Not a long post today. Just a curiosity that the Alberta consumer is spending $6B a month. While the Alberta energy sector is cautious the consumers are not. It is a lag effect or is consumer confidence and economic resiliency that strong in Alberta?
There is lots of different aspects to the growth in Fort McMurray. There is the reality of the growth implications development of the oil sands resource obviously. As we go to many more barrels of production, and they are coming, that impacts the growth needed for capital infrastructure like roads, bridges, rail lines, more airport capacity and industrial service facilities. All of which are insufficiently serviced by the province of Alberta obligations now at current production levels. The coming growth needs an accelerated rate of provincial commitment to infrastructure needs in the region. The actual twining of Highway 63 is a start but a long cry from meeting the crying needs now and those we can see coming.
The cumulative environmental impacts in the region are an issue as well and being attended to as part of the growth implications. Biodiversity, habitat protection, emission monitoring, water usage and so forth are part of the process of understanding growth implications in the Athabasca Oil Sands Region (AOSA). All of these concerns are actively being addressed by industry, ENGOs and governments.
Then there is the socio-economic impacts of oil sands development on community infrastructure and capacity. This is just a critical to the successful execution of responsible and sustainable oil sands development as are the enterprise and environmental issues. It is the last to be attended to and seen as the least important to many. Rest assured the oil sands industry cannot succeed in communities that fail.
We can accept that construction workers need to fly-in and fly-out. They are temporary workers. But that is not the case for industry service, maintenance and operations personnel. They could live in the region IF the housing, schools, health care and other quality of life elements were there to attract families to relocate. Lots have relocated and they love the place. But until you try it, Fort McMurray seems, pretty rough on the surface and around the edges. Given some high-profile one-sided negative media coverage on the community in the past, impressions get made and McMurray looks like not it is not a preferred place to live.
That attitude is changing a bit and driven mostly by the local government. There is also by a new push from some enlightened oil sand CEOs. They are calling for more collaboration among oil sands developers and with regional stakeholders to deal with the socio-economic impacts industry growth has on the region. There is also a socio-economic impact the regional decisions can have on the industry. The community and the industry are in this together, on the same side, and they know it.
In all of this is the ever-present over-arching policy influence of the Government of Alberta. They seem to be perpetually reluctant to step up and make timely policy decisions in their duty areas around providing public infrastructure like schools, health care, transportation and enough land for housing and retail demands in the region. There can’t responsible sustainable oil sands development without proper social capital investment in the region too.
Finally there is the role of the people in the communities within the oil sand region. Fort McMurray is not the only local community in the AOSA to feel the pressure but it is the one getting media attention. For the past two years I was living more at Fort McMurray than living in it. I returned to my family in Edmonton on weekends. To say I lived “in” Fort McMurray is insulting for the real residents with family and home and businesses in the region.
Still and all, I got a first person present tense sense of the place. It is an amazing energized, dynamic, fascinating place and I loved every minute when I was a part of it. It is also has its history which to be understood and respected. It has an amazing future before it but one which will have to be co-created by a diversity of community perspectives.
Part of why I wrote this blog post was to help you get some insight into a bit of what I learned about the real Fort McMurray. There was a group of young YMM (that means Fort McMurray for those not on Twitter) residents who produced the first TEDxFortMcMurray in 2012. They just finished another TEDx for 2013 but more on that later. Sheldon Germain was one of the presenters last year. He is a City Councillor, High School Vice Principal and a born and breed, life-long, informed and engaged citizen of Fort McMurray.
His TEDx presentation is one of the best educational tools I have seen for outsiders, transients and non-permanent residents (like I was) to understand the motivation and reality of the people who are invested and involved in the place. If you live, work or are invested, or looking at investing there, you need to watch this video…pay very close attention. You will be glad you did.
Stats Canada report on the population increases in the country in the first Quarter of 2013 are interesting. What is really interesting is the relative shift of internal migration of population to Alberta from the rest of the country – except Quebec.
The next federal election due in 2015 will see Alberta with 6 more seats in the House of Commons. If this level of population shift continues will Alberta be shorted even more seats?
