The modern-day goldrush to Alberta's oilpatch may have slowed considerably with $75 billion wiped off oilsands-related projects, but Canada is still considered an emerging energy superpower, experts says.
This country remains the world's seventh-largest crude oil producer, and with 173 billion barrels in oilsands reserves, ranks second only to Saudi Arabia in global oil reserves.
However, the Greater Edmonton region - Canada's oil heartland - is still paying a big price for the global economic slowdown, as a series of proposed upgraders to transform sticky bitumen into high-quality synthetic crude oil have fallen to the wayside.
The so-called Upgrader Alley has become more like a desert of dreams, with several projects delayed or cancelled as oil prices started their plunge late last year.
BA Energy, North West Upgrading Inc., Petro-Canada, Shell Canada, Statoil Hydro and Total E&P were among those with plans to build upgraders in Alberta's Industrial Heartland (AIH), a region that includes Lamont County, Strathcona County, Sturgeon County and the City of Fort Saskatchewan.
The AIH is Canada's largest hydrocarbon processing centre, and is home to about 14 petrochemical processing operations.
The Alberta Industrial Heartland Association (AIHA), which represents the four municipalities, has released figures showing that in addition to the $75-billion loss in capital investment and the 75,000 person years of construction work, $6 billion in engineering design work has disappeared, along with a potential of 12,000 permanent jobs.
But even before the great oil crash, "we could already see the writing on the wall," says AIHA executive director Neil Shelly.
"Some of the issues out here predate the current financial investment crisis. One of the biggest was the cost inflation with these major projects. The economy was so hot that costs for operations doubled or even tripled (from 2005 and 2006 figures)."
Nine companies purchased land and took up positions within AIH for future development and expansion.
Today, Shell Canada is the only one actually moving ahead with its 90,000-barrel-a-day expansion to its existing AIH upgrading facility. BA Energy halted construction on its plant last year, with plans to review the project status over the next four to five years, while the others are pending or no longer being contemplated.
Add in logistic support such as pipeline systems, sulphur handling, catalyst recovery and gas separation, and the potential investment in AIH was about $92 billion, says Shelly. "We were talking development on the scale of what was happening in Fort McMurray."
While the picture remains dim, it is far from bleak.
"The potential to become one of the major suppliers of oil in the world is still there, but at a slower or more sustainable pace than people would have said two years ago," says Greg Stringham, vice-president of the Calgary-based Canadian Association of Petroleum Producers (CAPP).
"The impact of that across Canada means employment opportunities from other parts of the country - as well as those for the suppliers to the oilsands - will still be there."
Companies are now trying to live within their means in order to proceed eventually with their project, he adds, but likely at a much slower or more sustainable pace than in the past.
The proposed merger between two major Canadian oil firms - Suncor and Petro-Canada - is adding more reason for optimism, says Patricia Mohr, vice-president, economics and commodity market specialist at Scotiabank in Toronto.
"The merger comes at a time when market conditions are more challenging for the energy sector and oilsands producers because of the downturn in energy prices and the volatile financial markets," says Mohr.
"It's intended to create a much bigger player that's very competitive in the world marketplace, with greater financial strength to cope with today's financial world and to also bring onstream more major oilsands projects that they have in their stable."
Mohr also believes that oil prices have seen the bottom of the barrel.
"I do think we've seen the bottom in oil prices. I think that oil probably bottomed out at $32.40 per barrel last December," says Mohr. "I would expect oil prices to move irregularly (with a lot of day-to-day volatility) higher in the next couple of years."
She notes oil should reach $65 a barrel in 2010 and then eventually rise to $75 a barrel.
Once oil hits $75, she expects some delayed oilsands projects to be reviewed, with an eye to getting them moving again.
There are other factors working in the oilpatch's favour, says AIHA's Shelly.
These include the depreciation of the Canadian dollar - making projects more affordable as investments are typically made in American dollars - and the fact that runaway construction costs are slowing and coming under control.
"Somebody hit the big pause button," he adds. "Our prediction is that it will come back slowly and be a bit more manageable."
However, the Alberta Federation of Labour (AFL) is not as confident that an economic rebound will see lost oilsands jobs return.
It's urging the Alberta government to prohibit the export of raw bitumen and take the lead in building an upgrading and refining super-facility.
In a new report, Lost Down the Pipeline, the AFL says energy companies are spending about US$31 billion to build, retool or expand at least 10 refineries in the U.S. for the specific purpose of upgrading and refining raw bitumen from the Alberta oilsands.
At the same time, it says two major bitumen pipelines - the Keystone and Alberta Clipper - are nearing completion.
Together, they will have capacity to move about 1.4 million barrels per day of raw bitumen from Alberta to refineries in the U.S. Midwest, while six other pipelines are being planned that can move 2.3 million barrels per day of Alberta bitumen to refineries on the U.S. Gulf Coast.
"Government and business leaders have left the impression that once the global recession ends, it will mean a return to business as usual in the oilsands," AFL president Gil McGowan said in a statement. "But nothing could be further from the truth. What our research shows is that American refineries will have the capacity to process all of the expected increase in oilsands output from Alberta."
Even with the collapse of Upgrader Alley, oilsands development continues to move forward, says Don Thompson, president, Oil Sands Developers Group (OSDG), a non-profit, industry-funded association in Fort McMurray.
"We still expect oilsands production to increase marginally in 2009 and 2010 and that's because new facilities came online at the end of 2008 and existing facilities will continue to improve their performance," says Thompson.
OSDG is forecasting oilsands production levels for 2009 to be around 1.8 million barrels per day, growing to more than two million barrels per day by 2010. That's up from 1.5 million barrels per day in 2008.
"It's not like capital has stopped," Thompson adds. "In fact, capital expenditures are still fairly high, in the area of $5 billion to $8 billion of new construction over and above the $18 billion (currently) being spent in operational costs."
"Anywhere else in Canada, $5 billion to $8 billion in construction would be front-page news."
(Laura Severs can be reached at laura@businessedge.ca)
