Cover

ALBERTA BOUND

A booming economy is drawing workers from across Canada

Brian Bergman February 12 2001
Cover

ALBERTA BOUND

A booming economy is drawing workers from across Canada

Brian Bergman February 12 2001

ALBERTA BOUND

A booming economy is drawing workers from across Canada

Cover

Brian Bergman

in Fort McMurray

It is a day like any other in a place where everything is done on a grand scale. At one end of Syncrude Canada Ltd.’s main plant, 40 km north of Fort McMurray, the world’s largest shovels are busy filling up the world’s largest mining trucks with black oilsands retrieved from below the rock and muskeg that covers much of northern Alberta. A few kilometres away, in an older part of the mine, a 28,000horsepower dragline—a huge machine wielding a boom the length of a football field—scoops up a further 150 tonnes of oilsands every minute. Over the next few hours, these deposits will swoosh through a labyrinth of separation vessels, distillation units and cokers. Along the way, raw oil is extracted from the sand and refined into a light golden liquid dubbed Syncrude Sweet Blend. Every day, 250,000 barrels of the product are pipelined southward—making this remote mine the largest single source of crude oil in the country.

Big numbers—and getting bigger every day. The Syncrude

plant, first opened in 1978, is in the midst of an $8-billion expansion and upgrading effort. That, in turn, is just part of what may be the largest collective industrial development in Canadian history. Over a 14-year period—1996 through 2010—a legion of major energy companies is expected to invest more than $40 billion in new oilsands projects. By 2010, the plants will pump out more than two million barrels per day—and account for more than half of all Canadian crude oil production. Along the way, the industry has turned Fort McMurray, 375 km northeast of Edmonton, into a thriving city of 42,000 bursting at the seams with sprawling subdivisions, retail chain stores and middlebrow restaurants. Moreover, oilsands development, and the businesses sprouting up to service it, are contributing mightily to the strongest and longest economic boom Alberta has enjoyed since the 1970s.

Oops, there’s that word again. “Em afraid to call it a boom,” Alberta Premier Ralph Klein told Macleans in a recent interview. “Nobody likes to use the word. We’ll just say, ‘robust economic growth.’ ”

Klein’s caution, echoed throughout Alberta’s political and business elite, has a lot to do with the province’s checkered economic past, when boom inevitably begat bust. In those dark periods, low oil prices forced rigs to shut down, sparking a round of mass layoffs and mortgage foreclosures across the province. All the same, there is a growing consensus that this time, perhaps, the sky will not fall—even if energy prices do. One clear source of optimism is that the provincial economy is far more diversified. In 1985, the energy sector accounted for nearly 40 per cent of Alberta’s gross domestic product; it now represents 21 per cent. Strong gains in the manufacturing, wholesale trade, service and hightech sectors make up the difference. Klein has described it as an economy that, for once, “is firing on all cylinders.”

Well, not quite all. Skyrocketing electricity prices that have accompanied the Klein government’s controversial decision to deregulate the utility industry as of Jan. 1 are placing a potentially crushing burden on many small and medium-size businesses, leading some to even consider moving operations out of Alberta (page 22).

In the long run, though, most analysts believe the province’s economic future looks very bright indeed. So bright, in fact, that Alberta, which now has a population of about three million, is acting as a magnet for residents of other provinces—drawing

many of the highly skilled workers so coveted in the Information Age. Since 1997, net migration to Alberta totalled 133,000. Some analysts predict the influx could increase dramatically as Alberta widens the gap between itself and other provinces in areas such as low taxes and low government debt. “We may be seeing the beginning of an internal brain drain to Alberta,” says Jock Finlayson, vice-president of the Business Council of British Columbia. “It’s almost as if we are creating a small version of the United States built right here into Canada.”

