With old prices slumping and margins thinning, energy companies in Alberta’s controversial tar sands are fast putting the breaks to new developments, representing a loss of billions of dollars in investment to the region.
This week, French energy giant Total SA shelved plans for its CAD$11bn Joslyn North Mine, which was slated to produce 100,000 barrels of oil per day. It follows similar postponements by other big players in the oil sands, such as Royal Dutch Shell, Statoil and Cenovus.
On Wednesday, about 1,000 tradespeople working on the construction of Husky’s Sunrise Energy project woke up to find themselves unemployed, even though the site was nearing completion. Overall, capital spending in the oil sands is expected to drop by CAD$23bn in 2015 according to the Canadian Association of Petroleum Producers, an industry lobby group.
The effects of the slump are evident in Fort McMurray, the boomtown of approximately 100,000 at the heart of the oil sands. It’s a city that in recent years has seen annual population growth approach a staggering 10 per cent.
Fort McMurray’s usually rambunctious housing market has cooled and local retailers are seeing a drop in sales. Since November there’s been a sharp increase in demand at the city’s food bank, where inventory has run out months earlier than expected. Meanwhile, many of the town’s contractors and equipment suppliers that do business in the oil sands say they’re increasingly being squeezed on price.
But unlike previous busts, such as the one experienced in the wake of the 2008 financial crisis, the mood in Fort McMurray is cautiously upbeat. Largely that’s because the slow-down is hitting only projects still in the development and construction phase, while production levels at existing sites remain strong. It may also simply reflect the boomtown’s maturation.
Frank Reitz, a local realtor, points out that when the 2008 slow-down hit, for many of the newcomers to Fort McMurray it was the first time they had ever experienced a bust. “Now they’ve gone through it before,” he says. “And anyone that had been here longer had seen it already. It’s important for people to know that we’ve been here before and we’ll be here again.”
Even Fort McMurray’s mayor, Melissa Blake, is taking the downturn in her stride. In a municipality where the pace of oil-sands development has often outstripped its capacity to provide the necessary infrastructure and services, the occasional bit of breathing space can be welcome.
Following the crash of 2008, Mayor Blake says the city was able to catch up on much of its infrastructure needs and focus on improving quality of life while the population briefly stabilised. She sees a similar opportunity now, knowing that surely enough, oil prices will one day rebound and Fort McMurray will be struggling again to keep up with the usual pressures befitting a boomtown.
Christopher Frey is Monocle’s Toronto correspondent.