The boom ends for Alberta oilsands

Alberta's oilsands have recentlyattracted more attention from the United States thanthe province wouldprobably like.

In its March issue, the influential National Geographic magazine devoted a lengthy featureto the Canadian oilpatch and the nasty effects squeezing oil from tar sands has had on the province's northern landscape.

On numerous occasions, Barack Obama has vowed to break the U.S.'s addiction to "dirty, dwindling and dangerously expensive" oil, which many believe includes the oil from the oilsands. Extracting oil from the tarsands creates, by one estimate, 20 per cent more emissions ofcarbon dioxide (a key greenhouse gas) than production of conventional petroleum.

In his first speech to Congress, Obama saidhe has asked lawmakers to send him legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. What that will mean for the Alberta oilsandsremains unclear.

Oilpatch players chop spending

While environmental concerns about the Alberta oilsands build in the U.S., the industry faces so many pressing economic challenges that it's safe to say the boom is over, says BMOCapital Marketseconomist Douglas Porter. In recent months, the global recession and credit crunch have made it hard for companies to raise money for future capital investments. Plummeting oil prices, which reached $147 US a barrel last July but now hover around $45 US a barrel on the New York Mercantile Exchange, have forced firms to delay or shelve projects worth billions.

Capital spending plans in the Alberta oilsands are expected to total $13.2 billion in 2009, nearly one-third less than in 2008, according to Statistics Canada. The Canadian Association of Petroleum Producers (CAPP) already revisedits 2009forecast three timesto$10 billion from aninitial forecast of $20 billion.

Major oilpatch operators have revised their own capital budgets, including Canada's oldest oilsands operator, Suncor Energy Inc., which recently halved its investment spending to $3 billion from a previous $6 billion. That means construction of its new Voyageur upgrader facility and completion of its Firebag in-situ bitumen project are on hold, with no date set for when construction will resume. Many analysts sayfuture oilsands projectsrequireoil prices of between $80 USand $100 US a barrel to be profitable.

Last month, Petro-Canada and its two major partners, Teck Cominco Ltd. and UTS Energy Corp., announced they will hold off on the proposed $24 billion Fort Hills oilsands project in northern Alberta until commodity prices and financial markets strengthen.

Last October, Nexen Inc. andpartner OPTI Canada Inc. decided to delay expanding theirLong Lake operation innorthern Alberta'sAthabascaoilsands regionbecause the credit crunch has made it difficult to raise money in the stock market. BA Energy Inc.dropped altogether its plans for a $4-billion upgrader facility near Edmonton before filing for bankruptcy protection last December.

Existing operations still profitable

Thecuts in capital spendinghave alsoaffected oilpatch workers, particularlythose on the drilling and construction side. Nair Bailey, aCalgary recruiter,said that engineerslaid off in recent months have reached2,500, if not more.

Last month, Flint Energy Services Ltd. saidthe decision by its client, Suncor, to postpone a project would result in an immediate layoff of construction workers. At the same time, Steelmaker Evraz Group SA, which produces plates and pipes for the oilpatch, announced it would cut 400 positions at its Alberta and Saskatchewan facilities. The unemployedalso can no longerjob hunt viathe City-TV recruitment program Alberta's Best is Hiring, which was pulled off the air last month.

The collapse in energy prices also has taken the steam out of Alberta's once-booming economy. On Feb. 25, the province cut its revenue estimate for fiscal 2008-09 by $4.5 billion to $35.6 billion, in part because of a $2.3 billion drop in resource revenue. Economists now predict that Alberta will record a budget deficit, the province's first one since 1986.

But it's not all doom and gloom forAlberta's oilpatch. There is stillongoing workfor operators andseveral existing operations are still profitableat current oil prices.While many of them have postponed new projects, others are still going forward with theirexpansions, and almost all workers continue tobe employed. In fact, oilpatchoperators are expected to increase production to two million barrels of oila day by 2013 from 1.2 million barrels a day this year according to preliminary projections from CAPP.And the appetite for oil shows no sign of diminishing any time soon.

"The times have changed, but the scope has not," CAPP spokesman Travis Davies says.