Canada’s oil business needs Fort McMurray to rebuild

This article was originally published by Advisor’s sister magazine, Canadian Business.

The resilience of Canada’s oilsands industry over the past few weeks has been something to behold. Despite the massive (and, at the time of this writing, unextinguished) forest fire that ravaged parts of Fort McMurray, Alta., forced the evacuation of 90,000 residents and took an estimated 1.2 million barrels of daily capacity—1.4% of the global supply—offline, it has been quick to resume operations, even while the town remains deserted. Still, producers need the town to rebuild in order to operate effectively for the long term. Given the dire conditions facing the oil industry right now, that’s anything but certain.

Shell Canada partially restarted its Albian Sands operation on May 9, just six days after shutting down. Enbridge Inc., the largest pipeline operator out of the Athabasca oilsands region, resumed operations on May 11, after a seven-day hiatus. Suncor Energy re-established some operations a few days later (only to evacuate again when the fire moved north). Canadian Natural Resources’ huge Horizon mine never shut down in the first place.

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None of this would have been possible a decade ago. Back then, investment in the oilsands was nearing its peak, and oil producers had a huge human resources headache. It was encapsulated in a paper by Deloitte entitled “The Producers’ Dilemma.” These companies had, on the one hand, a seemingly insatiable global demand for their product. On the other, they had a practically inexhaustible resource.

The problem was that a bottleneck—or, as some industry executives liked to put it, a door one shoulder-width wide—lay between the two. That door was the town of Fort McMurray. Though it was a fast-growing boom town, it was isolated and could hold only so many workers and contractors. If too many projects ramped up at the same time, wage rates and costs snowballed, schedules went to pieces and project economics evaporated.

To read the full article, visit Canadian Business.

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