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Back to Bitumount: How the oil sands changed Alberta and Canada forever

A stretch of Athabasca River bank north of Fort McMurray became the foundation for one of the country's most prolific industries

David O’Laney surveys one of the first cabins built for housing at the Bitumount oil sands at Fort McMurray in October, 2016.

David O'Laney unlocks the gate to the historic site he is charged with protecting and swings it wide, allowing entrance to what is arguably the birthplace of modern Alberta and all that has meant to the rest of Canada.

Appropriately, the road in is paved with bitumen.

"This is where the first experimental oil sands processing took place," says Mr. O'Laney, who monitors and maintains the site for Alberta Culture.

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"This" – a stretch of Athabasca River bank north of Fort McMurray – is Bitumount.

It's where almost a century ago, men and money laboured mightily to turn the black, gooey, sandy gunk into something – anything – that people would pay for.

Eventually, an industry was founded. The result changed Alberta – and Canada – forever.

"It really did change the economy and the political landscape of the country," University of Toronto political scientist Chris Cochrane says. "It's still changing them."

Half homestead, half abandoned industrial yard, Bitumount doesn't look like a birthplace.

It was started in the mid-1920s when Robert Fitzsimmons, a career oilman, decided the tarry goo along the riverbank was his ticket to riches.

For more than a decade, he did everything he could to make the oil sands pay. He advertised 38 different ways to use bitumen, including road paving, home roofing and even as a therapeutic bath.

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His cabin and those of his workers, the gaps in the walls chinked with bitumen, still stand.

Some of today's mines have their own airstrips, but in those days, the only way in and out was Mr. Fitzsimmons's boat. The Golden Slipper still moulders on the riverbank.

Mr. Fitzsimmons was bought out in 1942 by Lloyd Champion, a serial entrepreneur who thought bitumen just the thing to pave the Alaska Highway, then under construction. Champion later partnered with the provincial government, which ultimately ran the site until it closed in 1955.

Touring Bitumount today, it's impossible not to be struck by the parallels between past and present.

Despite their rusty patina, many of the structures from Mr. Fitzsimmons's time would look familiar to today's oil sands workers – the dormitories, the power plant, the refinery and the pipelines.

There's an old rail car on site once used as a travelling road show to sell the oil sands – a harbinger of the two-storey dump truck Alberta brought to Washington in 2006 for the same purpose.

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Bitumount’s riverside location at Fort McMurray is seen in 2011.

Mr. Fitzsimmons's old operation even presaged the modern method of using hot water to separate the oil from the sand it's mixed with. Except his workers stirred a huge open-air cauldron and raked off the oily slurry off by hand.

"Imagine the smell," Mr. O'Laney says.

Those old crews produced about 60 barrels a day. Now, 2.3 million barrels are piped out each day.

That's the result of decades of innovative engineering – and a pipeline of money.

"The perfect metaphor is someone spiking the punch bowl," says Todd Hirsch, chief economist for Alberta Treasury Branches, a provincially owned bank.

In 2014 alone, the oil sands attracted $34-billion in investment.

Alberta, a jurisdiction of just more than four million people, knocked back years of that.

It was quite a party.

Corporate shindigs featured caviar and filet at the Calgary Stampede, where $100 hot dogs loaded with cognac and lobster sold out. Mobile homes in Fort McMurray sold for $400,000.

A 17-year-old could make $80 an hour driving a truck. Retail sales staff in Alberta could expect to earn $5,000 a year more than elsewhere in the country.

Every year from 2000 to 2015, Alberta gained about 23,000 people at the expense of the other provinces. The Alberta economy grew by a fifth between 2010 and 2014.

That's not necessarily good, Mr. Hirsch says.

"When you have one dominant industry that pulls so much capital, it turns into a bit of a black hole that has its own gravitational force and it pulls in everything around it including labour, capital, everything from office space to building materials to all kinds of talent. It makes it very difficult for other industries and non-energy sectors to compete."

The industry has created enormous wealth, but it has left Alberta vulnerable.

"Everyone would like to have a more diverse economy, but when oil's at $100 (U.S.) a barrel it pinches off any attempts," Mr. Hirsch says.

Nationally, the oil sands boom exaggerated the regional tensions that have plagued Canada since 1867, Prof. Cochrane says.

"It's very difficult to craft comprehensive economic strategies for this country given the variable conditions and industries that dominate in different regions.

"I don't want to say the oil sands have damaged Canadian politics or national unity. [But] I think the reaction to the oil sands has left a lasting impact on people's sense of national cohesiveness."

Alberta's financial strength during the 2000s was enough to destabilize the relationship between Alberta, Ottawa and the other provinces, Mr. Hirsch says.

