains shut-in, and whether there are further disruptions caused by a second wave of the virus. The forecast also includes a look at the impact on capital project execution, and the necessary health and safety measures in project recovery, and the return to business as usual.

“The dramatic global economic decline in the first half of this year affected the oil and gas sector particularly hard, with supply volumes significantly outpacing demand, filling storage capabilities and driving prices down, in some cases into negative territory,” said Andrew Botterill, National Oil, Gas & Chemicals Leader at Deloitte Canada. “The industry has never seen anything like this, but things should recover somewhat over the remainder of the year as more businesses resume operations and more restrictions are lifted.”

The Deloitte forecast says increased refinery utilization rates in recent weeks is one sign the worst of the disruption may be over, although it notes that those rates are still trending well below historic values. The Canadian energy sector’s decision to cut nearly $14 billion in capital spending from its initial budgets for this year has limited supply growth as companies are no longer replacing volumes through drilling, choosing instead to fill short-term production gaps by using existing drilled uncompleted wells. This will have a negative impact on the oilfield service sector where margins were already tight for many companies before the pandemic.

“Even though our most recent financial and economic forecast for the Canadian economy predicts double-digit growth in the third and fourth quarters of 2020, economic activity is not expected to reach its pre-COVID-19 level until early 2022,” said Craig Alexander, Chief Economist at Deloitte Canada. “The GDP of Canada’s mining, oil and gas industry is expected to shrink by nearly a quarter this year, which won’t be helped by the glut in oil markets that is likely to continue for some time even as the global economy starts to improve.”

Deloitte says one potential bright spot for Canadian heavy oil producers could come from governments seeking to jumpstart their economies through large-scale infrastructure projects that will increase demand for asphalt, which uses heavy crude inputs for refining. It also notes that Canada’s natural gas market is stronger than it has been for some time, despite some supply and demand concerns and declining prices for natural gas liquids such as propane, butane and condensate. AECO prices have strengthened this year due to decreases in natural gas production and stable access to storage.

For Deloitte’s complete oil and gas price forecast dated June 30, 2020 and its latest Canadian economic and financial forecast, visit our website.

About Deloitte

Deloitte provides audit and assurance, consulting, financial advisory, risk advisory, tax, and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and service to address clients’ most complex business challenges. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Our global Purpose is making an impact that matters. At Deloitte Canada, that translates into building a better future by accelerating and expanding access to knowledge. We believe we can achieve this Purpose by living our shared values to lead the way, serve with integrity, take care of each other, foster inclusion, and collaborate for measurable impact.

To learn more about how Deloitte’s approximately 312,000 professionals, over 12,000 of whom are part of the Canadian firm, please connect with us on LinkedIn, Twitter, Instagram, or Facebook.

For more information, please contact:

Yasmine Gholam
Public Relations Coordinator, Deloitte
(514) 393-7049
ygholam@deloitte.ca

Jessica Conlin
On behalf of Deloitte
(403) 268-7861
jessica.conlin@hkstrategies.ca



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