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Weather, wildfires, commodity prices and an uncertain trade environment have all contributed to this year’s drop, industry watchers say
Canada’s oil and gas drilling rigs are having a slow start to the summer — even as talk of a potential new pipeline heats up.
The latest data shows just over 160 rigs were actively drilling for oil and gas in June, the lowest level in at least two years and down 17 per cent from 2024 levels.
The industry is facing stubbornly low prices for their fuels, while poor weather and wildfires have added to the challenges.
“Companies remain cautious ahead of the volatility that we’re seeing with oil prices, (natural gas) prices and the politics in terms of trade deals that the U.S. government continues to make,” said Jeremy McCrea, an energy analyst at the Bank of Montreal.
North American oil prices have been trading for below US$70 a barrel throughout July, a sharp contrast from a year ago, when oil was going for more than US$80 a barrel.
One of the top worries overshadowing prices this year has been that U.S. tariffs could slow global economies and their demand for oil.
The tariff threat has also forced the Canadian government under Prime Minister Mark Carney to rethink its trade relationships and focus more on boosting the domestic economy with nation-building projects.
Uncertainty around pipeline project talks
Alberta Premier Danielle Smith has been pushing for a new oil pipeline that would run from Alberta to B.C.’s northern coast, but her proposal faces roadblocks, including a federal ban on oil tankers along that coastline.
Carney has said it’s “highly likely” a new oil pipeline will make his government’s list of nation-building projects, though a private sector company or group has yet to emerge with an actual proposal.
Against this backdrop of rising stakes in the pipeline debate, the June dip in oil and gas drilling rigs was “most concerning,” according to Mark Scholz, the president and CEO of the Canadian Association of Energy Contractors, an industry group.
Still, Scholz said it’s unclear if this decline in activity will lead to a drop in overall production.
“We certainly are seeing some headwinds,” he said, “but it is much too early to sound any sort of alarms.”
Despite these near-term challenges, there is still “underlying enthusiasm” around pipelines in the industry, said Trevor Rix, director of research at the data company Enverus.
“There’s an increasing awareness that commodity prices are going to move higher longer-term just due to increasing supply costs in aging basins in North America,” Rix said.
Natural gas prices in Western Canada have been chronically low, partly because the industry has produced too much fuel without enough buyers to take it.
There is hope that a new liquified natural gas (LNG) shipping terminal on B.C.’s coast will help ease the supply glut and raise prices for producers, but that hasn’t happened so far.
Given these challenges, it was “natural” to see a dip in the number of drilling rigs, Rix said.
“We need as much LNG as we can get on the West Coast,” he said.
“It probably represents some of the lowest (cost) gas in, certainly, North America… getting more of that gas to tidewater is directionally positive.”
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