"If the Fathers of Confederation had to go back and make a redo, they probably wouldn't have handed over natural resources to provinces," he says. "This is really what has caused the enormous imbalances between the provinces."

Think of the now-notorious 2001 firewall letter, written by a young lobbyist named Stephen Harper to then-Alberta premier Ralph Klein urging him to opt out of national programs such as the Canada Health Act.

"Nothing of that is even imaginable without the kind of fiscal independence that Alberta was able to secure from the resource industries," Prof. Cochrane says.

But the industry has also fostered national ties. There's all those Newfoundlanders moving west, or the 1,500 Ontario manufacturers filling oil sands orders.

"There's no question Alberta's energy industry has really become Canada's energy industry," Mr. Hirsch says.

Touring Bitumount today, it’s impossible not to be struck by the parallels between past and present.

The industry is so big that when the 2016 wildfires near Fort McMurray temporarily shut production in May, Canada's GDP shrank that month by 0.6 per cent.

The oil sands have also become an international issue.

At one point in 2010, arguments from environmental groups persuaded six Fortune 500 companies to promise to avoid oil sands-derived fuel in their transportation fleet. Ad campaigns targeting the industry ran throughout the United States and in Europe.

Under attack, Albertans became more than a bit defensive about the industry that butters their bread.

"We are a bit on our back foot," Mr. Hirsch says. "We've painted ourselves into a corner where we find ourselves with a dependence on a commodity that the rest of the world is viewing unfavourably."

Things, of course, have changed since 2014. Oil prices have collapsed from over $100 a barrel to about $50.

Analysts wonder if the age of megaprojects such as the $16.5-billion Fort Hills project – jointly owned by Suncor, Total and Teck Resources, next door to Bitumount – is nearing the end.

ExxonMobile and Chevron recently wrote down $183-billion of oil sands reserves in response to concerns from American securities regulators that they were no longer economic to produce.

And other multinationals are backing away from the resource.

Royal Dutch Shell recently sold most of its oil sands holdings to Canadian Natural Resources. Statoil has sold its oil sands assets to Athabasca Oil Corp. of Calgary.

Alberta actually lost people to other provinces last year.

Mr. Hirsch suggests the current oil price is Goldilocks – high enough to stabilize the industry and keep it profitable, low enough to leave economic space for diversification.

The problem for the Alberta government is that high-tech manufacturing or the renewable energy or advanced agri-food or tourism or engineering sectors may create tax revenue, but they don't pay royalties.

"Royalties are really nice and easy to spend because you didn't have to work very hard for them," Mr. Hirsch says.

Nationally, the oil sands have been an abundant and growing source of good-paying middle-class jobs, the kind to which Prime Minister Justin Trudeau constantly refers. More than 400,000 direct, indirect and induced jobs depend on the oil sands and supporting sectors.

Even if the oil sands remain stable, it's hard to see where new jobs for all those skilled trades will come from, Prof. Cochrane says.

"To what extent are people fundamentally malleable in terms of the kinds of things they're willing or able to do?" he asks.

"There's a kind of person who stands to gain stable employment from oil sands work. One line of thinking is that these folks will have to go away and retrain and adapt to another kind of economy.

"I think that people's horizons for what they want to do, the kind of thing they're good at, isn't as infinite as some of these arguments imply."

Canadians who have grown accustomed to fat oil sands paycheques may be facing a reckoning, Mr. Hirsch says.

"Wages are coming down, wage expectations are coming down, and that is difficult when households have set up budgets and expectations of how much money and how many vacations to Maui."

And the challenge of climate change – perhaps the biggest one the industry faces – has never gone away.

The industry has agreed to a hard cap of 100 megatonnes of carbon emissions, a limit that will be pretty much maxed out when projects now in the regulatory process are all built.

The industry says technological advances will eventually allow more production without carbon dioxide growth, but it's been saying that for a long time and possible solutions are a long way from commercially feasible.

Many analysts suggest that meeting Canada's international greenhouse gas reduction goals will mean the country will simply have to walk away from some bitumen deposits.

"I'm trying to think about how a government could bring an entire country together around a policy that will leave a pile of money in the ground and unemploy a lot of people, if handled incorrectly," Prof. Cochrane says.

"If there is going to be a convincing strategy of moving away from oil sands development, it's going to have to be a policy that's going to benefit those most likely to lose from the shift. That's going to be hard to tell people in Quebec or Ontario."

Still, Bitumount holds one more lesson, this one more optimistic.

The oil sands are just one more example of Canadians creating value with persistence, hard work and imagination – turning an ugly duckling into a golden goose.

"The oil sands didn't work at the beginning," Mr. Hirsch says. "Agriculture, at the beginning, did not work here.

"We took a marginal resource and turned it into something."

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