There's no sugarcoating it. If oil prices don't go back up, Rick Pawlyk may have to cut salaries.
But the owner of Enviro Trace, a pipeline leak detection business in St. Albert, says the worst-case scenario is not now. He's still hopeful that OPEC, the Organization of Petroleum Exporting Countries, cannot afford to keep prices low without hurting its own members.
But if the price doesn't go back up, small business owners like him already worry that the oil and gas industry may suspend some of its projects, meaning fewer jobs for the service sector.
"We are still digging out from 2008. It was tough because everybody got cut back, margins slimmed, the work got less," he says. "And then the economy collapsed and we had to downsize our employee base by half."
When the big oil companies stifle, it's a domino effect that moves down the supply chain, he says. Other oil and gas service businesses in Edmonton may start letting people go in fear of running out of work.
But Pawlyk can't afford to lose workers. There is a shortage of workers in the province and good labourers are easily "snatched away."
Instead, he's waiting it out until January. That's when the large oil and gas companies start their budgeting process and decide when to finish their projects, he says.
"And it's at the low cycle, just before Christmas everything slows down anyways," he says.
Other business owners are cautious but less worried, such as Bob Martineau, vice-president of Thomas Insulation. The St. Albert company specializes in industrial pipe insulation, and – just like Enviro Trace – is 100 per cent reliant on the oil and gas industry for jobs.
So far, current changes in the market have not affected the business, says Martineau.
"At this point, I haven't seen any panic, no projects that have been shelved or put on hold," he says. "And I don't see them affecting anything unless they continue to drop or stay at $50 or $60 for an extended period."
The higher the price of oil, the more expansion takes place in the oilsands, and the more work is available to smaller service providers, he adds. Whatever happens, though, it will take at least another four to six months before most businesses will notice.
"Our work is dictated by others. We don't speak directly to the owners," he says. "It's a trickle-down effect so what happens on the level of the owners takes four to six months to reach our level."
No reason to worry
Most small businesses will not notice any changes from a drop in oil prices because they are working in long-term contracts, says Marvin Washington, associate professor of management at the University of Alberta School of Business.
But there may be a problem for those close to the end of their contracts. Some oil and gas companies may now rethink whether they want to continue production at the same speed or slow down, he says.
He advises small businesses wait it out though. The drop in prices could end in a few months, he says. And work is always slower during the Christmas season.
"What you don't want to do is let people go and then we need them back in two months, and then you can't get them back," he says. "There is already a shortage of people."
Normally, when the price of oil drops OPEC reduces the supply to get prices stabilized again. This time OPEC hasn't done that, which leads to a large supply of available oil resources and a drop in prices, says Washington.
He suspects that Saudi Arabia is the force behind the low prices, trying to drive out other oil producing countries that can't stay in business at $75 a barrel. But that won't make financial sense for long, he says.
"Because if you have a commodity in the ground, why sell it for $67 when you can sell it for $97," he says, adding that OPEC could also raise prices back up once production in other countries slows.
Benefits of low prices
There are benefits to the low cost of oil, he adds.
With Alberta continuously experiencing a shortage in labourers, many projects in the oilsands have been on hold. A slowing in the oil and gas industry may give some companies time to "catch their breath and run at a normal pace."
The retail industry will also benefit. Consumers now pay less for heat and fuel, and can spend more on their Christmas shopping, he says.
"I would imagine that retail sales will be higher this month," he says.
Why are prices low?
On Friday, the lowest price for gas in St. Albert was 83.4 cents per litre at Costco (84.9 cents at other locations).
It remains unclear how low prices will go – and how long until they recover. Gas prices began their steady drop after OPEC announced in late November that the group would not cease production, despite member countries producing an estimated excess of two million barrels per day.
That means prices drop as too much oil enters the market. Economists suspect it's a play by Saudi Arabia, keeping the country's oil prices lower than those of its competitors to win back market share.