Alberta’s prosperity is also reflected in the provincial government’s brimming coffers. After an often painful deficitslashing campaign in the mid-1990s, the province is now posting record budget surpluses—an expected $7 billion this fiscal year alone. As Albertans debate how to divvy up the booty, the province already enjoys economic advantages that are the envy of the rest of Canada. Among them:

Rapid growth has resulted in a tight housing market and soaring rents

• Alberta has the lowest provincial personal tax rates in the country. The province has promised to slash corporate income tax rates in half by 2004, thereby boasting the lowest business taxes as well. Alberta is the only province in Canada that does not levy a sales tax; there is also no general payroll tax or general capital tax.

• Using surplus revenues, the Alberta government expects to eliminate its remaining $8-billion provincial debt within the next two years. By comparison, the average debt burden of the other nine provinces is about 30 per cent of their respective gross domestic product. As Canada’s only debt-free province, Alberta will have the flexibility to further reduce taxes and enhance program spending.

• Canadian consumers, including Albertans, are contending with high oil and natural gas prices. But for the next year, at least, Alberta natural gas users are being shielded from the

worst effects through a $1.1-billion program of direct government rebates. The province can afford it: royalties and taxes from oil and gas added more than $8 billion to the Alberta treasury this fiscal year.

ith a provincial election expected in March, Klein is encouraging Albertans to think about what a debt-free province might look like. In addition to reinvesting more money into core areas such as health care and education, Klein has mused publicly about the possibility of actually eliminating personal income taxes. It’s a radical notion given the inherently unreliable nature of resource revenues, but one that would pack a symbolic wallop for tax-weary residents from other provinces. Klein has also talked about possibly returning a portion of surplus oil and gas revenues to Albertans in the form of annual dividends, much as the state of Alaska does.

Even before such measures are taken, Alberta’s closest neighbours are feeling the heat. The Saskatchewan Party, which came within a whisker of defeating Roy Romanows NDP government 17 months ago, has campaigned hard on the need to cut taxes and reduce government to compete with the economic lion next door. “Alberta continues to be a big draw for businesses and our young people,” says Saskatchewan Party Leader Elwin Flermanson. “For the longest time, the NDP tried to tell us life was better here. But enough people have had family members move to Alberta and report back that the claim now rings hollow.”

If anything, the disconnect is even greater on Alberta’s western flank. For decades, the tradition was for retirees and those with mobile job skills to move from Alberta to British Columbia in search of warmer climes and a better lifestyle. But in recent years, 15,000 more people moved annually from British Columbia to Alberta than headed in the other direction. Finlayson, whose business council is urging the B.C. government to introduce significant tax cuts to compete with Alberta, says that, in many cases, people are simply doing the arithmetic. Average housing prices in Vancouver and Victoria are 30 to 50 per cent higher than in Edmonton or Calgary, he notes. Then there are the obvious tax advantages. “The people who are most attracted are those under 45, who have labour skills that are in demand,” says Finlayson. “If you are trying to build a knowledge-based economy, these are exactly the sort of people you don’t want to lose.”

In other words, people like Duanne Wilson. Two years ago, Wilson, 42, moved from the B.C. Lower Mainland, where he had lived all his life, to Calgary to work under contract as a software project manager for Canadian Pacific Ltd. Wilson and his wife, Nancy, 39, find they now have more disposable income and can afford for Nancy to stay at home with their three children, aged 3 to 9. Moreover, they genuinely like their adopted city. “The winters are milder than we thought,

the sun is shining all the time and we have a nice house a 20minute commute from downtown,” enthuses Duanne. “I feel now like there’s this big conspiracy in Vancouver, that you put up with the rain, the traffic and the cost of housing by telling each other that you’re living in the most beautiful city in the world. Well, this is a beautiful city, too. I feel like I’ve escaped—and I’m not going back.”

Doug Faulkner also knows all about leaving home in search of opportunity. On New Year’s Eve, 1979, Faulkner, then 37 years old and freshly divorced, departed his native Newfoundland. Fie arrived several days later by Greyhound bus in Fort McMurray. “I’ll never forget it,” says Faulkner. “It was 40 degrees below zero when I stepped off the bus. I had a suitcase in my hand and $26 in my pocket.”

