Once-booming oilsands face uncertain future as list of cancelled projects grows
By JIM MACDONALD, The Canadian Press
December 22, 2008
EDMONTON — Thousands of workers from as far away as the Philippines are watching their jobs in Alberta evaporate as the richest oil boom in the province’s history deflates.
Sinking oil prices have forced skittish investors to hedge their bets on half a dozen multibillion-dollar oilsands projects, leaving one of the key engines of Canada’s economy teetering on an uncertain future.
Ben Stacey, a pipefitter from Newfoundland, was making as much as $70 an hour in the oilsands when he was blindsided by sudden layoffs.
“You can make $70,000 up there in three months,” Stacey, 54, told The Canadian Press from his home back in Grand Bank. “If the price of oil keeps on dropping, you’re going to see a lot of Newfoundlanders on unemployment here and a lot of people selling their trucks.”
The scramble to mine tar-like bitumen and refine it into synthetic crude stopped abruptly after oil prices, which had soared to US$147 in the summer, tumbled below US$40.
“The economy in our town generally depends on what happens in Alberta because of the work shortage in Newfoundland,” Stacey said. “So as Alberta goes, that’s the way we go here in the small towns.”
The province that has been the envy of the rest of the country for years is not doing so well these days. After 15 consecutive massive surpluses, Finance Minister Iris Evans admits Alberta could be heading for a deficit in 2009-10. That’s still relative, however, since the province has billions in the bank that have been saved in case of just such a shortfall.
The steady stream of workers that had been pouring into northern Alberta reversed this fall as nearly every major project was delayed, cancelled or scaled back.
Megda Lovasi was packing up her belongings just before Christmas after the Suncor Voyageur project was slowed down. She’s moving to Edmonton.
“There are a lot of people moving and relocating right now,” said Lovasi, 29. “Everyone’s just scattering, finding what they need to move forward.”
Some charities are being squeezed by people who’ve lost their jobs.
“A lot of people are saying they’ve just been laid off,” said Erin Lambert, who runs the food bank in the boom town of Fort McMurray. “We were already busy, but now we’re just going flat out.”
A shadow population that once thrived in trailers, tents and campers in the woods began to thin out as Fort McMurray returned to a more normal economic pace.
Immigrants who had been arriving in record numbers to work on oilsands projects were suddenly no longer needed. Some cancelled travel plans while others headed back to their homelands.
“The gold rush is over,” said a recruiter, who asked not to be identified, for a large multinational firm. “Up until four or five months ago, there were shortages in pretty much every trade,” he said. “The higher-paying jobs seemed to dry up all at once this fall, as did the need to bring in people from other provinces and other countries.”
Some foreign workers who can’t afford to go home are not eligible for government welfare.
“They end up turning to food banks and different community groups and charities — churches particularly — to help them out,” said the recruiter. “There’s a lot of those people who have fallen through the cracks.”
This is not the first time that Alberta’s resource-based economy has fallen on hard times. In the 1980s, thousands of people in Calgary had to walk away from their homes when interest rates soared and oil prices hit rock bottom.
This time, most people have managed to hang onto their homes, at least so far, but the sagging energy sector has put a real dent in prices. The cost of an average single-family home in Calgary peaked at $506,000 in July of last year. Now sellers lucky enough to find a buyer are fetching $440,000 or less for the same home.
A recent forecast by the Canadian Federation of Independent Business suggests expectations among small businesses in Alberta are approaching a record low.
Calgary’s economic development authority is also painting a grim picture for the short term, but there are hints that it’s not exactly deja vu.
“For Calgary, is this the 1980s all over again? Hopefully not,” says the report. “Inflation rates are also well below what they were in the 1980s. While deflation is evident in a number of areas, the rapid deflation and number of bankruptcies experienced in the 1980s are not evident at the present time.”
Something else is different in 2008. The oilsands have been facing a dreadful image problem. International media have talked about how developers are “raping” a swatch of land the size of Florida. And environmentalists in both North America and Europe have taken aim.
“The world is starting to notice the tremendous environmental damage from the oilsands and the rampant greenhouse gas emissions,” said Greenpeace activist Mike Hudema.
“Within a decade, the tarsands will use more natural gas than what’s used to heat half the homes in Canada.”
Maude Barlow, head of the Council of Canadians, made headlines when she compared the area around the oilsands projects to the dark landscape of Mordor in the movie “Lord of the Rings.”
But the cruellest image blow came in April, when pictures of 500 ducks dying in the toxic sludge of an oilsands tailings pond were flashed around the world. Prime Minister Stephen Harper said that should have been preventable and conceded that Canada’s reputation had been damaged.
The dead ducks added fuel to a growing international protest against “dirty oil” from the oilsands. The United States is now mulling regulations that would restrict government agencies, including the military, from purchasing fuel derived from environmentally unfriendly sources, including the oilsands.
Dave Collyer, president of the Canadian Association of Petroleum Producers, concedes the industry has been outflanked by environmentalists.
“There’s a lot of misinformation being propagated out there by opponents of oilsands developments,” said Collyer. “Our environmental performance is much better today than it is often represented in the media.”
Falling prices, delayed projects and a recent hike in royalties to the province have left some investors leery about parking their money in oilsands during turbulent economic times.
So Premier Ed Stelmach spent 10 days in Europe this fall attempting to shore up investor confidence. He made a similar trip to Washington earlier in the year and was in Texas in December to try to sell Alberta as a reliable energy source.
Former Syncrude president Eric Newell has seen these sorts of setbacks before and remains optimistic, pointing out that even at a slower pace, the oilsands are still a huge part of Canada’s economy.
“The world’s going to need every form of energy it can find,” said Newell. “And a lot of the oil is located in areas of the world that are not that politically stable.”
Alberta Energy Minister Mel Knight predicts the downturn will be short-lived.
“I’m not looking through rose-coloured glasses here,” Knight said. “I think by the middle of 2009 we’ll be looking at investment in this province again.”
Knight also concedes that Alberta will be better off with a less frantic pace of development in the oilsands, which created its own problems, including labour shortages.
“Productivity of workers begins to decline simply because you just feel like you can’t keep up. This bit of a breather here will allow us to reset that clock.”
Knight said the boom times also pushed up material costs, making projects unaffordable.
“It will reach a balance and allow people to come back to the table with their investments.”
But Collyer said although costs are coming down, there’s still uncertainty over federal regulation of emissions that cause greenhouse gases.
“A number of companies are saying, `Look, let’s wait until we’ve got a little more clarity as to where costs are going before we make these significant investment decisions.”’
But for many Albertans who have staked their lives on what happens in the oilsands, there’s a strong sense that a bright future is inevitable.
Bob McCutcheon, who retired recently after more than three decades in the oilsands, said he’s sure the delayed projects will bounce back once oil prices climb out of their slump.
“I’d say this is one of the last places that’s going to go broke,” said McCutcheon, 67, who is packing up his home in Fort McMurray and preparing to move to southern Alberta.
“There’s so much potential here.
http://www.edmontonsun.com/News/Alberta/2008/12/23/7837081.html
