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A pickup truck passes a mining shovel filling a haul truck at an oilsands mine near Fort McMurray, Alta., in this July 9, 2008, file photo.

Jeff McIntosh/The Canadian Press

Traffic congestion in the biggest cities in the United States has vanished. The world’s third-largest oil consumer, India, will be in a coronavirus-prompted lockdown for weeks. The near-constant roar of planes in the sky above London is quieted.

It’s a world in which global demand for oil could plummet further as the United States feels the full effects of the COVID-19 pandemic, and in which North American producers could soon be paying to have others take crude off their hands.

For the Canadian oil and gas industry, the economic hiatus is an existential reckoning. Canada sends almost all of its oil exports to the United States and tens of thousands of energy-sector workers here are at risk of losing their jobs. Dozens of Canadian energy companies could also fold in the months ahead, especially if left exposed to the twin global forces of a worldwide drop in demand, and a Saudi-Russian market-share battle.

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A West Texas Intermediate price at or below US$25 a barrel for any significant period could render the North American energy industry unrecognizable.

At risk is Canada’s position as a global oil producer, which stands at a not-insignificant 5 per cent of the world’s total volumes. Government plans to stave off the worst effects of the oil price-cratering need to be not only thoughtful and effective, but quick – with thinking geared toward an unknown point some time in the months ahead when economies begin to rev up again.

The oil and gas sector is not unique in its current economic pain. But other sectors looking for help aren’t likely to engender the same level of political hand-wringing as Canada’s oil industry. Environmental groups have spoken this week against giving billions of public dollars to “failing oil and gas companies” and prolonging "reliance on fossil fuels.”

And unlike many other parts of the Canadian economy, which had been buoyant up until recently, the oil and gas sector had only been muddling through the past five years. Up until last month, there were hopes that 2020 would be a recovery year.

In the age of the pandemic, federal Finance Minister Bill Morneau acknowledged the situation for the energy industry is particularly “challenging.” Billions of dollars in activity planned for this year has been cut, with more to come. Companies are already having trouble paying their debts.

The action taken by governments now will come into sharper focus in the months ahead, when lockdowns presumably are lifted and the global economy gears up. People will be champing at the bit to return to work. But the question remains: What will be left of the Canadian oil and gas sector?

The industry is so regional in nature – mostly focused in Western Canada, and even more so in Alberta – there’s a tendency to minimize the energy sector’s contribution to the broader economy.

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But crude oil and bitumen represented Canada’s top export in 2019, worth more than $90-billion – or about 15 per cent of the country’s total – according to Statistics Canada data. That compares with passenger cars and light trucks, Canada’s second-largest export category by dollars, at $57-billion. Canada’s financial sector and banks have massive exposure to the Canadian oil and gas sector.

In any bailout or aid package, there will be concern that the money flow will benefit shareholders or executives. However, it is possible to craft an aid package that takes workers, smaller and medium-sized companies, and climate into consideration, and also sees old orphan wells cleaned up.

And there’s no doubt that consumption will return, and oil production will continue in other parts of the world. A report from RBC analysts Wednesday said Schlumberger Ltd., the world’s largest oil field services company – which labours for oil producers – is forecasting a 50-per-cent drop in the U.S. rig count. The same report noted Middle East and Russian activity will be “relatively resilient.”

That line is particularly relevant, as the drop in oil prices to 20-year lows is because of a massive collapse in demand due to the pandemic, but also a market-share war where Saudi Arabia-led OPEC and Russia appear hell-bent on hitting the reset button on the global oil energy market, to their advantage.

If many North American companies crumble, those producers will gladly step up.

The federal government and Alberta’s United Conservatives – who usually agree on little – have established a type of détente. They’re working to come up with some kind of politically palatable solution to provide liquidity to Canadian energy companies, and to maintain some levels of employment. The plan is likely to be announced in the days ahead.

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The province is trying to gird the industry through other means. On Wednesday, The Globe and Mail reported on the Alberta government’s plan to declare oil sands workers essential as the province prepares to ratchet up its response to COVID-19.

At first blush, it might not make sense to focus on keeping oil production going, with prices and demand as low as they are. However, oil sands plants are similar to large factories that cannot be switched off easily, and are extremely hard to turn on again once they are shut off.

And keeping some level of production going during this depressed period also will help with a post-shutdown goal, of trying to hold onto a shred of market share for when the global economy gets running again.

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