CHAPTER 2 Media Article
Oilpatch Drillers Expect Layoffs in 2007,
National Post November 1, 2006


This article is indicating that low natural gas prices and rising costs are subduing Canadian oil companies. As a result, programs are expected to be cut along with lay offs of almost 2000 workers, mostly in the summer. However, winter drilling should not be affected much since some areas “can only be accessed when the ground is frozen”. Unprofitable "programs such as shallow gas and coal bed methane” will likely be cut. In addition, “a warm winter will keep gas inventories overstocked," further “continuing the year-old price slump“. Chris Theal, an analyst at Tristone Capital Inc. predicts, “pull back in drilling should reduce natural-gas supplies and push prices up again”.


Connection to Chapter 2- supply, elasticity, and the total revenue approach to price elasticity of demand

This news report is related to chapter 2 through the topic of supply, inelasticity and of the total revenue approach to price elasticity of demand. It provides an example of how low prices decrease the amount suppliers are willing to produce, since low natural gas prices are the main reason these oil and gas-drilling contractors are being reluctant to spend money on exploration. In addition, this article also shows us that production costs are indeed a factor of supply because rising costs are another reason oil companies have for decreasing activity. Furthermore, weather conditions also affect the supply of this good. Oil companies prefer colder weather. Not only can some areas only be “accessed when the ground is frozen”, warm weather increases “storage levels of natural gas,” decreasing its price. Finally, the total revenue approach to price elasticity of demand is another concept in chapter 2 that appears in this article. These companies know that they have an inelastic product. Price decreases do not benefit inelastic goods. To suppliers of oil, price decreases just decrease their total revenue. In order for them to increase production prices need to increase first.

Personal Reflection

I am divided on this issue. I think the actions of these companies are understandable but laying off 2000 workers is harsh. As a consumer, I do not want gas prices to rise, since that would increase home heating costs, among other things. However, a lot of people will lose their job, if gas and oil prices do not rise. A compromise must be reached. If only gas and oil prices would not fluctuate up and down, but instead remain constant, at a reasonable price. There wouldn’t be much to complain about then.


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