WANING of the BOOM
Once the dream factory for 24,000 mobile workers, Fort McMurray's slowdown may be most devastating for the communities across Canada who export them.
GORDON PITTS
December 29, 2008
FORT McMURRAY, ALTA. -- Hungry young tradesmen like Evan Brewer used to be as plentiful on the ground in Fort McMurray as chips at the Boomtown Casino. They'd get off the plane from Atlantic Canada and score big money in the oil sands.
Now Mr. Brewer feels like one of the last of an endangered species. "I just got in under the wire," says the 23-year-old journeyman welder from Fredericton, as he lines up for the 5 a.m. breakfast of cereal, doughnuts and croissants at the Ace Inn, a favoured downtown hostelry for young men in work boots and hard hats.
With a base pay of $40 an hour and living allowances, Mr. Brewer is pulling down better than $3,000 a week, much more than he ever dreamed of back in New Brunswick, where he was living in his parents' basement.
But since he signed up at Suncor Energy Inc. in June, the floor has collapsed under the great oil sands bonanza.
Project after future project has been shelved or slowed down until, according to the companies, plunging oil prices stabilize and financing starts to loosen up.
Fort McMurray will not become a ghost town. You can still see the signs everywhere of an overheated economy. Highway 63 is a parking lot during rush hour as the workers stream out of the city toward the big oil sands projects. The slots at the Boomtown are busy even on a Monday night, and you can hardly find a hotel room with less than a week's notice.
But the mood is decidedly less bullish in the work camps and motels around Fort Mac, where the shadow population, the temporary workers flown in from everywhere, are insecure about the future.
In McMurray Newfoundlanders club, a popular watering hole, the waitress is ominously talking of layoffs. Mr. Brewer's tradesman job looks safe - welders are the aristocracy of the oil sands - but he doesn't expect a lot of his friends from the Maritimes to be joining him any time soon.
For at least another two years, and probably more, Fort Mac will no longer be the dream factory for ambitious young men and women from elsewhere in North America. It won't be the escape valve for frustrated workers in areas short of jobs and long on shuttered factories - places like northern Nova Scotia and central Ontario.
Just as the global economic boom was driven by China, the Canadian economic expansion of the past decade was fired by northern Alberta. Now China is talking about 8 per cent growth, not the 11 per cent-plus of past years, and Fort McMurray is talking about more "normal" growth built on operations, not massive capital spending.
The oil sands will no longer be the strong shoulders that carry the economy. With the price of oil below $40 (U.S.) a barrel, as current construction projects finish up there will be no immediate plunge into Phase 2 expansions, and new bitumen upgraders - and that will cool activity in and around Edmonton, including in the hectic oil sands manufacturing centre of Nisku south of the city.
One case in point: Whereas 10,000 workers once laboured in building Canadian Natural Resources Ltd.'s Horizon project northwest of Fort McMurray, there were recently only 1,500 people onsite as CNRL prepares to launch its $10-billion mine and upgrader. Those 8,500 excess workers won't easily be soaked up in a slumping global economy.
And with the cancellation or delay of future capital projects, what once amounted to 24,000 mobile workers' jobs in the oil sands are now in jeopardy.
"If you are 22 years old and you're moving up there, and you plan to work there till you're 30, this downturn is not a good thing," says Joseph Doucet, professor of energy policy at the University of Alberta's business school in Edmonton.
Indeed, the downturn accentuates the split between permanent operations workers and the shadowy class of temporary workers, who are flown in, put up in housing and paid royally by the companies. The permanent people, who run existing mines, steam-assisted gravity drainage (SagD) sites and upgraders for companies like Suncor, Syncrude Canada Ltd. or Shell Canada Ltd., like the idea of fewer traffic jams or shorter waiting times in doctors' offices.
They welcome lower costs for housing although that is still not reflected yet in actual prices. The average sale price on a Fort McMurray house last month was almost $690,000 (Canadian), up from $641,000 a year ago, says Milly Quark, a Royal LePage agent and head of the local real estate board. The downturn is actually "a bit of a relief," says Mayor Melissa Blake of Wood Buffalo Regional Municipality, which includes Fort McMurray - population 65,000. (If you include the camp workers on site, the population balloons to more than 90,000.) The lull, she says, gives the overheated community a chance to cool off and finish much needed infrastructure projects, such as a wider bridge across the Athabasca River bottleneck.
"People are still working. Anybody with a permanent operations-related job is not at risk. So the relative economy here is stable," she says. She knows the shadow work force is in danger. But this temporary population puts heavy stresses on Wood Buffalo's roads, hospitals and municipal services without paying local taxes. Now with the boom on hold, "they are probably the most at-risk population after the construction projects are finished."
So if the downturn is not catastrophic for Fort Mac, it is devastating for many communities that have been exporting their young men and women to the oil sands - places like Marystown, Nfld.; Donkin, N.S.; Prince Albert, Sask.; and Wainwright, Alta.
In fact, the end of the oil sands boom could most seriously hurt the rest of Alberta, which, according to the Oil Sands Developers Group, an industry association, typically generates 52 per cent of the mobile work force in northern Alberta.
In the past, rural communities could export their labourers, but they would not lose all the purchasing power. The normal routine for mobile workers is to spend 20 days in Fort McMurray and go home for 10 days, which means they can still buy new ATVs, pickups, and widescreen TVs in their home communities.
The mobile work force contributed about $150-million a year to the Fort McMurray economy, according to the Oil Sands Developers - in restaurant meals, hotel rooms, casino chips, and drinks in watering holes like the Diggers bar in the Oilsands Hotel ("Metal detectors in use" warns the sign on the entrance wall). And local homeowners could earn $1,200 a month by just renting out a room.
A lot of that income will dry up now, as will the wealth transfer to the rest of Canada. Assume the average mobile worker might bring home $25,000 in surplus cash to spend at home in Fredericton or New Glasgow, N.S. Those 24,000 jobs could potentially channel more than $600-million a year from Fort McMurray to the rest of Canada - or to Latin America and China, which contribute a small percentage of oil sands labourers. And that's not counting the vast oil sands supply chain of equipment and materials.
It is one of the best equalization mechanisms outside government transfers. But now the workers will be coming home and putting pressure on their home economies. Young men and women had put education on hold while grabbing six-figure incomes in the sands. Now, there will be increased demand for schooling and retraining. The supply of skilled jobs is often controlled by major trade unions, which in the past, would make up for any scarce skills by phoning union locals across the country. There will be fewer of those calls now, and fewer travel cards giving non-Alberta workers access to plum oil sands jobs.
The best measure of the severity of the oil sands slump will come this spring when Syncrude, which employs more than 5,000 people in the oil sands, renews its three-year retention bonus, which pays workers up to $20,000 a year just to stay where they are.
In a once-booming oil sands, workers might have sniffed at this status quo payout and jumped to another employer for more money - or retired to Kelowna or St. John's. But in a Fort McMurray that has come suddenly down to earth, many people will probably stay put for now.
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