So, just how busy are Canada’s energy producers? The industrial capacity utilization rate measures the amount of slack in the economy—the closer the rate is to 100 per cent, the less slack and the closer the sector is to running at full capacity.
Oil and gas extraction, which is largely concentrated in Alberta, Saskatchewan, Newfoundland and Labrador, had a capacity utilization rate of 87.4 per cent, higher than it was in the fourth quarter. In fact, utilization rates are at levels not seen in nearly 10 years.
Part of the reason for this may have to do with a falling number of drilling rigs available in our province. Producers may sell or lease out rigs and move them to other areas like the U.S. For example, in June 2003 there were 671 rigs in Alberta. Today there are only 624, a drop of nearly 10
per cent. That helps push capacity utilization rates higher, even if there is the same overall level of
As utilization rises and spare capacity falls, inflationary pressures can flare up. Costs of labour, equipment and drilling service contracts often ratchet higher as energy companies scramble to produce. For example, rising costs are evident in Alberta’s oilsands. A survey of producers by the Canadian Energy Research Institute showed that, factoring in all sorts of costs and a 10 per cent rate of return, new oil sand mining operations required crude oil prices of $99.49 a barrel, up 13 per cent from last year. In situ extraction projects need $77.85, up six per cent.*
*Courtesy of Todd Hirsch, Chief Economist, ATB Financial