Canadian Economy Staggers Due to Pipeline Delays

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( — June 18, 2013) Calgary, AB — The Conference Board of Canada report called Canadian Industrial Profile-Spring 2013 predicts that the long-term outlook for oil and gas companies who provide products and services to energy producers will be threatened by pipeline delays.

“Investment intentions in the Canadian oil sands remain strong, which bodes well for the support industry’s short-term outlook,” said Michael Burt, Director, Industrial Economic Trends, and The Conference Board of Canada. “However, the uncertainty over the Keystone XL and Enbridge Inc. (USA) (NYSE:ENB)  (NYSE:EEP) Northern Gateway projects could lead companies to pull back on their medium and long-term investment plans and limit future demand for support services.”

This pull back could mean that support companies will most likely hesitate to hire additional staff until they have a reasonable guarantee the pipeline will be approved. Such a slowdown will definitely have a negative effect on economic growth.

The report also disclosed that this is the second year that oil and gas support services are seeing a decline in business. Dropping natural gas prices were a cited reason for decreased drilling activities. Also mentioned is the fact that, “conventional oil extraction is expected to level off this year after two years of increases.”

Companies who provide support services such as welding, electrical contractors and other general oilfield contractors as well as equipment or products such as service rigs, pipe fittings and structural steel to name a few will, “pull back on their medium and long-term investment plans and limit future demand for support services.” notes the report.  

In spite of the pull back the report predicts that industry profits will rise, “to $250 million in 2013 thanks to solid growth in prices.” These figures are based on six industries with oil and gas being one of them. The other industries are professional services, textiles and apparel, electrical equipment, fabricated metal products and machinery manufacturing.

The report also highlights the fact that there is a positive outlook for oil sands development. Also natural gas prices are projected to rise somewhat however they will “remain well below their pre-recession peak.” With regard to the pipeline system already in place it is estimated that it, “will reach its maximum carrying capacity in the next few years. This will mean if additional transport pipelines such as the Keystone XL and Northern Gateway projects do not go forward producers will have to reduce usage of oil and gas support sector services. In other words pipe manufacturing, pipeline contractors, oil drilling companies will not be getting as much business as they may have hoped. This will inevitably negatively affect Canada’s economy.

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