Report from Fort McMurray

Every city has its warts, and we encountered a few at Fort McMurray, but after spending a week here I can say reality is much different from the city’s stereotypes.

Every city has its warts, and we encountered a few at Fort McMurray (I hope the shoeless drunk guys who aggressively catcalled some female friends at a lounge have to put up with staying at our hotel someday), but after spending a week here I can say reality is much different from the city’s stereotypes.

Fort McMurray has a passionate civic spirit and more things to do than plenty of other northern cities, with multiple top-of-the-line recreation facilities. It also offers half-day on-site tours of oilsands so you can follow the whole process from exploration to production to reclamation. Anyone who is interested in the economic and environmental impact of the oilsands should visit.

One Fort McMurray stereotype is definitely true. There is a huge amount of economic activity going on here. Even though a Yukonomist poll of bartenders confirmed that things have slowed down significantly since oil fell to US$50 per barrel, existing oilsands projects continue to employ armies of workers and fill pipelines with oil headed east, west and south.

According to the summer edition of the Alberta government’s Oilsands Quarterly Update, the downturn in oil prices could cost around 185,000 direct and indirect jobs across Canada. Even that huge reduction would still leave more than half a million Canadian workers working on oilsands related work.

Meanwhile, it looks like oil production will actually increase, at least in the next few years. That’s because big projects started a few years ago are scheduled to come on line this year and in 2016. IHS Energy, a think tank, recently estimated that oilsands production would rise from 800,000 barrels per day to almost 3 million by 2020.

To put that in context, entire Middle Eastern countries like Iran and Kuwait produce similar amounts.

It may seem surprising that production can hold up as oil prices fall to the US$50 per barrel range from over US$100 last year. One explanation is good, old-fashioned Canadian ingenuity. One major oilsands player reports that it has reduced its cash operating costs per barrel from around $40 per barrel in 2011 to less than $30 this year.

If Eastern Canada’s manufacturers could match this, the cost of a new pickup truck would be cut in half every eight years.

How does Fort McMurray do it? It’s thanks to Canadian innovations like LP-SAGD and ET-DSP (for readers that aren’t with the Fort McMurray program, that’s low-pressure steam assisted gravity drainage and electro-thermal dynamic stripping). The University of Alberta’s Institute for Oilsands Innovation and oil companies are continuously working on new ways to extract oil from the tarsands more efficiently and with less impact on the environment.

What does this mean for Yukoners? One way to think about it is in terms of our transfer payment. The federal government can afford to keep raising our transfer every year since the Canadian economy has been doing well. In particular, what the feds need are industries that have high wages and high profits, which translate into high tax revenues. These industries also need to be large and growing.

Looking at Statistics Canada figures on GDP by industry, three sectors pop out: real estate, finance and energy. We have our own love affair with real estate in the Yukon, but you can often hear Yukoners making fun of other Canadians toiling in Toronto’s office towers or Fort McMurray’s mancamps.

We should probably remember that the tax they pay on their outsize incomes are critical to sustaining the Yukon government.

It would sure hurt the affordability of our transfer payment if one of these three sectors suffered a severe downturn. Your guess is as good as mine on the Canadian real estate market. Our financial system weathered the global financial crisis pretty well.

The big question mark is about the oilsands given the plunge in oil prices.

If IHS Energy is right about the oilsands, federal finances may take a bruising hit from lower profits and job growth but not a career-ending blindside body check. I can report from Fort McMurray that people here don’t think their run is over, either.

Yukon finance officials may be pleased to hear that. Climate change activists who hoped low oil prices would spell doom for Fort McMurray are probably going to be disappointed, as are Canadians who don’t like how Fort McMurray is increasingly tinting our international brand.

So, don’t worry if you didn’t join us for this year’s Team Yukon mission to Fort McMurray. You’ll have more chances. They’ve got great sporting facilities and, depending on how they play their cards, your kids might end up working here.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won this year’s Ma Murray award for best columnist. You can follow him on Channel 9’s Yukonomist show or Twitter @hallidaykeith

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