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Could Calgary become the centre of the petroleum world, finally shedding the
century-old moniker of “Cow Town”? Many people think it’s
not only possible, but inevitable.
Consider the views of Heather Douglas. “When I was president of the
(Calgary Chamber of Commerce), I used to challenge visitors to name another
city that had the intellectual knowledge about energy that Calgary
has,” she says. Now a VP at Athabasca Oil Sands Corp. she adds,
“That knowledge can be applied to any form of energy – nuclear,
solar – not just oil and gas. We are already one of the world’s
premier energy centres, and in the 21st century
energy issues will endlessly challenge global economic and environmental
systems.” Already in the big leagues, the city needs to get ready for
growth.
Gary Leach puts the possibilities into a broader context. The executive
director of the Small Explorers and Producers Association of Canada (SEPAC),
Leach argues that “Houston was the late 20th century’s global
energy capital. It’s now in decline, and Calgary is in the ascendant. A
few things could affect (Calgary’s growing dominance.). What if the
Mackenzie Valley and Alaska Pipelines are constructed, making Alberta the
distribution centre for Arctic gas across the
continent? Even if that doesn’t happen, within the next 20 years
hundreds of billions of dollars will be invested in this province to develop
the oilsands, and Canada will become a net exporter
of millions of barrels per day – maybe 5 million barrels per day, most
of it from the oilsands. The numbers are
eye-popping.” According to a recent CAPP forecast, this country’s
oil production will rise from 2.8 million barrels per day last year to 4.7
million in 2025.
“Looking back 20 years from now,” Leach adds, “we will see
Calgary as a city of global importance” in more than energy.
“Part of that is because of Canada’s energy and other resource
surpluses. The other is the fact that Canada is one of the few countries in
the world with food surpluses,” and Calgary will continue to be an
agribusiness centre.
Constant Mixing
For decades Calgary has been home to the largest number of major head offices
in Canada. It is a corporate city, which arranges finance and makes business
decisions. It is a technical centre, with an amazing
array of scientific and technical skills. It is a management city, with
seasoned executives continually making high-stakes
decisions.
A unique mix of characteristics have set Calgary up for growth and increasing
strategic importance in the energy world. Within the city’s ten blocks
– the business part of downtown – is an extraordinary
concentration of expertise. This includes the largest concentration of
geological talent in the world, for example. Alberta’s petroleum
industry has traditionally produced from conventional oil and gas formations
that on a world scale are relatively modest. The industry developed strong
drilling, engineering and technical skills at least partly in response.
Other areas of expertise include management, legal and accounting skills;
finance and economics; technological development and environmental
innovation. These skills developed in an entrepreneurial climate which takes
a competitive delight in financing, exploring, developing and overseeing
production from the geologically complex Western Canada Basin.
Underpinning the entrepreneurial environment is a fair and transparent
regulatory system. Alberta’s system of land auctions and western
Canada’s efficient regulatory systems make hydrocarbon development an
attractive proposition. There is an enormous wealth of oil and gas data that
must be made available by law. In Alberta, that information is mostly
available through the Calgary-based Energy Resources Conservation Board.
With its concentration of companies, executives and expertise, Calgary is now
the Canadian city you have to be in if you want to be in energy. You
can’t be in Regina or Winnipeg or Toronto and be in the oil business.
“In the last 20 years we have had the National Energy Board move here
from Ottawa,” says Leach. “We had Shell and Imperial and
TransCanada move here from Toronto and Enbridge moved its headquarters here
from Edmonton.” Gulf Canada came indirectly, when Petro-Canada bought
it out; so did BP when it acquired Amoco. “Calgary now has the densest
focus of oil industry talent in the world between the Bow River and the
Canadian Pacific rail tracks,” he says. “Everybody here is within
a five or 10 minute walk of everyone else. That dense connectivity has
created a unique and creative mix. There’s a constant mixing of
competitors and collaborators.”
An unusual characteristic of Canadian business is that companies tend to go
public at a very early stage – a tradition that in Calgary seems to be
on steroids. There are hundreds of start-ups and other small energy
companies, many of which have gone public. Forty per cent of the
world’s 995 publically traded energy companies are headquartered in
Calgary. Those companies represent about 30% of Canadian stocks by market
value.
One of the reasons they are here is the resource potential. According to
Heather Douglas, “Alberta is well-positioned to be a leading energy
producer for decades. Challenging unconventional resources – oil sands,
shale, tight and sour gas – are all a vital part of our future.”
The World’s Energy Cities
There is an organization known as the World Energy Cities Partnership, with
16 members. Besides Houston and Calgary, these cities include, for example,
Aberdeen, Scotland; Atyrau, Kazakhstan; Dammam,
Saudi Arabia; Daqing, China; Stavanger, Norway; and
Tomsk, Russia. Canada is the only country to have three “energy
cities” – the other two being Halifax and St. John’s.
How do the world’s other energy cities compare
to Calgary? “Many of these centres have the
disadvantage that they are dominated by a few very large producers, many of
them state-owned,” according to Leach. “For example, Rio de
Janeiro is the centre for Brazil’s offshore
oil production, but it’s dominated by Petrobras.”
