THE oil town of Fort McMurray gets a bad press. GQ
magazine portrayed it as a hellhole of testosterone and tattoos, where
drunken oilworkers shower strippers with cash and get into fights
because there’s nothing else to do. Esquire called it “the little Canadian town that might just destroy the world”.
There is a grimy grain of truth in such stories. Extracting oil from
Alberta’s oil sands does indeed cause environmental problems. And Fort
McMurray is a bit macho. It is a frontier town of ultra-low temperatures
(-20°C is about average in winter; -51°C has been recorded) and
ultra-high wages (average household income is C$178,000, which is also
$178,000). The population is mostly young and male. Some do indeed
prefer more raucous entertainment than say, joining a book group to
discuss “Eat, Pray, Love”. “I wish they’d ban truck nuts,” sighs a
female resident, referring to the toy testicles with which some young
men decorate their trucks.
But there is another story about Fort McMurray: a tale of
innovation and energy reserves so vast that they could have geopolitical
consequences. Canada’s oil sands contain some 170 billion barrels of
oil that can be recovered economically with today’s technology (and
perhaps ten times that in total). Canada thus has the world’s
third-largest proven oil reserves, after Saudi Arabia and Venezuela. And
since most oil-rich nations’ reserves are under state control, Canada
has the largest reserves that private companies are free to invest
in—more than half of the global total, reckons Ken Hughes, Alberta’s
energy minister.
Other countries welcome the idea of plentiful energy from a stable
democracy. It could reduce the rich world’s dependence on the Middle
East. There are “no bribes or body bags”, grins an oil-industry booster.
And the potential is immense. A new study by the Alberta Geological
Survey estimates that the province has huge resources in its shale beds
as well as its oil sands: 3,400 trillion cubic feet of natural gas and
420 billion barrels of oil—numbers comparable to America’s.
However, Canada’s output of 3.5m barrels of oil a day is less than
half that of America. (America’s output is set to exceed Saudi Arabia’s) Several problems hobble Canadian energy: geology, capital, people and pipes.
First, geology. Canadian oil is hard to extract. It mostly comes in
the form of bitumen, which is “hard as a hockey puck” at 10°C, as the
Canadian Association of Petroleum Producers (CAPP), an industry body,
puts it. If it is far below ground, it must be blasted with steam to
make it flow, and then pumped out. This process (known as
“steam-assisted gravity drainage”) was developed in Alberta. In the past
decade, with high oil prices, it has made the oil sands economical to
exploit. But precariously so: the best projects break even when oil is
$30 a barrel, but many new ones need it to be $80 or more. (West Texas
Intermediate is currently $85.)
Canada gets less than it should for its oil because it lacks enough
pipelines. Environmentalists oppose them, arguing that pipes leak (which
is always possible) and that Canada’s heavy oil causes more
greenhouse-gas emissions than other oil (which is true, but not by
much). President Barack Obama has delayed the approval of a pipeline
called Keystone XL, which would move Canadian oil to America’s Gulf
coast. A decision is expected soon.
Alex Pourbaix of TransCanada, the firm behind the Keystone pipeline,
insists that the project will be good for both countries. Canada forgoes
a fortune—perhaps $20 a barrel—because it cannot get its oil to the
sea. Canadian gas sells at a discount, too: North American prices are
far lower than those in Asia.
Getting the oil to the sea
Another proposed pipeline, Northern Gateway, would carry oil to
Canada’s west coast, whence it could be shipped to Asia. Canada would
benefit from having a choice of customers. But the government of British
Columbia, and various aboriginal groups, have yet to say yes.
To exploit its hydrocarbons, Canada needs capital: some $50
billion-60 billion a year, on recent trends. Such sums are “far more
than Canadian capital markets can raise,” says Dave Collyer of the CAPP.
Canada gets plenty of foreign investment: Syncrude, one of the biggest
oil-sands developers, is a joint venture that includes American, Chinese
and Japanese partners. But lately the country has grown frostier
towards foreign capital.
In October Canada’s federal government temporarily blocked a $5.2
billion bid by Petronas, Malaysia’s state energy giant, for Progress
Energy Resources, a Canadian natural-gas company. It has yet to approve a
$15 billion offer by CNOOC, a Chinese state-owned firm, for Nexen, a
Canadian oil-and-gas firm. A deadline passed last week; a decision may
come next month. Mr Hughes says he is keen on foreign investment so long
as foreign firms abide by the same rules as Canadians; but it is not up
to the provincial government.
The other big bottleneck is human capital. Hardly anyone lives near
the oil sands, so labour must be imported, from other parts of Canada
and from abroad. People from 127 countries live in Fort McMurray, says
Ken Chapman of the Oil Sands Developers’ Group. They speak 69 languages.
The Walmart in town looks like the United Nations, except that all the
shivering Africans are buying woolly hats. Mr Hughes expects to see a
skills shortfall of 100,000 people in Alberta by 2017. Canada’s
immigration rules are more liberal than America’s, but firms still gripe
about delays. An Irish worker in Fort McMurray complains of having to
fly to Calgary to sit a test of English proficiency. It’s her native
language, and the test is online.
Companies poach staff from each other, bidding up labour costs. It
would be easier to attract workers to Fort McMurray if the town were
more liveable; a one-bedroom flat can cost $2,000 a month. To build more
homes, however, the town must wrestle with provincial red tape—and also
attract legions of builders, plumbers and electricians, all at inflated
wages.
Working conditions in the oil sands are tough. Touch a metal pipe
with your bare hand at minus 40 and it sticks. “It’s not for everybody,”
shrugs an oil-firm boss. At remote work camps, companies provide hot
food, warm cabins, broadband and squash courts. All this is costly. Many
firms make equipment elsewhere and truck it in, so that fewer people
have to toil in the cold. Some are hoping dramatically to raise the
proportion of man-hours worked off-site.
With so many bottlenecks and a volatile oil price, firms are growing
cautious. Suncor Energy and Canadian Natural Resources, among others,
are putting new investments on hold. “It’s the uncertainty,” says Marcel
Coutu, the boss of Canadian Oil Sands, a firm that owns 37% of
Syncrude. “No one knows when or whether those pipelines will be built.”
Source - Economist
