by Stephen Rach

Ontario manufacturers are well positioned to help take the strain off the equipment supply chain in Alberta.

That includes companies in Northern Ontario that are experts in mining and mobile maintenance; companies in the Niagara region that have steel fabrication capabilities; companies along the manufacturing corridor between the GTA and Windsor that specialize in automation; companies in Eastern Ontario that support the pulp and paper industry; and suppliers in the Sarnia area that support the petrochemical and refined petroleum product industries. They all are needed in Alberta.
Any Ontario manufacturer with the right capabilities, the right message, and the commitment to the market over the long-term will be able to find a place for itself in the oil sands. But for most it is going to take some work.

Alberta requires so many different things to meet the requirements of the oil sands’ capital projects – instrumentation, valves, pumps and turbines, fabricated metal, machining, environmental technology, engineering and project management, industrial accommodation, infrastructure and labor. But that’s not the end of it. The rest of Alberta’s economy also needs help to respond to the demands of the fast-growing population.

Simply outsourcing production of subcomponents isn’t going to get it done for Alberta’s manufacturers. The size of the gap between what they can produce and the requirements of the synthetic crude oil producers is too large. The solution being promoted by the Alberta government, Canadian Manufacturers & Exporters (CME) and other stakeholders is for Alberta’s manufacturers to partner to meet the demands of the engineering, procurement and construction companies (EPCs) who manage the capital projects on behalf of the synthetic crude oil producers. The advantages of partnering are numerous – Alberta’s manufacturers form a relationship with a trustworthy organization that has virtual capacity ready when they need it; they work together with an organization that understands their business, their market, and will stay with them over the long-term; and they have access to a capable, reliable producer of high-quality products that are competitively priced.

OIL SANDS INITIATIVE: CME’s oil sands initiative is intended to take the pressure off Alberta’s oil sands supply chain by helping to create partnerships. In partnership with Industry Canada, Ontario’s Ministry of Economic Development and Trade, Alberta Employment Immigration and Industry and RBC, CME is creating awareness of the tremendous opportunities that exist for Canadian manufacturers and helping them tap into it.

A major component of the oil sands initiative in Ontario is Oil Sands 101 – How to do Business in Alberta. This is an intense half-day workshop, designed to give Ontario manufacturers an advantage over their competition by providing them the necessary industry intelligence, process knowledge and understanding of the culture of doing business in Alberta. CME then takes the process one step further by helping companies develop the specific tools required to effectively market themselves to the oil sands, based on knowledge of their own unique capabilities and value offering and an understanding of who they are marketing to.

For any company from outside of Alberta trying to find its place in the market, one of the most challenging tasks is getting that all-important first contact with a potential partner, no matter how well their capabilities fit or how focused their message is. Email and voicemail messages frequently go unanswered, and for many companies it is an expensive and time consuming endeavor to travel to Alberta just to knock on doors. National Buyer Seller Forum, an annual event partnered by CME, Alberta Employment Industry and Immigration, Industry Canada, and local economic development associations in Alberta, is the premier event for Canadian companies to gain access to the oil sands market, and maximize a company’s business development dollars. On the surface it looks like any other conference, NBSF has a tradeshow floor, a full array of speakers, workshops and networking opportunities, but NBSF goes one step further, by connecting buyers and sellers with specific, complementary requirements and capabilities in a series of one-on-one meetings. The forum (nationalbuyersellerforum.ca) will be held March 25-27 in Edmonton.

SUPPLY CHAIN CHALLENGES: The Alberta market is not an easy one to enter, despite being in our backyard. For many manufacturers, the market is very different from what they are accustomed to, and those that have sustained themselves in their own local market or have had foreign markets seek them out are often not prepared for the amount of time and effort required to overcome the barriers of entry into the oil sands supply chain. And it goes both ways. Until all the money started pouring into the oil sands, Alberta’s equipment supply chain was generally able to serve itself. The local supply chain members knew each other well, and good business spilled over into life. Often, a company’s vendor was a short drive away, and owners that did business together would also play together. The equipment supply chain isn’t used to all the attention they are getting from outside their province and it is coming from all over the world, not just in Canada.

Alberta manufacturers are in a lot of ways, caught in the middle. Synthetic crude oil producers and EPCs are putting tremendous pressure on them to react to their demands to grow and expand their supply chain to keep up with the ever-increasing number of capital projects that are in the works. And from the other side, manufacturers from across Canada, the United States, Europe, and low cost regions are mobilizing to compete for a piece of the action. Individual companies are selling to Alberta, groups of companies are banding together to form consortia to round out their value-offering or increase their capacity, delegations from many other provinces in Canada, and trade missions from around the world are travelling to Alberta to court the manufacturers. The pressure on the supply chain to increase capacity and deliver product more quickly is unrelenting. It would serve any manufacturer from the outside well to walk a mile in their potential partner’s shoes.

