EDMONTON, Alta. - Decades after former Alberta Premier Peter Lougheed's infamous Bridge to Nowhere was constructed it finally leads to somewhere; leaving residents in the Wood Buffalo region wishing L...
EDMONTON, Alta. – Decades after former Alberta Premier Peter Lougheed’s infamous Bridge to Nowhere was constructed it finally leads to somewhere; leaving residents in the Wood Buffalo region wishing Lougheed had built a few more. Built during Lougheed’s premiership (1971-1985), the bridge was constructed by the provincial government as a show of good faith to an oil exploration company, proving the current government was willing to work with big business. But when the oil exploration operation failed to materialize, the bridge sat dormant and unused just north of Fort McMurray, Alta.
Officially named the Peter Lougheed Bridge, Fort McMurray residents have now nicknamed the structure, the Bridge to Somewhere; and it serves as a vital link between the booming oil community and oilsand developments.
Oil developments in Northern Alberta have fuelled the province’s economy, but have also put significant strain on the region’s infrastructure system. As the area struggles to keep pace with business and population growth, a number of industry stakeholders gathered in Edmonton to seek out proper avenues to address the situation.
On Oct. 18 and 19, the Van Horne Institute hosted a conference entitled, Alberta’s Oilsands: Transportation Challenges and Opportunities.
The conference was attended by about 80 people, including oil and gas developers, transportation companies, government officials and other industry stakeholders.
Setting the stage
“Energy and the environment will most likely be the defining issues of this century,” said Dr. Robert Mansell, professor of economics at the University of Calgary and senior fellow in the Institute for Sustainable Energy, Environment and Economy.
“Alberta’s economic future will be largely decided by the energy sector because we do not have another industry that could duplicate the size of it,” he added.
It is difficult to calculate the exact portion of Alberta’s economy the energy sector accounts for.
A common figure thrown around is that one of six employees in the overall economy works in the oil and gas sector. But as Mansell pointed out, if you include the number of occupations that are a direct spin-off of the oil and gas market, the ratio moves closer to one in two employees; and there are other ways to calculate the impact as well.
“Prior to the discovery of the Leduc No. 2 in the late 40s, Alberta and Saskatchewan had roughly the same population and GDP,” noted Mansell. “Today Alberta has roughly three times the population and three times the GDP. If you look at it like that, oil and gas is two-thirds of the overall economy.”
While oil and gas exploration is a dominant portion of Alberta’s economy, it still remains a relatively small portion of the overall production in North America.
“The oilsands represent about 13% of the North American supply, it’s not going to save the world,” explained Mansell. “As long as there is population growth and economic growth there will be growth in energy. The potential exists to become a major global, competitive clean energy supplier.”
With the growth of the energy sector and the population have come challenges, and as important as it is to fix the infrastructure issues, it’s equally important to have a long-term vision in place.
“Over the past 50 years, Alberta’s population has grown at 1% above the national average. Infrastructure is a long-term gain, so lets build along with that projection,” urged Mansell. “It’s only in periods of rapid growth that we can discuss what we are trying to do here. We need detailed plans for developing the road, so if there is a slowdown we don’t walk away.”
There is a vast pipeline network spanning North America, which allows the oil products themselves to be exported from the area in a timely manner. There are further projects in place to expand the pipeline and storage networks of oil companies, with price tags in the billion-dollar range. The infrastructure issues however, can be seen above ground along Hwy. 63.
To undertake the huge development projects in the Fort McMurray region, there needs to be a huge amount of people and huge equipment to perform the work.
“The machinery and equipment we use and see coming up there can really only get there one way – and that’s by truck,” said Jacob Irving, executive director of the Athabasca Regional Working Issues Group (RIWG).
In 2005, RIWG developed a list of 11 near-term transportation priorities. Today, three of 11 have been either started or completed.
One such development is the completion of a high-load corridor between Edmonton and Fort McMurray, which reduced the travel time for heavy loads between the two cities.
“There is a nine-metre high corridor on the westerly route; where we can continuously move and not worry about moving wires and stopping, which doesn’t interfere with the public as much,” said Gary Dahl, transportation and logistics manager for Canadian Natural Resources. “We’re faced with a single north-south route. Safety is a major concern and staying out of the way of the general public is a major concern.”
Travelling along Highways 63 and 881, through the high-load corridor, travel time for super loads has been reduced from eight days to five. The loads are hauled in stages during the night to have less interference with public traffic and take between 15 and 18 runs to complete.
“When they do pull off the highway they need to be able to get off without wiring services getting them off,” said Dahl. “They need to be able to safely exit.”
In the Fort McMurray region itself there is only one staging area, which is located on the south end of the city.
“Everything goes right through the city, which I think is unique. One mess up and Fort McMurray comes to a stop,” explained Dahl. “We have to get through town and off the highway by 6 a.m. There are already terrific traffic jams and if one of these loads were on the road it would be terrible.”
Dahl noted the industry has done a good job of working together and sharing information to coordinate the movement of equipment for projects, but there needs to be more places for trucks to pull over safely.
