In late July, Malaysian energy giant Petronas announced it was scrapping the Pacific Northwest Liquid Natural Gas Pipeline. The project, with an estimated $36 billion price tag, was set to connect Northern BC to the Pacific Ocean, and would have helped Canada get much of its oil and gas resources to the Asian markets.
The announcement was swiftly followed up with worries about Alberta’s oil and gas sector. Hit with a major decrease in price and the Wood Buffalo forest fires of last year, the oil and gas industry has been a major headline for Alberta for years. Provincial and federal governments quickly pointed to the free market and globalization as reasons for the project’s cancellation. BC’s Energy Minister, Michelle Mungall, said that “this was a decision they are making because of the economic challenges in the global energy marketplace.” Executive vice-president and CEO Anuar Taib agreed, saying the “extremely challenging environment brought about by the prolonged depressed prices and shift in the energy industry” are the reasons for the pipeline’s ultimate end.
The Pacific Northwest LNG Pipeline is another lightning rod for many of the anxieties facing Alberta, and Edmonton specifically, since the economic downturn started. On one hand, governments have worked hard to balance environmental policy with encouraging oil sands production, including Alberta’s pro-pipeline stance that runs counter to their NDP equivalents in BC. On the other hand, carbon taxes, regulations, and government red tape are being blamed for a continued slouch in an oil industry already faced with a supply glut. With an estimated 99 per cent of Canada’s oil exports going to the States, projects like the Pacific Northwest LNG promised a diversified set of buyers for oil and gas.
However, not all is lost.
While the common discussion around Alberta’s oil and gas sector has settled into a repeat of doom and gloom, The City of Edmonton’s chief economist, John Rose, says there is hope now and on the horizon. While we are “not near a full and complete recovery,” Rose says, noting that Edmonton’s economy specifically is starting to see upwards change. This is predicated, however, on oil prices staying around $50 a barrel, the “magic number” at which Rose believes the industry “can sustain its operations and undergo some reasonable expansion.”
He also points out that recovery is already underway, especially in Edmonton, because of its relationship to the oil and gas industry. “The City of Edmonton’s involvement with the energy sector isn’t as direct as Calgary or Grand Prairie. Our relationship is indirect through our manufacturing, our professional services and our construction companies,” Rose explains. “We have seen a significant turnaround in employment in those sectors. Over the course of the recession, Edmonton actually saw employment growth up until about May of 2016, when it took a very sharp dip. Since January, we have seen a turnaround, especially in the manufacturing sector, with a return of exploration activity and the completion of a number of investment projects in the energy sector.”
Looking forward, Rose is “quite confident” that Edmonton will continue to see gains in employment, especially as oil prices continue to at least hold steady. He also mentions that this puts Edmonton in an excellent position, combining affordability with an ideal position for logistics. “Edmonton is a fantastic logistics hub. We are well-positioned to support energy exploration and investments,” Rose says. “Edmonton is, by Vancouver and Toronto standards, amazingly affordable. Not just in terms of housing prices, but in terms of office space, commercial space and industrial space. We are very competitive from an operations perspective and finding new facilities to operate from.”
Locally, oil and gas businesses are hard at work keeping up with the new normal of the industry, innovating and changing their business models for future success. While many are discovering new ways to make a profit, many others are anxious to see how Alberta can, once again, regain its advantage.
Ron Feigel, head of business development at Universe Machine Corp., says while jobs are returning, they aren’t the same as before the downturn. “There is more drilling activity and we are seeing some improvement in certain areas of our business, but certainly not significantly or across the board,” he says. “When we do win jobs the demands are higher, margins lower, and timeframes [are] often shortened. Most areas of our business still do not have enough consistent work to justify hiring more staff.”
John Stevens, president and CEO of ENTREC, a company that rents cranes and heavy-duty machinery to resource extractors, describes the current situation as “challenging” but also says his company has found ways to grow under the new reality. Unfortunately, much of that growth has seen them ship more resources south of the border, where fracking and oil development is helping the industry grow. “ENTREC has moved much of its equipment into the States, especially to Texas and North Dakota,” Stevens says. “We have also diversified, supplying equipment for the power and infrastructure sectors.”
If there is a way back, Stevens says it has to come through easing restrictions, becoming competitive in taxation and, finally, finding the workers again. “The downturn has seen many people leave the area and the industry,” he says. “Lots of people who worked in the industry have moved back east and are working closer to home, which they like. Those who are here have often retrained or moved into other industries, and they aren’t exactly eager to get back to the shift work that comes with the oil rigs.”
Certainly, finding the workers could prove difficult as Alberta continues to recover. According to a report by the Alberta Government’s Treasury Board, Alberta saw a decrease in unemployment this June to 7.4 per cent as an estimated “48,900 more people were employed in June  than at the July 2016 low.” Those jobs, as Stevens mentioned, have generally moved away from oil and gas and into goods and service sectors, but not all. Syncrude’s Mildred Lake project, now recovered from a fire, helped contribute to a 13 per cent national uptick in unconventional resource extraction. Conventional resource extraction is also up 3.2 per cent year-over-year.
Feigel agrees with Stevens on the need for change, pointing to recent taxation initiatives that are hindering growth in the industry. “We need provincial and federal governments to remove headwinds like carbon taxes, royalty and regulatory regime changes, pipeline takeaway issues, etc. and actually support our oil and gas industry in Alberta and across Canada,” he explains. “Everyone in Canada benefits when our natural resources are wisely utilized and the wealth from them is not squandered.”
Alberta’s place as an oil and gas powerhouse has been continually challenged over the past few years. Yet despite setbacks, the industry has eked out a new normal and is set to make major comebacks through a combination of innovation and strategizing. While the industry may never reach its previous heights, Edmonton and the surrounding area remain integral to its existence. As a competitive place perfectly situated from a logistics perspective, Edmonton is set to become a point of recovery. It may be slow and it won’t be easy, but oil professionals are confident that the right changes can help Edmonton, Alberta, and Canada grow.