VALUE OF PARTNERING: When they do walk that mile, what they’ll appreciate is that the collective nerves of the supply chain are frayed from so many emails and phone calls from would-be suitors, and constant reminders from their customers about that they need to develop a long-term supply chain strategy. Why grow or take on more work? Business is booming, the shop floor is full, profits are up, and besides, there is no guarantee that the tide of investment is going to last forever. To bear the costs of a new building, new equipment and new staff when none is readily available doesn’t make a lot of sense to a lot of Alberta’s manufacturers.

This is why partnering with, not selling into, the Alberta supply chain is so important.

ALBERTA’S OIL SANDS LAND OF OPPORTUNITY: Alberta’s oil sands deposits cover approximately 141,000 square kilometres, or just over 20% of the entire land area of the province – that’s larger than the state of Florida. The deposits are in three regions, Athabasca, Peace River and Cold Lake. Athabasca, the largest region, is home to Fort McMurray and the major current synthetic crude oil production operations. Syncrude and Suncor blazed pioneered large-scale synthetic crude oil production in the 1960s and 1970s, and they have been recently joined in the earlier part of this century by Royal Dutch Shell’s Albian facility (although it transports its extracted bitumen to Scotford for upgrading).
Between 2005 and 2015 more than $153 billion in direct capital is being applied to synthetic crude oil production capacity in Alberta, across some 60 different new projects and expansions, and that translates into more than $ 1 trillion in total economic activity for Canada in the form of employment, new investment opportunities and additional public sector revenue. Only about 30% of the total area is currently leased for exploration between 2, 800 agreements, so there are plenty more to be signed and hundreds of billions of dollars more in investment on the way.

POPULATION SURGE: Alberta’s economy, and its manufacturing sector in particular, has been on a tear since the billions of dollars in oil sands investments started pouring in, in the late 1990s, and their gross domestic product has been increasing at a rate greater than the rest of Canada. The province has responded with a staggering 14.5% increase in population since 2001, and a fully mobilized workforce with an unemployment rate of just 3.4% (and a hyperactive 2.2% in manufacturing), but the synthetic crude oil producers want more. They are demanding Alberta’s manufacturers produce more equipment faster, to support the expansions of current operations and greenfield projects at a pace that the manufacturers simply cannot keep up with.

INFRASTRUCTURE LAGGING: The growth required in Alberta is so great, and in so many areas, that the province cannot put infrastructure in place quickly enough – roads and serviced land cannot be prepared, buildings cannot be constructed, subdivisions cannot be built - and even if all these things could be, there aren’t enough people to go around. Between 2005 and 2015 Alberta’s economy is expected to generate demand for an additional 400,000 new jobs, but based on current demographic trends only 291,000 new workers are expected to join the market, leaving a labour shortage of 109, 000 jobs. The only option for Alberta’s manufacturers is to look outside for help.

ABOUT THE OIL SANDS, BITUMEN AND SYNTHETIC SWEET CRUDE OIL: The oil sands of Alberta are classified a non-conventional reserve, which means that they cannot be extracted from the ground using traditional oil drilling methods. Conventional reserves are typically easier to extract and require very little processing to upgrade into a saleable product. In addition to having to use extraction methods other than drilling, Alberta’s producers also have to perform a variety of physical and chemical processes to the oil sands to transform it into crude oil.

Oil sand is a mixture of sand and bitumen, a very long carbon-based polymer that flows like shortening and doesn’t boil. The polymer is also host to many sulphur and nitrogen-based impurities (known as SOx and NOx) making it known in oil industry terms as sour. In this form, the only thing the bitumen is useful for is filling cracks in the road – it needs to be manufactured into synthetic sweet crude oil. Oil sands are manufactured in three major steps to produce a high-quality finished product called synthetic sweet crude oil. The first two steps, mining and extraction, are physical processes intended to get the oil sand out of the ground, and extract the bitumen from it. The final step is upgrading, which consists of a series of direct and supportive chemical processes that breaks the bitumen into smaller compounds, distils them into separate streams, and then sweetens (removes the SOx and NOx and saturates the molecules with hydrogen) and blends it all back together in the optimal ratio for sale.

Stephen Rach (Stephen.rach@cme-mec.ca) is director, Oil Sands Partnerships, Canadian Manufacturers & Exporters (CME) Ontario Division.