► Oil sands shift economic power in Canada
By Clifford Krauss The New York Times
TUESDAY, MARCH 28, 2006
FORT McMURRAY, Alberta Canada's Wild West is going corporate. In the last big energy boom here, during the 1970s, the card room at the Calgary Petroleum Club was so full of Texas oilmen that seats at the poker table rarely freed up until well into the early morning hours.
With oil prices high again, Alberta is hopping once more - but with a twist. The skyline of Calgary, the business center of the province, is about to be altered by a huge real estate project; big new jet runways to handle the influx are already in place. While poker is still popular, conspicuous consumption these days includes such things as white truffles and Mercedes-Benz convertibles.
The change is reflected in the very nature of the oil business here: once built around conventional drilling where independents played a major role, oil is now extracted through a heavy industrial process requiring huge capital investment.
Some of the biggest international oil players plan to invest 100 billion Canadian dollars, or $85.66 billion, over the next decade into developing the gooey oil sands here. Alberta is at the center of a new energy-based Canadian economy that promises to be all the more crucial to the United States.
As more oil flows, more economic power and population are shifting westward from the traditional manufacturing centers of Ontario and Quebec, which are trailing in comparison. The rising West is splitting the national economy, forcing the industrial monoliths back east to retool and reorient manufacturing to supply the growing oil economy.
Here in Alberta, every week seems to turn up an announcement of a new refinery, a pipeline project or a land bid. Likewise, though to a lesser extent, with the neighboring provinces of British Columbia and Saskatchewan.
"It's a seesaw effect," said Todd Hirsch, chief economist for the Canada West Foundation, a research group based in Calgary. "What's driving Alberta, Western Canada and resources up are what's driving Ontario and Quebec down - the emerging Asian strength and the strength of the Canadian dollar."
The energy companies say their investments are only just the beginning in oil sand fields that hold estimated reserves equivalent to as much as 175 billion barrels of oil, or more potential energy content than the oil fields of Iran and Libya combined. Oil sands production has risen to just over 1 million barrels a day today from 400,000 barrels in 1995, and it is projected to rise to 2.7 million barrels in 2015.
Alberta has long been cowboy country, a cattle center in the heart of the Canadian Bible belt. But in recent years, oil has given it the fastest growing population of any province, with people lured from elsewhere in the country and even outside Canada because salaries are growing faster than anywhere else.
"We're a big laboratory in how to absorb so much investment," said Gwyn Morgan, executive vice chairman of EnCana, the Canadian energy company based in Calgary. "None of us could have dreamed this would happen this quickly."
Here in Fort McMurray, the town closest to the oil sands, truck and bulldozer drivers come from as far away as Newfoundland and Labrador to earn six-figure salaries. They are buying up expensive pickup trucks as if they were toys.
As the town's population has increased to 61,000, from 33,000 in 1996, housing has become in such short supply that the average mobile home now sells for 277,000 dollars and people are renting couches for $500 a month.
The crowding and labor shortages pushed Canadian Natural Resources to build a jet runway long enough to accommodate Boeing 737s to allow workers to commute to their giant new Horizon project. Shell Canada has built a giant pipeline to transport diluted oil sand bitumen hundreds of miles south to a new upgrading plant outside Edmonton.
In Calgary, EnCana is about to build a corporate headquarters covering more than two blocks, the biggest real estate development project in Canada in two decades.
Restaurants, wine stores, art galleries and luxury-car dealers are doing frenzied business. At an benefit auction this month, one bidder paid more than 13,000 dollars to go fly fishing on a local river with Ron Brenneman, president and chief executive of Petro-Canada.
"I don't see any black clouds on the horizon," Brenneman said.
The same forecast might be said for much of Canada. Unemployment is at a 30-year low, the Toronto stock market reached an all-time high this month, and real estate is booming virtually everywhere. Meanwhile, oilmen here are now calling the Canadian dollar, which has climbed more than 35 percent since early 2002, a new petrocurrency.
The high cost of producing oil sands was once a major impediment, but no longer now that oil prices are at $60 a barrel or more and most experts expect prices to remain relatively high for years on end. There were only a dozen oil sands projects in Alberta a decade ago. Today there are about 60, and 55 more have been announced.
But Canada is also grappling with some losers amid the boom. Eastern manufacturers have been forced to retool, consolidate and shed 180,000 jobs in the last two years as cheaper products enabled China to replace Canada as the top exporter of nonenergy products to the American market. Capital investment among manufacturers has decreased since 2000.
Particularly hurt have been companies manufacturing household appliances, electrical equipment, plastic and rubber products, textiles, and pulp and paper mills.
At Edson Packaging Machinery, based in Hamilton, Ontario, one-third of the 85 workers were laid off in 2003. By switching to American suppliers, changing its product mix and putting more emphasis on service, Edson has rebounded somewhat and increased its payroll again.
"It's a tale of two economies," said Edson's president, Robert Hattin. "The resource-based economy is hot, and manufacturing right now is facing challenges we haven't seen before."
Alberta has 10 percent of the population but directly produces 15 percent of Canada's gross domestic product. Both numbers are likely to rise in the coming years, economists say.
"The fishing is gone in Newfoundland, and this is pretty close to the hub of Canada right now," Kevin Ellsworth, a 42-year-old Shell truck operator, said in explaining why he and so many other easterners were coming here. "Every time you turn around there's another plant project coming to town."
Ellsworth's enthusiasm is typical of many workers here and fits neatly with the dimensions of his job. His dump truck carries 400 tons of oil sands and reaches seven stories high when its box is lifted on its hydraulic cylinder. The mine pit he drives through all day has a depth of 240 feet, or 73 meters, and a length of more than a mile, or 1.6 kilometers. He can make more than $100,000 a year including overtime.
Shell's oil sands venture contains enough pipe to stretch from Calgary to San Francisco and its mile-long conveyor belt has the largest capacity in the world. But the venture is only going to get bigger.
After several stalled oil sands efforts, Shell was faced in 1996 with the prospect of losing a lease over land north of Fort McMurray that it now believes holds more than five billion barrels of oil. With a barrel of oil worth under $20 a barrel at the time, development of the oil sands did not seem worth the investment.
But Shell brought in Chevron and another partner and went ahead with a project three years later, just as the price of oil was poised to climb. In less than four years and with an investment of 5.7 billion dollars, its project is already producing 155,000 barrels a day.
That was only the beginning. New land acquisitions and at least two more mines are planned over the next decade. An expansion costing 7.3 billion dollars will add 100,000 barrels a day by 2009. Shell hopes to reach 500,000 barrels a day by 2015, equivalent to half the current daily production in all of Texas.
"It's the 'holy cow,'" said Craig Simpson, a Shell mine engineer. "What people don't realize is how big this is."
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