Fort McMurray was then on the cusp of its first oil-fuelled boom, one that turned sour just a few years later when low oil prices, inflation and the National Energy Program depressed investment. Faulkner first worked as a bus driver, but soon found employment with Syncrude’s warehouse division. In 1996, he took early retirement; the following year, he was elected mayor of Fort McMurray.

From his seventh-floor office, with its panoramic view of the city, Faulkner now presides over an era of breathtaking expansion.

European explorers recorded evidence of the Alberta oilsands more than 200 years ago. The problem has always been how to ex-

tract the thick, sticky bitumen from the water and sand clinging to it. Thermal technology developed in the 1920s pointed the way: mix the oil sand with water and a caustic soda in giant tumblers, heat it up to 80° C and let the sand sift to the bottom and the bitumen float to the top. But it was only with advances pioneered in the early 1990s—including new energy-efficient thermal systems that allow bitumen separation to occur at temperatures as low as 25° C—that the procedure became truly viable. “The new technology really drove down our costs, making us much more competitive,” says Eric Newell, Syncrude’s chairman and chief executive officer. The costs of producing a barrel of oil have dropped from $22 (U.S.) in the 1970s to about $ 12 today. With the world price of crude oil now hovering around $30 per barrel, investors are suitably impressed.

The new technology helped trigger the current explosion in oilsands development. In addition to the $ 8-billion Syncrude expansion, major projects include Suncor Energy Inc.’s $2.8-billion upgrading of its existing oilsands operation and the construction of a new $2.2-billion facility by a consortium led by Shell Canada Ltd. Collectively, oilsands development is projected to create 88,000 jobs across Canada and generate $216 billion in taxes, royalties and other revenues for the Alberta and federal governments by the year 2025.

In Fort McMurray itself, the pressures of rapid growth are showing. About a third of the city’s 42,000 permanent residents are directly employed by the oil industry. Workers come from across the country, a large number from Atlantic Canada. “They think this is the end of the rainbow,” says Faulkner. In some cases, they should have stayed put. “I had one fisherman from Newfoundland come to my office,” recalls the mayor, who still speaks with the accent of his native Bishop’s Falls. “Fie figured I’m from Newfoundland, I’m the boss here and so I can get him a job. But he had a Grade 5 education, was basically illiterate and just didn’t have the skills to make it. He had to return home.”

Undoubtedly, the biggest downside is the shortage of affordable housing. An average single-family house in Fort McMurray now sells for $203,000, compared with $146,000 just three years ago. The rental vacancy rate is essentially zero and rents more than doubled in recent years as landlords took advantage of the tight market. Tonya Hibbs, manager of the Salvation Army’s emergency shelter, says that in the summer many of the facility’s 32 beds are filled by men who have found seasonal work but still cannot afford a place to live.

The housing cmnch also takes a toll on seniors and others on fixed incomes. Among ^ them is Jean Jensen, a 71-year-old widow 1 who has lived in Fort McMurray since 1979 I and who helped organize a renters’ protest I rally last fall. Over the past seven years, I Jensen, who lives on a pension of $1,100 a I month, saw the rent on her subsidized, twobedroom apartment jump to $930 from $408 a month. After her landlord informed

her that he was no longer accepting subsidized tenants, Jensen had until March 1 to find a place she could afford. She finally did, but only after several anxious weeks of searching. “It would have made a good story to see a 71-year-old out on the street in -35° C weather,” says Jensen ruefully. “Its crazy, isn’t it?”

Jensen is not the only one who feels that what the Klein government is fond of calling the “Alberta Advantage” has left them in the cold. Overnight shelters in Edmonton and Calgary also see many of the working poor—people with jobs that do not pay enough to cover boom-time rents or escalating heating and utility costs. Anti-poverty activists have tried in vain to get Alberta to substantially increase its $5.90-per-hour minimum wage, the lowest of any province outside Adantic Canada. Appeals to restore welfare cuts made in the 1990s have also fallen on deaf ears.

