Oil sands boom
reveals labor shortage By Jim
Letourneau
CALGARY - Some of the largest
construction projects on the planet are currently
underway in Fort McMurray, Alberta. Canada's oil
sands, long recognized as a "fuel of the future",
have rather suddenly become a fuel of the present:
a critical component of global energy supply.
These giant accumulations of tar and sand
cover an area greater than the state of Florida.
After separation from the sand, clay and water it
is typically mixed with, the tar can be converted
into an estimated 174 billion barrels of oil,
second only to the oil riches of Saudi Arabia.
Construction of these projects requires huge
amounts of capital. Over US$100 billion will be
invested in oil sands projects over the next
decade.
Oil sands production is far more
complex than producing oil from
conventional wells, where the
oil flows easily into pipelines and tankers before
shipping to the refinery. It takes approximately
two tons of oil sand to produce a barrel of oil.
Digging up the sand requires giant truck and
shovel operations.
One critical component
of a successful multi-billion dollar oil sands
project is a runway: although construction
materials must be delivered by road and rail, the
people required to assemble them prefer to travel
by air.
Given the tightness of the Alberta
labor market, companies are looking at creative
solutions to find skilled labor. Canadian Natural
Resources' Horizon project alone will require
6,000 tradespeople at the peak of construction.
Workers for these vast operations will be
flown in from Atlantic Canada and the interior of
British Columbia. The addition of a runway opens
up the entire Canadian labor market for the Fort
McMurray oil sands projects. Workers from Atlantic
Canada will be taking a six-hour commuter jet trip
to complete their work shifts; this compares
favorably to the five-hour bus trip from Edmonton.
Satisfying the oil sands
labor market requires global solutions. Engineers
from South America, laborers from Mexico and
welders from China are all finding themselves
sucked into the giant swirling labor pool required
to get oil sands projects off the
ground.
Meanwhile,
Canada's conventional oil and gas industry is in
overdrive. The Petroleum Services Association of
Canada estimates that 2006 will see over 25,000
wells drilled in Canada, representing a 6%
increase from last year. Drilling crews are in
high demand, since contractors don't want their
equipment sitting idle and oil companies, given
high global oil prices, are willing to pay
staggering sums to get their wells drilled.
In Calgary, the heart of Canada's energy
patch, the demand for labor shows up in the near
ubiquitous postings for staff in retail and fast
food service positions. One national chain had to
temporarily shut down one of its restaurants due
to a lack of workers. Reliable young workers can
make a six-figure income in Fort McMurray. In
Calgary, the oil patch is willing to pay higher
wages than other industries for technical support
positions.
Not just oil
sands The desperate labor shortage in
Alberta is not unique. In general, the
exploration, discovery and exploitation of ore
deposits and oil and gas fields requires a strong
contingent of engineers, geologists and
geophysicists. During the last trough in the
commodity cycle there was little demand for these
professions.
Much of the available work
was related to environmental projects, cleaning up
the toxic spills from old mines and refineries.
Although some commentators interpret this "new
breed" of professionals as having a strong
environmental consciousness, the real truth is
they followed the money and found the trail ending
up at remediation instead of exploration and
exploitation.
Demographic data show that
the majority of the resource-related workforce is
in the 40-60 year age group. There are very few
resource professionals in the 20-40 year age group
(and that age group is skewed towards
environmental expertise) and it is expected that
40% of resource professionals will be retiring
over the next 10 years.
Enrollments in
resource-related university programs have been at
low levels for decades. Keeping in mind that
engineers, geologists and geophysicists require at
least four years of university education and
several years of experience before they become
competent professionals, one can see the
demographic squeeze play coming. At the very time
when resource-related technical expertise is
needed most, it will be in the shortest supply.
This developing demographic squeeze is
going to influence resource investments, and one
should therefore expect cost overruns and delays
for mining, pipeline, refinery and oil sands
projects.
There is a shortage of the
skilled labor required to build these projects and
to field experienced drill crews. The expertise
required to find and develop new mineral deposits
and oil and gas fields is also lacking. The bottom
line? The commodity bull market has a bright
future, because it is going to be exceedingly
difficult to increase commodity supplies with
current manpower levels.
Jim
Letourneau is the publisher of the Big Picture
Speculator, an investment newsletter. He is also a
consulting petroleum geologist with expertise in
petroleum hydrogeology and geochemistry, and a
contributor to the KWR International Advisor
newsletter.
(Posted with permission
from KWR International, Inc,
(KWR), a consulting firm specializing in the
delivery of research, communications and
advisory services.)