“We need to be able to manage how we get loads up the highway without interfering too much with the public,” said Dahl. “We have a few specialized service producers (heavy staged hauls) who do this work for us and they do it safely. All the industry has recognized their work and they’ve kept us out of the limelight by performing safely and doing a fantastic job.”
As well as limited space on the highway, the infrastructure system is lacking services along the highway.
“We lack basic services for trucking professionals. Spots to park their trucks, rest areas, places to eat…” commented Dahl. “For a place that relies on trucks we need to provide the essentials for them.”
There are projection targets of 1.7 million barrels per day by 2008 and 3.6 billion barrels per day by 2015, which will likely equate into approximately 3,100 loads per year coming out of the Edmonton area.
Improving the highway network to reduce congestion is paramount to sustaining the area’s growth. However the region’s stakeholders have worked on other initiatives to aid in reducing highway congestion.
Recent work has been done on exploring freight movement along the Mackenzie River and some companies have started fabricating their equipment in the region, although a lack of industrial land has made it difficult to set up shop.
There is also a rail line running from Edmonton to Fort McMurray, which is operated by Athabasca Northern Railway.
In the past seven years the rail line has increased traffic to about 12,000 cars a year, but has not grown enough to sustain a long-term operation.
“In 2000, a poll said 90% of businesses in Fort McMurray didn’t know there was rail service to the area,” said Bob Feeney, manager of business development with Athabasca Northern Railway. “Since 200
0, we’ve had a 400% increase in car loads per year. It’s growing but not enough to justify needed investment.”
CN recently purchased the portion of the railway line between Edmonton and Boyle, but without more investment the railway will discontinue service in December.
“Keeping that option open is profoundly important. We need transportation options and transportation commitment,” said James Gray, who is a corporate director for numerous companies and has worked for 50 years in the oil and gas sector in Western Canada.
“We’re not just building in a bubble in Fort McMurray, we’re building into a permanently large industrial hub,” explained Gray. “In 20 years, the idea of everything going through downtown in Fort McMurray is ludicrous. It will be bypassed, there’s no question about that.”
The size of the industry and the city has grown to the point it will sustain new value-added businesses.
“It won’t be long before we’re the third largest city in Alberta. The regional infrastructure is way behind, roads, sewage and water; they’re working on it, but it’s way behind,” noted Bill Almdal, the founding executive director of RIWG. “The one critical infrastructure need is a modern high-speed transportation system. The question is when and who takes the risk?”
Funding the need
Funding for infrastructure is generally done with taxation or user-pay systems. More commonly, a combination of the two systems is put into place. With an infrastructure that is already years behind and rising construction prices spurred on by a booming economy, there needs to be innovative funding and financing approaches.
“We’re looking at innovative solutions for our projects,” noted Neil McQuay, executive director of major capital projects with Alberta Infrastructure and Transportation. “We’re looking for integration of the design, construction and maintenance of our highways, taking all those costs and looking at a single source.”
More precisely, McQuay and the provincial government are looking at public/private partnerships, or P3 projects.
With P3 projects there is a fixed price on the payment schedule for 30 years, a fixed completion date and a 30-year warranty.
“I have no problem making the claim this is faster to produce,” added McQuay.
Traditional delivery of highway projects takes about six years to complete, while with a P3 project most are delivered in four years; and once the contract is signed by a private company, there are no changes.
“There wasn’t one change made to the costs of the southeast Anthony Henday Drive in the entire process,” explained McQuay. “There are no negotiations once the contract is signed. They try, but we always say ‘No’ and there hasn’t been a problem so far.”
The P3 projects are delivered on time, which is encouraged by significant penalties for lateness on the given timeline. Once the project is completed, all regular maintenance falls to the hands of the contractor, while the government will pick up the tab on any future lane expansions or third-party damage.
“P3s are not just a funding mechanism, but rather a delivery mechanism. P3s transfer whole-of-life responsibility,” explained Nick Hann, executive director of Macquarie North America. During the last 10 to 15 years, Macquarie has become one of the largest private sector investors across the world.
“People confuse P3s with privatization, so there’s lots of fear mongering of P3s but that’s not the case,” said Hann. “P3s actually give the government more control by setting provisions and writing the agenda while stepping back and ensuring it’s fulfilled.”
As well as taking over management of Chicago’s Skyway on a 99-year contract, Macquarie has other infrastructure investments all over the world, including one in Northern B.C., which could serve as a possible example for road service in Northern Alberta.
“The Sierra Yoyo Design road in Fort Nelson in northeast B.C. is funded off the government balance sheets through overload truck fees and royalty payments,” explained Hann. “It was a small road, only $40 million, but could be an excellent model for Fort McMurray. Sierra is a good model for companies paying for better service roads through royalty payments.”
Others however envision improvement in the region with good old-fashioned tolling and better management. During his address to the luncheon crowd, Lougheed suggested a heavily tolled roadway was established for the industry – with a free option for the public – and a reduction in the number of developments in the region to allow for better management of the infrastructure.
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