A squared-off concrete shell sits in a frozen field, a short distance from Highway 63 north of Fort McMurray. It was to be the first building block of the $11.6-billion Voyageur oil sands upgrader, which was taking shape in 2008 as the latest megaproject to inject adrenalin into an Alberta economy that was already riding high on its good fortune.
A half decade later, the concrete shell is still there, but the ebullience is long gone. This week, Suncor Energy Inc. , the oil sands giant that has partnered with Total SA to build Voyageur, took a $1.5-billion writedown on the project – now at imminent risk of cancellation.
The grey slab has all the subtlety of a giant tombstone. “It has been a depressing derelict standing there for years now,” says Wayne Prins, provincial director for the Christian Labour Association of Canada (CLAC), representing vast numbers of oil sands workers, who once saw Voyageur as the next ticket on the endless train of long-term prosperous employment.
The forlorn shell symbolizes the hollowing out of Alberta’s hopes and dreams, as it confronts an energy market that has turned dramatically against it. It is a signal of how fast Alberta has fallen, as it tumbles back to the pack of provinces with severe fiscal challenges. The provincial government has just seen $6-billion wiped off its revenues as a result of declining resource income – equivalent to the province’s annual education budget.
Alberta has, in the past, seen salvation come in dramatic form: In 1999, it pulled in $2.4-billion in resource revenues. Two years later, $10.6-billion came clattering into a province that was riding a rise in natural gas prices.
But the window appears to be rapidly closing on Alberta’s decade-long run, and its dream of being the economic driver of Canada in the 21st century. It may signal the end of the Alberta Advantage that has shifted the economic balance of the country westward. And if Ontario is on the ropes, and Alberta is wobbly, who will lead the country’s growth?
Alberta has been here before, at the tail end of energy-fuelled booms that made its people very wealthy, but taught very little about building stable prosperity. Now, it appears to be entering a longer period of more profound decline, and, once again, it is caught unprepared.
“It’s amazing how fast it all moved,” says David Emerson, the former federal cabinet minister who is now a corporate director and policy thinker based in Vancouver, but who grew up in Grande Prairie, Alta. He was part of a recent task force that was charting a new and ambitious economic strategy for the province – and he now has doubts about the fate of that policy road map.
Mr. Emerson and other economic observers were startled by a cascade of developments, led by last fall’s projections by the International Energy Agency (IEA) that the United States, the province’s major market, will surge to energy self-sufficiency by 2035, propelled by the country’s shale oil and gas boom.
As the U.S. market becomes more daunting, plans for oil pipelines to gain access to growth markets in Asia meet determined resistance, with any prospects for new projects stretching out a decade, if ever. The province seems fated to face continuing steep price discounts, as a captive in an oil-glutted North American market. There is no national consensus on balancing oil sands growth and the environment, and natural gas prices are in the tank for the foreseeable future, as new supply floods the market.
The bottom line: Being the world’s third-largest storehouse of proven oil reserves is not quite so attractive when you face a $25 to $42 discount on every barrel you send into the world.
Mr. Emerson does not go as far to say Alberta’s economy has peaked, “but we’re past the robust heady days when the going was easy. There are still huge opportunities but it will be harder.”
This new reality may have one positive aspect – a rebalancing of the national conversation, as reflected in last week’s meeting of the premiers of Alberta and Ontario. If they had met six months ago, the tone would have been very different: Ontario might have scolded Alberta about the pain of a petro-charged dollar; Alberta could have issued a rejoinder on the oil sands’ gifts to the national GDP.