Despite a severe economic downturn in a region whose growth once seemed limitless, many energy companies have too much invested in the oil sands to slow down or turn off the taps.
FORT McMURRAY, Alberta — At a camp for oil workers here, a collection of 16 three-story buildings that once housed 2,000 workers sits empty. A parking lot at a neighboring camp is now dotted with abandoned cars. With oil prices falling precipitously, capital-intensive projects rooted in the heavy crude mined from Alberta’s oil sands are losing money, contributing to the loss of about 35,000 energy-industry jobs across the province.
Yet Alberta Highway 63, the major artery connecting Northern Alberta’s oil sands with the rest of the country, still buzzes with traffic. Tractor-trailers hauling loads that resemble rolling petrochemical plants parade past fleets of buses used to shuttle workers. Most vehicles carry “buggy whips” — bright orange pennants attached to tall spring-loaded wands — to help prevent them from being run over by the 1.6-million-pound dump trucks used in the oil-sands mines.
Despite a severe economic downturn in a region whose growth once seemed limitless, many energy companies have too much invested in the oil sands to slow down or turn off the taps. In addition to the continued operation of existing plants, construction persists on projects that began before the price fell, largely because billions of dollars have already been spent on them. Oil-sands projects are based on 40-year investment time frames, so their owners are being forced to wait out slumps.
“It really is tough right now,” said Greg Stringham, vice president for markets and oil sands at the Canadian Association of Petroleum Producers, a trade group that generally speaks for the industry in Alberta. “We see kind of a lot of volatility over the next four or five years.”
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After an extraordinary boom that attracted many of the world’s largest energy companies and about $200 billion worth of investments to oil-sands development over the past 15 years, the industry is in a state of financial stasis, and navigating the decline has proved challenging. Pipeline plans that would create new export markets, including Keystone XL, have been hampered by environmental concerns and political opposition. The hazy outlook is creating turmoil in a province and a country that have become dependent on the energy business.
Canada is now dealing with the economic fallout, having slipped into a mild recession earlier this year. And Alberta, which relies most heavily on oil royalties, now expects to post a deficit of $6 billion in Canadian dollars (about US $4.5 billion). The political landscape has also shifted.
This past spring, a left-of-center government ended four decades of rule by the Conservative Party of Canada in Alberta. Federally, polls suggest that the Conservative Party — which championed Keystone XL and repeatedly resisted calls for stricter greenhouse gas-emission controls in the oil sands — is struggling to get re-elected in Monday’s national election.
Prime Minister Stephen Harper’s Conservatives have fallen behind rival Justin Trudeau’s surging Liberal Party in recent polls as Canada’s election campaign entered its final week.
“The pendulum has swung,” said Stephen Ross, the president of Devonian Properties, an Alberta development company that has built several residential and commercial properties in Fort McMurray.
Since the end of World War II, oil has made Alberta wealthy. The increase in oil- sands development since the early 2000s had only intensified the province’s good fortune and turned obscure Fort McMurray into a boomtown and an outsize contributor to the entire Canadian economy.
When Ross first bought development land here in 2000, he paid about $27,000 in Canadian dollars an acre. He stopped buying land long before it hit $1 million in Canadian dollars an acre.
“The town has had huge growing pains,” Ross said. “It’s like something you’ve never seen.”
Operating oil-sands plants quickly decreased budgets and cut services, like equipment cleaning, which were deemed optional. And as portions of construction projects are finished, construction workers are sent packing. The halt on new projects has left order books increasingly blank at a variety of suppliers, like engineering firms.
Since the price collapse, Teck Resources has delayed the start of its oil-sands project by five years to 2026. Cenovus Energy substantially reduced budgets for its long-term developments. And Osum Oil Sands has set aside some of the expansion planned for a project it purchased from Shell this past year. The Chinese-owned company Nexen, whose oil-sands production was curtailed by regulators for about a month in August because of a pipeline leak, has deferred plans to build another upgrader facility, where tarlike bitumen of the oil sands is converted into synthetic crude oil, until the end of 2020.
These projects, and others that have begun over the past 15 years, have largely been built and operated by an itinerant workforce. These workers fly into Fort McMurray’s new airport terminal and are bused to work camps up to two hours away. Their lives are a cycle of three straight weeks of long shifts interrupted by 10-day trips home.
That transient population has little or no connection to the city when working. When laid off, they become unemployment statistics, not in Alberta, but in the provinces of their hometowns. It’s also in those regions, more than Alberta, where the loss of once-large paychecks is most felt, having a ripple effect across the country.
For Canadian oil executives, the significant shift in the province’s politics is of great concern. Rachel Notley, the new premier and leader of the New Democratic Party, has said that she would prefer more refining to take place in Alberta instead of shipping more oil-sands production to the United States via Keystone XL.
And speaking to the Alberta Chamber of Commerce last month, Notley told the energy industry that it must “clean up its environmental act.”
One executive and investor, who did not want to be named while the province is reviewing his industry, said growing sentiment that the industry does not pay Alberta enough in royalties and lags on environmental protections will kill new investments, even if prices start to rise.
“There’s never been a time when I’ve been less optimistic,” he said. “The general public doesn’t know how bad it is. It just hasn’t hit yet.”
He did, however, acknowledge that environmentalists had won the debate on Keystone XL as well as various other pipeline plans.
“I don’t know how the issue got away, but it’s obvious now that it did,” he said.
The workers who have benefited from the boom are now realizing that their stretch of good luck might be over, permanently.
Réjean Godin, a truck driver and heavy-equipment operator, began the long-distance commute from the Atlantic province of New Brunswick 13 years ago. Since then, he’s earned wages four or five times the rate of those back home, an area of high unemployment.
Standing near his well-worn Toyota RAV4 that still bears New Brunswick license plates, Godin, who lives in a work camp, recited all of the different projects in which hundreds of workers had been laid off — layoffs that he’d learned about over the previous few days. He fears that the days of high pay for delivering water to work camps and hauling their sewage away may be over for both himself and his 30-year-old son, who joined him in Alberta.
“I’m not sure if we’re going to come next year,” Godin said in the dusty yard of a trucking company in Fort MacKay, Alberta, a town down the Athabasca River from Fort McMurray. “What you hear everywhere is the price is low so we’ve got to cut this, we’ve got to shut that down a little bit. We go day by day because we never know.”