With so many new “Albertans” coming from the rest of Canada, will the voting patterns also change?
The oil sands are seen to be driving the national economy. People coming here supports that assumption. the parallel reality is that many manufacturing jobs are surviving in the rest of Canada due to oil sand developer procurement policies of purchasing products from all over the country.
For a breakdown of the province by province numbers go to my other blog: www.Ken-Chapman.blogspot.ca
My good friend and strategic partner, Tim Glowa of Clever Trout Consulting out of Houston Texas has some current polling data on Albertan’s attitudes and information on the provincial deficit situation.
The survey was a random sample of Albertans done April 20 and May 3 and is accurate =/- 3.2 percentage points 19 times out of 20.
There are 75% of Albertans who have gotten the message their government has a deficit budget issue. Amazingly there are 15% who think we are in a balanced budget situation and 10% think we have a surplus of funds in the provincial budget. Duh!
Some 25% of Albertans think we are on the right track with the provincial finances, 66% are disappointed we are in a deficit fiscal position. Here is a kicker! Only 16% believe the province is collection sufficient royalties from our natural resources rentals.
That leads to what Albertans think we should do to resolve the provincial government deficit situation. There is a small segment of 4.3 % that says do nothing, the deficits are AOK with them. A consumption (sales tax) is OK with 8,7 % of us and 10.2% say charge user fees for health care, education and other government services.
There are 14.9% of us say we need to dump the flat 10% tax regime and go to a progressive tax and add a 5% consumption tax to deal with the deficit. Then there are the smaller government types, where 16% of Albertans say cut $8 billion deficit out of government programs as a solution.
We have 19.7% of us who say dump the flat tax and go back to a progressive tax of four different b=brackets but where high income earners pay more taxes as a way to deal with the deficit.
And now for the kicker! Raising resource royalty revenue is the deficit solution for 26.2% of Albertans. There are 70% of use who support a combination of raising royalties and cutting program spending to deal with the deficit problems of our province.
So will this happen? Program cuts in PDD have not been acceptable. Nor has the post secondary cuts gotten an easy ride. Infrastructure is needed to realize the revenue benefits of the oil sands but that is not happening.
The Royalty regime is not likely to be touched in terms of rates given the experience of the Stelmach review. However I expect there will be major changes on oil and gas as well as oil sands resource industries to begin to eliminate certain cost deductions off of corporate revenues.
For example, fly-in fly-out and accommodation costs for operations, maintenance and supervisory personnel will not be allowed as set offs on royalties. Construction costs will continue. That said, it is expected that maintenance, operations, shutdown and supervisory personnel will be a larger segment of the workforce than construction in a couple of years.
Just a thought of now the provincial political-fiscal realities may play out. I also expect to see a return to a progressive tax but no sales tax. That is still an ideological shibboleth that is seen as one of the defining myths of Alberta exceptionalism.
I like a consumption tax personally. However given that real wages of the Alberta middle class have not increased for decades it would now be an additional burden on them.
It appears the people of Alberta know something has to be done about the deficit. It seems they have figured it out too. Review royalties and deductible costs, go back to a progressive tax policy and do some selective spending cuts except where vulnerable Albertans are impacted.
Premier Redford has a majority government and a lot of her term in front of her. There is plenty of time to make these changes before the next election. In 1993 Albertans knew we had a spending problem and elected Klein to fix it. Now we have a revenue problem more than a spending. Citizen’s expectations are for Redford to fix that now too.
There is a well publicized concern over market access constraints on the growing production projections of oil sands in the next few years. Pipelines approval hold ups and the growth of rail as a way to get to markets in the USA and off shore are all over the news.
There are updated oil sands productions projections from CAPP:
“In 2012, 1.8 million b/d were produced from the oil sands
of which 800,000 b/d was from mining and 1.0 million b/d
were recovered by in situ techniques. Looking ahead
to 2030, mining production is forecast to increase to
1.7 million b/d and in situ production is forecast to grow to
3.5 million b/d.” Crude Oil Forecast Markets and Transportation CAPP June 2013
That show there may be even more industry created pressure for much needed infrastructure shortfalls in the near future. Extracting, moving and refining bitumen means other infrastructure like roads, bridges, camps, aerodrome capacity as well as other community based services needed to support a more responsible sustainable industry.
