Pipeline construction contractors and some northwest B.C. communities hope Calgary-based Enbridge Inc.'s proposed $2.5 billion Gateway pipeline will open doors to better economic times.
The Pipe Line Contractors Association of Canada (PLCAC) says the beleaguered pipeline-construction sector is betting that the Gateway project - which took a giant step forward earlier this month with the signing of a supply agreement between Enbridge and PetroChina Co. Ltd. to move 400,000 barrel per day (b/d) of crude sourced in the tarsands - will inject much-needed life into the industry.
"I think it is inevitable that, with all the expansion they're looking at, they will need a lot of take-away capacity to move that oil from Fort McMurray to the markets outside of North America," says PLCAC president Jim Topping.
The Gateway pipeline would carry oilsands crude from Edmonton to the northern Pacific coast, to either Prince Rupert or Kitimat, where it would then be shipped to Asia and markets in California.
Pipeline contractors haven't enjoyed a busy year since the natural gas-carrying Alliance Pipeline was completed almost five years ago. While significant industry consolidation has yet to occur, employment in pipeline construction has dried up.
In recent years, the number of person-hours worked has fallen to less than half a million per year. This is compared to 1999 - one of the busiest 12-month periods in the past decade - when person-hours worked topped eight million.
The PLCAC president says he is not frustrated that his sector has suffered while other industry players - most notably the oil and gas producers and oilfield service companies - have thrived. The pipeline-construction industry, he notes, is a cyclical business and one that should rebound in the next few years as larger projects get underway.
Peter Thompson, president of OJ Pipelines Canada, has been living the lean times since 2001. To put the "meat and potatoes on the table," companies like OJ - designed to lay the big pipe with diameters more than 30 inches - must to do less-than-ideal jobs installing smaller pipe.
"It's the bottom end of our capabilities," Thompson says. "You've got to understand that companies like ours are specialized in equipment that is geared for doing 30-inch pipe and above.
"So for us it's (like) needing a snow shovel to clean the driveway and all you've got is one of those huge front-end loaders."
Thompson expects the Gateway line will likely employ 2,000 workers during the planned two-year construction phase.
Enbridge has an array of new, multibillion-dollar projects in the works to funnel the expanding oilsands crude to new markets on both sides of the U.S. as conventional oil supplies continue to wane.
Rival pipeline company, Terasen Inc., is also keen to supply oilsands crude to new markets in Asia and has been looking at a series of major expansions to its existing pipeline that brings oil from the Edmonton area to B.C.'s Lower Mainland.
But pipeline analyst Brian Purdy of FirstEnergy Capital believes the recent Enbridge-PetroChina agreement will make it much harder for Terasen to get the commitments from producers that it needs.
"They're well behind, given this announcement - it's going to be difficult to get that critical mass that they need to justify a project of this size," he says.
"You don't go ahead with a $2.5-billion project without a good portion of that capacity tied up before you start."
While bolstered by recent advancements, Enbridge warns a lot of work must be done before it begins digging trenches. Regulatory approvals, environmental issues, agreements with First Nations and commercial contracts are just a few of the challenges the company must work out between now and when construction is slated to begin in 2008.
"All of those things have to come together to make sure Gateway is a go," says Enbridge spokesman Jim Rennie.
Anxiously awaiting final plans are the northern coastal communities of Kitimat and Prince Rupert, both which are vying to be Gateway's final destination.
"We're doing OK (economically), but there's no reason why we couldn't be doing better," says Kitimat mayor, Richard Wozney. "If the opportunity is there, we want it."
The town of 10,000 bills itself as an industrial centre, hosting an aluminum smelter, a pulp mill and a methanol and ammonia plant. It also hopes to attract other large-scale projects, such as a liquid natural gas receiving terminal, in addition to a terminal to ship out gravel aggregate.
However, Kitimat's biggest employer, Alcan Inc., is cutting its 1,600-strong workforce. "We'd like to attract more industry to offset those job losses," Wozney says.
Prince Rupert, which is getting a new $120-million container port terminal to help boost Canadian trade with Asia, also hopes to attract the Gateway terminal. But Wozney thinks Kitimat has the edge.
"If I were a betting man, having read the CIBC (World Markets) report regarding the Gateway proposal, I would come to Kitimat," says Wozney, referring to a report that weighs the Kitimat-versus-Prince Rupert options and concludes the former is more likely to be the destination.
Back on the right-of-way, another worry is whether given the purported skilled labour shortage in Alberta and B.C., contractors will be able to lure enough trained tradespersons back to the lines. The PLCAC's Topping says he isn't too concerned.
"Recently, the projects have been of a lot shorter duration - three to four months - but with these bigger ones (such as Gateway) we're expecting they'll last up to two years, which makes them more attractive to the workers."
But industry observers say the trick will be getting through the next few years.
The PLCAC president doesn't anticipate 2005 will bring much in the way of relief to contractors, but has higher hopes for 2006 and beyond.
"By 2008 I think we'll return to some semblance of normal activity, which I hope will last for six to eight years."
- with files from The Canadian Press (John Ludwick can be reached at ludwick@businessedge.ca)
