Conference Board: Pipeline pinch a threat to oil and gas services sector

CALGARY – The Conference Board of Canada says uncertainty over new pipeline projects poses a threat to Canadian companies that provide services to oil and gas producers.

The Ottawa-based think-tank predicts the sector’s real economic output this year will drop slightly by $60 million, or half a per cent, to $11.55 billion.

It says some of that is due to a lingering weakness in natural gas prices and a levelling off in conventional oil drilling, but there’s another big challenge looming over the industry.

“The bigger threat is the lack of new pipeline capacity, as the debate on projects such as the Keystone XL and Northern Gateway pipelines may lead companies to pull back on their investment plans, which could limit the demand for support activities,” said the report, released Monday.

Regulatory decisions on both controversial projects are expected later this year.

The Obama administration is in the final stages of weighing Keystone XL, a TransCanada Corp. (TSX:TRP) proposal to ship mostly oilsands crude to U.S. markets. Hearings into Northern Gateway, Enbridge Inc.’s (TSX:ENG) proposal to connect Alberta crude to the West Coast for export to Asia, are wrapping up.

Both projects have stoked fears over the environmental impacts of a potential spill, and have been the subject of fierce political wrangling.

The Conference Board report says the current pipeline system will run out of room in the next few years, and delays in building new capacity could cause producers to pull back on their investment plans.

Producers frequently hire companies to drill wells for them and provide other services, such as trucking or waste management. So any slowdown on the producers’ end could limit demand for those services, said the report.

The energy services sector represents nearly 112,000 jobs, just a bit less than the extraction industry itself, so the potential economic impacts are significant, the Conference Board said. The industry is fragmented, with more than 90 per cent of companies having fewer than 20 employees.

A bullish forecast by the Canadian Association of Petroleum Producers earlier this month predicted a doubling in Canadian oil production by 2030, despite the pipeline delays, as alternatives such as rail transport fill the gap in the short term.

CAPP says there are a number of pipeline proposals in the works beside the ones that seem to get the most press — Keystone XL and Northern Gateway — and that some of those are bound to go ahead.