TORONTO, Ont. — Blame technology for the collapse in oil prices and the devastation it has caused to the Alberta economy.
That was the message from Murray Mullen, chairman and CEO of Mullen Group, when addressing a packed house at the Truck World opening breakfast this morning. Mullen said the advent of horizontal fracturing allowed the US in particular to ramp up oil production. OPEC nations – particularly Saudi Arabia – responded by cranking out more oil themselves.
“It’s really technology that caused the price of crude oil to go down,” Mullen said. “There was a tremendous increase in supply, primarily driven by technology.”
The devastation this has caused Alberta is real, Mullen noted. His company alone has let go 1,400 employees. In Alberta, unemployment sits at 7.9%, higher than the national average for the first time since 1988. More than 100,000 people have lost their jobs due to the collapse in energy prices.
“I fear for my employees and for their communities,” Mullen said. “No CEO signs on to go in and let people go – we’re builders. Unfortunately, once in a while things like this happen. That’s the biggest human tragedy I see out of this whole thing, a lot of families that have been quite disrupted and it’s not their fault, they’re just wrapped up in it.”
Mullen said he feels oil is on its way back up to about $60 per barrel, which may be the “new normal.” That would allow oil companies to get by but would not be enough for them to resume capital spending. But he also said no one knows for sure where oil prices will go, since the “Saudis control the spigot.”
There are, however, some benefits to low oil prices, especially for consumers.
“Like everything else in life, there’s a winner and a loser,” Mullen said. “From a consumer perspective, as much as there are challenges in Western Canada the biggest beneficiary is the consumer.”
He said individuals are saving about $800-$1,000 a year because of cheaper energy, which they in turn spend, boosting the economy. When oil prices recover, Mullen said it will put Albertans back to work but he doesn’t see it ever returning to the point where employees are imported from across Canada to meet demand.
Demand for oil is still increasing by 1.3 million barrels per day. But production growth has outpaced that increasing demand.
“There is excess capacity sitting in storage tanks and that’s depressing the price and it has to rebalance,” Mullen said.
He added, “The corrective mechanism to low oil prices, is low oil prices,” noting sustained low prices will cause oil companies to rein in production. And, Mullen said, the collapse in oil prices may be a good thing long-term. If crude prices had sailed to $200 a barrel as once predicted by Goldman Sachs, Mullen said the Saudis would have even greater ability to control the market.
“That technology that came in the US has disrupted Saudi Arabia’s game plan,” said Mullen. “Even though it’s hurting, I think it’s best for all of us that it came in.”
The perfect storm that drove down oil prices has done the same for natural gas, Mullen noted. Fracking has allowed the US to meet its own natural gas needs and Canada must seek out new export opportunities. However, the Canadian public’s aversion to pipelines could prevent this from happening.
“As Canadians we’re landlocked,” he said. “The capital expenditures from the energy space represented nearly 60% of all investment activity within Canada. That dwindled to virtually zero and I don’t know if that comes back if we don’t get pipe to tidewater. That’s a really sensitive issue to a lot of people.”
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