Alberta could be king of the North American energy castle by 2020 if issues such as poor project management can be dealt with, experts say.
Delegates at a conference held last week in Calgary, which delved into mega- project management, heard how Canada's most economically buoyant province has the potential to not only grow its heavy oil output, but also become a major supplier of refined products.
Yet the risk of delays and cost overruns could squander this golden opportunity, says Soheil Asgarpour, oilsands business unit leader with Alberta Energy.
"We are good at managing small projects - $50 million, $20 million - that's what most oil and gas projects are," Asgarpour told reporters after his address.
"When it comes to mega- projects, it requires different expertise, different project management, and one of the areas that must be looked at is making sure there's good co-ordination in terms of all of your activities."
Case in point: From 2000-2002 there was ample evidence that labour productivity in oilsands project construction fell significantly, not because worker levels exceeded 15,000 - the number that is traditionally pegged as Alberta's total industrial construction workforce - but rather due to poor project management.
"For example, if your vessels are coming to the site and you have hundreds of workers there, you want to make sure you co-ordinate these things properly," Asgarpour said.
"There were situations where you had 400-500 workers sitting and waiting for vessels (plant components) to come to the site - that's called lack of project management, lack of co-ordination," he added.
However, he declined to discuss which projects experienced those types of problems.
On the line are billions of dollars in revenues from refined crude oil and petrochemicals, the so-called value-added petroleum products.
"We are strategically located north of the largest consumer market in the world ... but also we haven't accessed the emerging market, China, and other Far East countries," Asgarpour told the conference, hosted by The Canadian Institute.
Asgarpour said he sees the production of value-added petroleum products as a key for Alberta's future economic development.
For example, based on current $53-per-barrel oil, he said that styrene - a clear, colorless liquid derived from petroleum and natural gas by-products and used to make thousands of everyday products - could fetch a tidy $190 per barrel and gasoline $81 per barrel, while unprocessed bitumen exacts only $25 per barrel.
This sort of economic development could make Alberta a refining hub.
"By developing these mega-projects and converting the raw materials into value-added products, Alberta becomes a magnet, attracting raw material from everywhere around this region - gas from B.C., oil from Saskatchewan, and gas and oil from the Yukon from the Northwest Territories and from Alaska,"Asgarpour said.
But to achieve that goal by 2020, industry must work quickly to ramp up its heavy oil upgrading capacity to the tune of two million barrels per day (b/d) from the current one million b/d, and increase refining capacity to more than one million b/d from 400,000 b/d today. In addition, petrochemical output - right now around eight billion pounds per year - could be doubled.
Reaching that objective will mean that industry must get the cost-overrun monkey off its back by making more realistic cost projections ("Many people want to push projects through the board of directors ... so maybe they will lowball it," he noted), and through improved planning as well as better risk management. Still, Asgarpour said he believes companies are becoming better at megaproject management.
Francis Hartman isn't as sure. The University of Calgary professor and project-management consultant told the conference that Alberta's energy industry is setting itself up to "repeat history" on oilsands mega- projects that have been plagued by cost overruns.
Hartman argued that professionals involved in the initial major commercial tarsands projects a couple of decades ago have long since retired, and warned that in the next 10 years, many of today's leaders may also be gone.
That, he said, means industry may be unable to fully capitalize on their expertise and avoid their mistakes.
"Why did (cost overruns) happen? Because all the people who were involved in those projects retired before we started the next round" of oilsands expansion, he told delegates. "Guess what percentage of (industry people) will be retired once we hit the peak five to 10 years from now? The vast majority of us will be gone or retired."
To avoid a repeat of cost overruns, Hartman advocates the adoption of a project management centre of excellence, a concept first suggested in a report released by Alberta Economic Development Auth- ority (AEDA) last December called Megaproject Excellence: Preparing for Alberta's Legacy - An Action Plan.
The document noted that the United Kingdom, the U.S. and the European Union have all established organizations dedicated to improving major project management.
The report said that: "While there are a number of independent researchers and practitioners working on improving megaproject performance, there is no Canada or Alberta equivalent to the American, British or European models. Filling this gap would help this province and industry improve project performance."
The study went on to add: "Given that by 2030 the potential cumulative capital spent on oilsands and oilsands projects in the province of Alberta will be over $200 billion and given the importance megaprojects have and will have on this province, Alberta needs a centre focused on managing megaprojects."
The centre of excellence would focus on bringing industry, government, finance firms, regulators, project management experts and academia together to share their knowledge in project management.
The centre would act as an independent and confidential "clearing house" for project management.
The AEDA said it is still consulting with industry about the centre-of-excellence idea and no decisions have been made to date.
Meanwhile, the Alberta government is being pressured to invest in Fort McMurray's infrastructure to accommodate the city's runaway expansion resulting from oilsands activity.
Fort McMurray Mayor Melissa Blake last week asked the Alberta government to pony up $1.6 billion to improve its infrastructure to deal with the rapid growth the city is facing, arguing that without an injection of provincial money the community won't be able to accommodate a number of large oilsands projects that have been proposed.
Last fall, the Klein government announced it was looking at a $3-billion infrastructure investment in the province, with $1 billion for Calgary, $1 billion for Edmonton and $1 billion for the rest of the municipalities.
Asgarpour agreed that much must be done to bring Fort McMurray's infrastructure up to snuff if oilsands projects are to attract the human capital needed to pull off these huge projects.
He noted that the population explosion in recent years "has put huge pressure on the infrastructure. Highways, schools, affordable housing" are all needed, he said.
(John Ludwick can be reached at ludwick@businessedge.ca)
