Major energy firms in Western Canada are bracing for another cycle of rising costs, as planned oil sands expansions and natural gas export terminals revive fears of skill shortages and competition for materials.
A flurry of project announcements in recent weeks from companies such as Suncor Energy Inc. and Royal Dutch Shell PLC means that "conditions are ripe" for salaries and contractor day rates to shoot up over the next two or three years, said Jim Fearon, vice-president in the Calgary office of global staffing and recruiting firm Hays.
Costs for major projects are already on the move. Northwest Upgrading Inc. last week said the price tag for its proposed Sturgeon refinery north of Edmonton jumped nearly 50% to $8.5 billion. It blamed "cost inflation and an inability to fully capture cost savings initiatives" for the increase.
Oil sands companies are expecting labour cost inflation of between 2% and 3.5% next year, according to a survey conducted by Dundee Capital Markets.
Suncor and rivals such as U.S. oil major Chevron Corp. are counting on foreign workers and offshore construction to mitigate some of the pressure.
Suncor, Canada’s largest energy company, plans to cap its workforce at 5,000, stagger construction and build some components offshore for its $13.5-billion Fort Hills bitumen mine, for example.
Chevron has said it would use temporary foreign workers to help construct its Kitimat LNG export plant with Apache Corp. on Canada’s West Coast. The project could require 4,000 skilled tradespeople if it goes ahead, according to Chevron estimates.
Rival Shell says its steam-driven Carmon Creek oil sands project in northwest Alberta will employ another 1,000 contractors.
The company recently got a nod from Ottawa to proceed with a 100,000-barrel expansion at its Jack Pine mine in northern Alberta. No decision has been made to proceed with the expansion, but a spokesman said the project could leverage the existing mine footprint to keep costs down.
The average annual salary for permanent staff in Canada’s oil and gas industry stood at $112,800 in 2010, according to Hays. By 2012, it was $128,700.
Canadian capital spending is poised to accelerate 3% next year to $43 billion from $41.7 billion this year, according to Barclays Capital. That could exacerbate equipment and labour shortages, said one expert.
