XL pipeline controversy shows need for reform

The controversy over the proposed Keystone XL pipeline has brought energy policy, construction costs and labour relations laws to the forefront of debate in Alberta.

At the heart of the debate is the $7 billion pipeline being proposed by Calgary-based TransCanada Pipeline (TCP) to export up to 900,000 barrels of bitumen, the heaviest form of crude oil, from Alberta to be upgraded and refined in U.S. facilities.

While the U.S. debate sees proponents of energy security pitted against environmentalists, the Alberta debate is focused on whether partially processed oilsands products should be exported or fully refined in Canada.

View from the Board

Bill Stewart

Labour leaders argue that exporting bitumen is akin to sending jobs down the pipeline.

Indeed, the president of the Alberta Federation of Labour recently called Keystone XL a job killer and argued that provincial and federal governments should adopt tighter export regulations to require more upgrading to be done in Alberta. He also argued that oil companies and developers have no other place to invest in but Alberta.

It goes without saying that extracting and refining oilsands products in Alberta or elsewhere in Canada is a laudable objective. But, is it realistic to think investors will or can be forced to invest billions in upgraders and refineries when construction costs and worldwide economic conditions are so uncertain?

The reality is that a decade ago when the Canadian dollar was worth 62 cents U.S., building upgraders and refineries in Alberta made good economic sense.

However, escalating construction costs, coupled with the strengthening of the Canadian dollar, has made capital investments, particularly the multi-billion investments required to construct new upgraders and refineries in Alberta, less attractive to potential investors and refinery operators.

As a TCP spokesperson noted in response to McGowan, XL is not contributing to job losses because no new refineries are being built in Alberta. He added, "Good luck trying to get a refinery built. It's very difficult; it's very expensive."

While other factors are clearly at play, labour costs are a key component. The Canadian Heavy Oil Association, for example, noted in 2009 that all Alberta upgrading projects have been afflicted by skyrocketing costs, which in some cases doubled or even tripled partly due to the skills shortage.

Construction cost escalations in tandem with economic uncertainty has in turn led to reduced investment intentions.

In September 2008, the Alberta government's major projects inventory included more than $283 billion in potential investment. Today, planned investment in major projects stands at $191 billion with almost $22 billion on hold.

Recognizing that labour costs and productivity significantly impact construction costs, the Construction Competitiveness Coalition formed in 2010 to advocate for reforming Alberta's outdated rules and regulations to improve construction competitiveness.

The coalition's 11 recommendations fall in three categories: • Creating economic advantages through cost and schedule certainty; • Creating bargaining structures for today's workplaces and • Improving fairness for employees and employers.

Specific recommendations include reducing uncertainties related to potential conflict between Alberta's labour legislation and the Canadian Charter of Rights and Freedoms.

Similar to other provinces, the coalition believes that being able to complete work under the collective agreement or terms that the work was bid under would help create more certainty for investors and contractors.

It's also time that Alberta allowed all-employee bargaining units in the construction industry. The continued practice by some construction unions to up-charge some projects in order to subsidize the labour costs at other projects through cross-sectoral bid subsidy programs is also needlessly adding to costs.

Rather than attack pipeline projects, it's time to take a hard look at how construction costs can be lowered to ensure investors know that their major projects will be built on time and on budget. Improving competitiveness is the best way to ensure jobs stay in Canada.

Burying our heads in the sand. and arguing that labour laws have no impact on investment, will not get anymore upgraders and refineries built.

Journal of Commerce, Wed Nov 16 2011

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