Alberta's Oilsands: Time for a new approach
Call me old-fashioned, but I think a plan should have things like timelines and budgets.

Alberta's oilsands: time for a new approach.

Alberta's oilsands boom turned into an economic bubble, and now it has burst.  The Stelmach government is desperately trying to reassemble the pieces, but I'm not convinced it is going to work.  Let me share a few thoughts.

A combination of the 1996 generic royalty regime, improving technologies, and global energy markets launched an era of unprecedented expansion in the oilsands.  The forces behind the expansion were powerful, and they needed powerful management from the Alberta Tories.  They didn't get it.

The Tories, proceeding on the assumption that a 'free market' and a 'free-for-all' are the same things, decided that the best approach to one of the largest industrial developments on the planet was to stand back and see what happens.  The market, not the government, would control the pace and nature of development.  Ralph Klein actively resisted planning, and Ed Stelmach followed suit, even when everyone else was pressing for a different approach.

As recently as October 22, 2008, when one oilsands project after another was being shelved, I had this exchange with the Premier in Question Period:

Dr. Taft: Thank you, Mr. Speaker. This government can't control the price of oil, but it could have controlled the rampant increases in costs by simply managing growth. Will the Premier admit that by ignoring industry requests, requests from former Premier Lougheed, and just about everyone else to manage growth, this government has made a serious mistake?

Mr. Stelmach: Obviously, now we see the true colour of the Leader of the Opposition. He sure as heck isn't a capitalist, talking about managing growth through the government. Sounds more like what they were doing in the former Soviet Russia.

The oilsands boom followed a classic trajectory.  Early entrants, especially Syncrude and Suncor, with a few others like Shell close behind, built their plants when costs were low and margins attractive.  As more companies waded in and regulators showed no sign of turning down projects the pace of development ramped up.  Costs began to climb because too many projects were moving ahead at once.  Labour was in short supply, housing costs jumped, roadways were overloaded, and public services couldn't keep up.   By the time the bubble burst companies were flying in workers in passenger jets to custom-built airports at worksites, a house in Ft. McMurray cost more than in Vancouver, and cost overruns on projects were hitting 50 and 100%.

Watching the boom unwind is troubling.  The oilsands workforce that was built up at such cost and effort is beginning to disperse.  Most worrisome is that while the upgrading industry in Alberta has almost completely stopped expanding, there is a surge in upgrader construction in the U.S., where pipelines carry raw bitumen straight from Alberta to American locations where costs never got out of hand.  Upgraders are where the real value of the oilsands is realized, as raw bitumen is turned into synthetic crude and other projects that sell at far higher prices.  That value is getting shipped south of the border.

The next shoe to drop could be from First Nations and jurisdictions outside Alberta, such as the Northwest Territories.  Pushed to the wall by an unplanned oilsands boom, we shouldn't be surprised if they strike back forcefully with court actions.

Though Ed Stelmach was publicly dismissing an oilsands plan, officials in his government were pulling one together.  The latest version was released February 12, 2009.  It's called 'Responsible Actions: A Plan for Alberta's Oilsands.'  I've read it carefully and I am not impressed.

Some of my concerns are basic.  Call me old-fashioned, but I think a plan should have things like timelines and budgets.  In 49 pages there is not one clear deadline or budget commitment, and there are precious few goals that could really be measured. 

My bigger concern is that the plan is simply unworkable.  The diagram meant to illustrate the plan's implementation process has no beginning or end.  Instead, it shows a process going round and round in a closed loop of arrows, circling a long list of statements like 'improve public safety' and 'investigate collaborative infrastructure contribution strategies'.  It is an unintentionally appropriate symbol of a government running in circles. 

Equally scary is the list of 'Related Government of Alberta Strategies and Initiatives.'  This includes 32 different government plans that have a direct bearing on oilsands planning, each of which has its own approval processes. 

If you take it as more than just a public relations exercise, this approach is likely to bog down the oilsands projects in brutal bureaucracy that will simply drive more and more value to the USA.  This is the kind of plan you get from a government that doesn't really believe in planning.

 

Here is what I'd like to see. 

First, strong and decisive leadership.

Second, a clear goal: Oilsands development at a pace that doesn't disrupt the rest of Alberta's economy and society, in a manner that meets best environmental practices, and with value-added work such as upgrading concentrated first in Alberta, and second elsewhere in Canada.

Third, a realistic and sensible approval process for companies, that allows and respects stakeholder input.

Fourth, a single focal point in the provincial government for oilsands development.  Having an 'oilsands czar' reporting directly to the premier is worth a hard look.

Fifth, a royalty structure that gives proper value to the people of Alberta.  The existing royalty arrangement, which saw two highly profitable companies get additional net revenues worth more than twice the Heritage Fund because of royalty adjustments, fuels public belief that the system is not working properly. 

The world is moving on, and if Alberta doesn't do a better job managing the oilsands, and soon, we'll find we're left behind, at best shipping raw product for processing in the USA, at worst with surging unemployment, falling government revenues, and massive liabilities.

So let's get this right.