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Pipeline debates risk impact on oil and gas support services

Could lead to a pull-back of investment over the medium and long term.


June 17, 2013
by PLANT STAFF

OTTAWA — Debate in North America over new pipeline construction is threatening the long-term outlook for support activities in Canada’s oil and gas industry, according to Conference Board of Canada report.

The Ottawa think-tank’s Canadian Industrial Profile-Spring 2013 notes the effect of uncertainty over the proposed Northern Gateway and Keystone XL pipelines over such a major employer in the oil and gas sector would have negative implications across the economy.

Although investment intentions remain strong over the short term, Michael Burt, director, of industrial economic trends for the Conference Board says the uncertainty could lead companies to pull back on their medium and long-term investment plans and limit future demand for support services.

In 2013, the Conference Board expects overall activity in the support services industry to diminish for the second straight year with lingering weakness in natural gas prices continuing to suppress drilling activity. Conventional oil extraction is expected to level off this year after two years of increases.

Nevertheless, the Conference Board says solid growth in prices will increase industry profits to rise to $250 million this year.

The report notes support activities employed almost 112,000 last year compared with 113,000 for the oil and gas extraction industry. And professional services continues to benefit from “healthy corporate profitability, numerous mergers and acquisitions, information technology changes and demand from the oil patch for services.”

Highlights from other industries covered in the report include the following:

• Professional services. Increased corporate profitability and strong oil sands investment are driving demand for legal, accounting, and engineering services. Profits are expected to rise above $13 billion this year.

• Textiles and apparel. Production continues its long-term decline. Heavy international competition and weak sales will continue to limit industry profit margins averaging less than 2% over the five-year forecast period.

• Electrical equipment. Industry output is forecast to decline for a second consecutive year as a result of weak demand both at home and abroad. Production is to increase in this year, but growth will be moderate at 2% per year over the next four years.

• Fabricated metal products. They’re used mostly by other manufacturing industries, such as motor vehicles and aerospace, so optimistic outlooks for both is a positive signal.

• Machinery manufacturing. After three years of strong growth, industry output is expected to suffer a setback this year primarily because of how global economic uncertainty is affecting commodity prices.