In Canada's oil sands, a boomtown starts feeling the chill

December 16
8:16 PM 2014

The boomtown in the heart of Canada's oil sands region is getting nervous.

Fort McMurray, surrounded by the boreal forest of northern Canada, has long drawn thousands with jobs that paid six-figure salaries to a region that produces more crude than anywhere else in the Western Hemisphere.

But a slide in oil prices since June has fueled a sense of unease in the community of nearly 73,000 which for over a decade has rarely known anything but the good times.

So far, it has been spared mass layoffs at the huge mining and thermal oil facilities that surround the city and produce 2 million barrels per day, roughly two thirds of Canada's exports.

Yet for a city whose junior hockey team is called the Oil Barons and where nearly half of the jobs are in oil, gas or construction, a nearly 50 percent slide in crude prices is plain bad news.

"We are not far off 2008, that's in recent memory, a major slowdown, and everybody is waiting for that to come back," said Chris Martin, a boilermaker from Nova Scotia, relaxing at the Wood Buffalo Brewing Co., a popular local brewpub.

Suncor Energy Inc, Total SA and Statoil ASA had already canceled or deferred major high-cost oil sands projects before the price slide, with Total's Joslyn mine alone worth C$11 billion ($9.44 billion).

Consultancy Wood Mackenzie estimates new mining projects require a U.S. crude price of $115 a barrel to break even, while new thermal projects need oil in the $50-$70 range. U.S. crude benchmark, hit $55.34 a barrel on Monday.

Some signs of a looming slowdown can already be seen in the local property market.

New housing starts in the municipality of Wood Buffalo comprising Fort McMurray and nine surrounding hamlets are forecast to fall 62 percent this year, according to the Canada Mortgage and Housing Corporation. In contrast, housing starts in the entire province of Alberta are set to rise 12 percent in 2014.

The average resale price of homes in the region is also expected to fall 5.2 percent year-on-year, the agency said.

Realtors say the dip has more to do with the market reaching a mature stage rather than with the oil downturn.

Yet two-storey-high 'now leasing' signs that adorn some downtown apartment blocks, would have been unthinkable at the height of the recent decade-long boom when, as mayor Melissa Blake put it, the city had "more people than places to put them".

Blake said the slowdown during the 2008-2009 financial crisis was a welcome pause after years of rapid growth and sounded confident Fort McMurray also this time would avoid a severe slump.

"If we are going to see a significant impact it will be on investment rather than existing projects," said Blake, who has run the city since 2004.

Despite the gathering clouds, Fort McMurray remains by all counts a prosperous city.

Average household incomes above C$190,000 are the highest in the country, houses are the most expensive in Alberta, and the unemployment rate of 3.8 percent remains well below national levels of 6.6 percent.


However, few harbor illusions that the city can ride out the oil slump unscathed.

Store owners say business is not as brisk as it used to be and many locals expect oil-related jobs to become less abundant.

"It will definitely be harder to pick up work with the oil price dropping," said Stavros Angelatos, operations manager of Westcan EMS, an emergency management services company based in British Columbia.

Angelatos, who was flying back home after a six-week stint up north, said he did not rely on the oil sands alone for work, but the word was that smaller contractors that rely on temporary workers were already laying people off.

"There seems to be a lot of layoffs up here so people are just kind of holding on to their money," said Sandy Mastel, a manager at Raven Truck Accessories and Motor Sports, which sells motorbikes, scooters, all-terrain vehicles and snowmobiles.

Snowmobiling is a popular pastime in Fort McMurray where winters can last six months or more and temperatures often drop below -40 Celsius (-40 Fahrenheit).

Mastel said between October and early December she sold just over 60 snowmobiles compared with over 90 last year.

Nate Catto, manager and executive chef for Atmosfere, a casual fine dining restaurant that offers a C$48 Chilean Sea Bass and C$55 tasting menus, said the holiday season was busy as usual, but next month was likely to be slower.

"I do expect to see some impact from the drop in oil price this (coming) year for sure."

Yet with the anxiety comes a dose of optimism that with every oil cycle the industry and the local community get better at coping with market ups and downs.

"People will always be concerned when prices are lower," said Reegan McCullough, executive director of Oil Sands Community Alliance, which represents producers within the Athabasca oil sands region.

"But at the same time these companies have seen prices go up and down over the years. Each time is different and they have learned how to adjust."

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