The growing gap between the rich and the poor—both in Alberta and Canada as a whole—is an issue that troubles former Alberta premier Peter Lougheed, who presided over the province’s last boom in the 1970s. Lougheed, 72, now a lawyer in Calgary, told Macleans that the rest of Canada will judge the province, in part, on how it uses its prosperity to deal with the less fortunate. “Because we are going to have a treasury in Edmonton with surpluses,” says Lougheed, “there are going to be some difficult policy decisions.”

Alberta ns worry their prosperity may cause resentment elsewhere

Concern about Alberta’s image beyond its borders is also behind what many see as another potential peril of prosperity, namely “the envy factor.” If resource prices remain high and Alberta continues to rack up record surpluses, will resentment build among hard-pressed energy consumers in the rest of Canada? And if that happens, could it spark another response like the 1980 National Energy Program, Pierre Trudeau’s now infamous attempt to redistribute resource wealth towards Ottawa by heavily taxing and regulating the oil industry?

The province’s political and business leaders argue that such a move would be grossly unfair. They note Alberta already pulls its weight in Confederation. For example, Statistics Canada figures released in October indicate that, in 1998, each Albertan paid $1,955 more into the federal treasury than they received back in the form of federal transfers and services. That net contribution was almost $400 more per capita than Ontarians paid. At the other extreme, Newfoundlanders enjoyed a per capita net benefit of $6,000.

In fact, even in the midst of plenty, a sense of insecurity— and alienation—is never far from the surface. It is no accident that the Reform party first took root in Alberta, or that western separatists sporadically receive a polite hearing. Like the comedian Rodney Dangerfield, many Albertans complain they “get no respect.” As veteran Calgary oilman Jim Gray observes: “We have no friends in Ottawa when energy prices are low. They ignore us when we are down and they are mad at us when we are up.” Alberta may be booming, but the spirit of the underdog still survives. E3

THE SCIENTIFIC ‘BRAIN GAIN'

During Alberta’s last economic boom in the 1970s, then-Premier Peter Lougheed’s Conservative government decided to squirrel away some of the surplus resource revenues for the benefit of fixture generations. The Alberta Heritage Savings Trust Fund—today valued at $12.3 billion—continues to grow through a variety of investments, including bonds, real estate, and foreign and domestic stocks. An original $300-million endowment (now worth more than $1 billion) was earmarked specifically to promote medical research in Alberta. Interest earned on that endowment provides nearly $50 million a year in research grants—and is estimated to attract a ftxrther $ 100 million to $ 150 million in matching grants. Many in the scientific community credit that money with encouraging an Alberta “brain gain” as researchers from across Canada—and around the world—bring their expertise to the province.

Among those who heeded the call is V Wee Yong, a prominent multiple sclerosis and brain tumour researcher. Four years ago, Yong, 44, gave up tenure at McGill University in Montreal to accept a position with the University of Calgary’s departments of oncology and clinical neurosciences. Yong, who oversees nearly a dozen other researchers, has had litde trouble attracting top-flight talent from as far afield as Denmark and Venezuela—in part, because the fund tops up the salaries of graduate and post-doctoral students who have won international awards. Observes Yong: “The environment for research here is very nurturing.” Michael Hill, 32, is another recent transplant. The Toronto native says he turned down job offers at the University of Ottawa and University of Toronto to work with what he considers “the best stroke research program in Canada,” at the University of Calgary. Among the attractions: a high-powered magnetic resonance imaging machine dedicated to stroke research, partially paid for through the heritage fund. Hill says the positive climate for research, together with economic incentives such as lower taxes, makes Alberta very attractive. “Young people,” he says, “can see a long-term fixture here.”

B.B.