Since these supportive public infrastructures are not in the communities where development is happening, the industry has moved to Plan B which is camps and fly-in/fly-out for workers. This is very expensive and a burden eventually borne by the Alberta taxpayer since these costs are set off against royalty payments due to the province. Short term pain for long term even greater pain. This due to short-sighted provincial public policy about not borrowing the bucks needed to build the public infrastructure necessary to build the industry to increase the economic benefit from the resource. It is also the function of policy inertness to make key decisions around land release in the Fort McMurray area to enable reasonably priced residential and to realize the retail growth needed to meet the home-town population growth happening in the region.
These constraints are real and require timely and tremendous amounts of private and public sector investment. We are already enormously far behind on all of these vital public infrastructure investments due from the Province of Alberta in order to provide for responsible and sustainable oil sands development. Land release and transportation infrastructure are the two big ones, notwithstanding the commitment to twin Highway 63.
Physical infrastructure aside, there is another less visible but just a crucial infrastructure shortfall that will limit oil sands development. That is the need for vast numbers of skilled labour needed to meet current production levels as well as respond to the projections on production growth.
The oil sands used to be the only game in the country for many workers from across Canada. Not the case any more. With plans for big billion dollar projects like shipbuilding on the east coast, the Plan Nord in Quebec, the Ring of Fire in Ontario and the growth of shale gas in Saskatchewan and other places. The competition is getting tougher so recruitment and retention of workers will add to costs, that are already hampering the economics of the oil sands.
There is a shift significant shift happening in the oil sands work force too. Soon there will be as many maintenance and operational workers needed as in construction, and that is in the middle of these production growth projections. The nature of the oil sands industry production is changing from mining to in situ as the focus is moving from the northern to the southern areas of the Athabasca Oil Sands Area. Add in the emergence of the Wabasca Demerais production development in the west and we can see workforce competition and complexity being compounded in the years to come.
With so many oil sands development projects going at the same time, the concurrent timing of the demand for various trades adds to the challenges. Those construction trades in the most demand, in order of priority, will be Labourers, Electricians, Welders, Pipefitters, Scaffolders, Structural Ironworkers, Boilermakers, Heavy Equipment Operators, Carpenters and Reinforcing Ironworkers.
According to Petroleum Human Resources Council of Canada, there are 22,340 workers in the current oil sands Operations workforce. IN the next decade there wil be another 16,000 new jobs added. In situ workers will more than double to 19,290, mining jobs will expand 51% to 13,365 and Upgrading will increase by 29% to 5,635 workers. When you consider the impact of retirement the total additional workforce demand jumps to 31,850 oil snad operations workers in the coming decade.
Where is the demand in the decade ahead? Power Engineers (5,630), Heavy Equipment Operators (3,470) are the biggest growth areas and the currently amongst the largest shortages. The areas where retirements will have the greatest impacts are Purchasing managers, Primary Production manages, Engineering Managers, Facilities and Maintenance Managers, Geologists and Geophysicists.
When you combine construction and operations workforce demand we see a peak demand total of 51,600 jobs in the Fall of 2018 – merely five years away. The statistics for the oil and gas industry unemployment rate falls below the balanced labour market for the entire next decade.
Solutions being looked at are looking at new solutions to old problems, increasing the labour pool in non-traditional areas, worker capacity enhancement with essential skills upgrading, and more industry collaboration. These are all big basket items but all have merit and lots of actions can be taken in each of them. There are great things happening in all solution areas and future posts will explore and explain them for you in more detail.
In the meantime I encourage you gentle reader to think beyond the headlines of oil sands development constraints around access. That is a major concern but there are other significant constraints in the recruitment and retention of skill labour that have not hit the headlines but will hit the bottom lines.