The good news is that investment intentions for the struggling energy sector appear to be on the upswing in 2020, but capital spending plans in the oil and gas sector remain quite below the high levels reached a few years ago.
ATB Financial’s Economics & Research Team, citing Statistics Canada’s most recent survey of spending intentions, said oil and gas companies in the energy sector are expected to increase capital spending in Alberta by 1.6 per cent this year to $24 billion.
“They say it takes money to make money and, in turn, to sustain existing employment, create new jobs, and stimulate other economic activity. This is especially true in Alberta where the capital-intensive oil and gas industry is so important. Without significant capital expenditure on exploration and production, the oil and gas simply does not flow,” said ATB on Friday in its daily economic update The Owl.
“Now the bad news. The expected rise in spending in 2020 is relative to the lowest level of annual capital spending seen since 2009 when fallout from the Great Recession was constraining capital investment around the world. Oil and gas capital spending in 2019 was, in fact, almost 16 per cent lower than in 2018 and about 60 per cent lower than the record set in 2014.”
In 2014, capital spending in the energy sector was $58.1 billion while it was $54.7 billion in 2013.
“It is worth noting that the estimate of oil and gas spending in Alberta in 2019 that was just released is 11 per cent lower than the original estimate that came out at this time last year. This does not mean that spending in 2020 will be lower than the current estimate. But it does suggest that, if the investment climate deteriorates because of things like the COVID-19 outbreak or a lack of progress on pipelines, the projected increase could easily turn into another decrease,” said ATB.
On Friday, Statistics Canada said capital expenditures in the oil and gas extraction industries, including spending on exploration and evaluation, declined 3.1 per cent to $8.3 billion in the fourth quarter. For the full year, capital expenditures totalled $34.2 billion, down 10.3 per cent from $38.1 billion spent in 2018.
