Fort McMurray recovery stymied by oil market collapse.
‘A LOT OF PEOPLE JUST SOLD AND LEFT’: INVESTMENT SLOWDOWN A DOUBLE BLOW FOR FORT MCMURRAY
• In the heart of Canada’s biggest oil province, life is slowly returning to normal in Fort McMurray, Alta. After a fire last year destroyed entire neighbourhoods in the town and halted about a million barrels of daily production, green leaves are beginning to bud on charred trees and new construction is replacing homes that were burned to the ground.
But hopes for a complete rebirth are being undermined by a global oil slump. It’s become less attractive to invest in the region, where tar- like reserves are among the most expensive and difficult in the world to extract. After 17 years of uninterrupted expansion around Fort McMurray — which drove an 86 per cent increase in the nation’s output — no new projects or expansions will go into operation next year, an analysis of company spending plans shows.
Producers including Royal Dutch Shell Plc and Koch Industries Inc. have shelved or put on hold billions of dollars of projects since crude fell from more than US$ 100 a barrel in 2014 to as low as US$26 last year. The economics of the business remained lousy in 2017. That’s because sticky oilsands in Alberta have to be mined and then converted into liquid using a costly conversion process or loosened with steam and sucked out of wells. To justify expanding existing projects or starting new ones, crude needs to fetch at least US$50.
“We will not see a pickup of significant work for two to three years,” once existing expansions are completed in 2017, Jay Bueckert, regional director of the Christian Labour Association of Canada, a union representing oilsands workers, said in an interview at his office in Fort McMurray.
The investment slowdown is a double blow for the town. It’s still recovering from the May 2016 blaze that swept through neighbourhoods such as Beacon Hill and Timberlea, destroying about 2,000 homes and forcing shutdowns of oil production for almost a month. The damage will wind up costing the government and insurers more than $ 5 billion, according to the Conference Board of Canada.
As many as 5,000 people haven’t returned, according to municipal population figures. While home sales were up in the first five months of the year, prices continued a decline that started after the oil- price slump began three years ago, according to the Fort McMurray Real Estate Board.
“A lot of people just sold and left,” Sam Keane, a 27 year-old scaffolder from Ireland, said as he stood beside a rebuilt home he had just bought from a previous resident of a neighbourhood that burned down.
As the community rebuilds, international companies are pulling back. Since March, Shell, ConocoPhillips and Marathon Oil Corp. have agreed to sell oilsands assets to domestic producers Canadian Natural Resources Ltd. and Cenovus Energy Inc. Exxon Mobil Corp., majority owner of Imperial Oil Ltd., slashed billions from its Canadian reserves.
While prices have recovered from last year’s low, they’re down 21 per cent this year to less than US$ 45 a barrel. That’s too cheap to justify most projects that require billions of dollars in upfront investment and years of development, said Kevin Birn, a director at IHS Energy in Calgary.
Fort McMurray has vast reserves. Only Saudi Arabia and Venezuela have bigger crude deposits. The town transformed from a remote trading outpost to an Energy centre in the late 1960s, when what is now Suncor Energy Inc. began extracting the viscous hydrocarbons from the soil under the dense boreal forests of remote northern Alberta.
As crude prices surged after the turn of the millennium, concerns about oil scarcity drew more than $ 200 billion of investment from the U. S., Asia and Europe. As money poured in, so did people from around the world seeking steady jobs and a higher standard of living. With the population growing four per cent a year, the municipal government struggled to build infrastructure fast enough. Traffic jams lasting hours would tie up oilsands workers on the one road into the oilsands mines to the north.
The boom ended abruptly in late 2014 with the surge in U. S. shale production that sent prices plunging. The number of oil- sands- related engineering and construction jobs will shrink by 9,300, or 30 per cent, by 2023 from “already diminished employment in 2016,” according to a report by BuildForce Canada, a trade organization.
“We always talk about diversification and it’s something that’s really hard to do when we are in the heart of the oilsands,” said Alexis Foster, executive director of the Fort McMurray Chamber of Commerce.
In the past year, MEG Energy Corp., Cenovus and Canadian Natural announced plans to expand operations later in the decade. But those expansions are to thermal oilsands projects in an area located about two hours south of Fort McMurray. New projects near Fort McMurray, such as Suncor’s newly proposed Lewis or Imperial Oil’s Aspen, have yet to be sanctioned.
With investment in new oilsands winding down, Fort McMurray residents are left with jobs maintaining and repairing existing operations. Sustaining capital and maintenance work will rise “moderately” over the next decade and become an “increasingly important source of employment,” according to BuildForce Canada.
As Fort McMurray contracts, expansions are occurring elsewhere in Canada. In the western Alberta town of Grande Prairie, drilling in the Montney shale formation was up an annual 80 per cent early this year.
But Fort McMurray will remain the dominant oil town in Canada for now, Birn said.
The provincial government said in its most recent budget that the reconstruction of the town after the fire and plans for increased oil production will add 1 per cent to the gross domestic product this year.
There are signs of improvement: Unemployment is down from last year, Foster says construction work is expected to expand, and t he median si nglefamily home price in April rose from a year earlier.
Some people are movi ng back because t hey “saw opportunities to purchase,” said Andrew Weir, president of the Fort McMurray Real Estate Board. They “don’t feel like the sky is falling anymore,” he said.
THE BOOM ENDED IN LATE 2014 WITH THE SURGE IN U.S. SHALE PRODUCTION.