Other cities have other problems. “To be a serious contender as an oil
and gas centre, you have to have the rule of law,
democracy, and a stable environment,” Leach says. “You have to
have transparent laws and regulation. You have to be a place where people
will invest for the long term.” In many energy cities, few or none of
these factors exist: Think China, Iran, Kazakhstan, Russia, and Saudi Arabia.
Sudan, anyone?
What about Europe’s energy cities? “Aberdeen is only a service centre for oil and gas. It’s not financial. It
doesn’t rival Calgary in any way,” according to the flag-waving
Leach. “The same is true of Stavanger: It’s an important regional
support and service centre, but that’s all.
And of course North Sea oil production is declining rapidly, and that’s
going to affect the relative rankings of those two centres….
Only Calgary, Houston, Dallas and London can say ‘We have big
companies, we have oil and gas assets, we have a lot of financial strength,
and here is where decisions are made.’”
London is a special case. It’s a financial superpower, of course, and
it is headquarters for BP, Shell and some producers based in the North Sea.
However, because energy is a relatively small part of its economy, it really
isn’t an energy city.
The Rise and Decline of Houston
Houston’s status as the world’s dominant energy centre is fairly new. Until 1986 there were five
significant oil centres in the US: Houston, but
also Dallas, Denver, Oklahoma City and Tulsa.
When the oil industry went into a 20-year slump with the 1986 oil price
collapse, much of the industry moved from Tulsa, Oklahoma City and Denver to
Houston, which also benefitted from explosive growth in Gulf of Mexico
drilling. Dallas is still an important centre, but
primarily because ExxonMobil calls it home.
With its port and pipeline connections, Houston has become the world’s
largest refining hub. It is an extremely important centre
for petroleum technology, especially for offshore drilling and production.
Still the world’s premier energy city, Leach argues that “its
best days are behind it. As Calgary’s potential waxes, Houston’s
is going to wane. We have the potential to rival them, not only in the oilsands but because of the prospect of Pacific Rim
exports, for example. Calgary can become a Pacific Rim energy capital. This
isn’t fantasy: Chinese, Japanese, Korean and Malaysian (companies are
already) here.”
Already snapping at Houston’s heels, Calgary one day may take over.
According to Chris Lee, managing partner of a resource consultancy provided
by accounting giant Deloitte Touche, this country
“has the opportunity to be an energy superpower. To do that we have to
ensure that issues around transportation infrastructure are resolved. We need
a national energy strategy. We have to deal with potential labour shortages and cost overruns, and we need a more
positive public image for the oilsands. The future
of the oilsands is incredible. Just imagine what
would happen if (bitumen) carbonates became economic! What would this city be
like?!”
Heather Douglas thinks Alberta should seize the moment to establish a
Canadian benchmark for international trade. Right now world oil prices are
quoted in reference to foreign crudes – mostly West Texas Intermediate
(WTI), Brent and Dubai. “We usually sell at a discount to WTI,”
she says. “Brent production is rapidly declining, while Alberta
production is growing. We need to create a Canadian benchmark that is
internationally recognized – maybe a price based on upgraded
bitumen.”
Awesome
The Economist recently ranked Calgary as number five on its list of
the world’s 100 most liveable business
cities, and a Houston-based publication named Rigzone
named the city number 2 in its list of the top ten energy centres to be transferred to – citing the Rockies,
the fishing and the Stampede. (Dubai was number one, because of its tall new
buildings and its shopping.)
And some months ago, 17-year-old Megan Butlin, on
her way to Sweden as an exchange student, delivered a presentation to my
Rotary club. It was a trial run for a presentation she would give to her
Stockholm sponsors. According to one of her slides, “Statistically
speaking, Calgary is 100% more awesome than Edmonton.”
Is any of this stuff really true?
Because of its proximity to major oil deposits – in the early days,
Leduc and Pembina; recently, the Athabasca and Cold Lake oilsands
deposits – Edmonton has become one of the world’s premier
operations and service centres for the petroleum
industry. It has fabrication and manufacturing capacity that would be the
envy of virtually any other oilfield service centre.
The University of Alberta is a jewel in the city’s crown, and it has
been a centre of oilsands
research since the 1920s.
The area is Alberta’s refining and petrochemical centre
– notably the “Industrial Heartland” north of Edmonton.
That industrial region has grown organically since the late 1940s, when
Imperial Oil brought a tin-pot World War II refinery down from Whitehorse to
process crude from nearby Leduc and other new fields. Now the beneficiary of
more than $25 billion in investment, this 582-square-kilometre region hosts
40 large companies and many small ones. Together they operate numerous
refineries and petrochemical plants, an upgrader, pipelines, service
companies and numerous other interdependent businesses.
As the oilsands enable Canada to become an energy
superpower, Edmonton will continue to serve as the staging area for the
world’s biggest petroleum projects – most of them encircling
another dynamic Alberta city, Fort McMurray. That, too,
is awesome.
Peter McKenzie-Brown
Language Instinct
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