Imports dampen Canadian oil sands opportunities: report
Conference Board of Canada report points to burgeoning imports of manufactured goods that could be sourced locally.
Oil & Gas
Canadian Manufacturers and Exporters (CME)
National Buyer Seller Forum
CALGARY—The oil sands support more than 400,000 jobs in Canada and 1.5 percent of the country’s economy, but the sector is still falling short for domestic manufacturers, according to a report by the Conference Board of Canada.
Every year, about $5 billion worth of goods come into the oil sands from overseas, and that number will burgeon to $140 billion over the next 20 years, said Michael Burt, director of industrial trends with the Conference Board, who presented the report at the National Supply Chain Forum in Calgary earlier this week.
“It’s primarily manufactured goods that we’re importing. Things like heating and ventilation equipment that’s produced locally and could be sourced from companies here in Canada,” Burt said.
Steel products are coming in from offshore, along with transportation equipment, electronics and other field components.
“It’s true that the vehicles used in the oil sands are sometimes site specific or product specific and we may not make the parts right now in Ontario to supply those vehicles, but how easy would it be to retool to adapt our production processes?”
A big part of the problem is weak linkages between Alberta and provinces further east, he said.
“There’s actually twice as many metal valve companies in Ontario than there are in Alberta and almost none of them are currently linked to the supply chain in Alberta, so how do we change that?”
Energy companies are pondering the same question, citing a shortage of skilled labour and tight manufacturing capacity in Alberta as major impediments to growth.
“It’s our preference to deal with Canadian-based suppliers whenever we can,” said Gary Hart, senior vice-president of supply chain and field logistics with Suncor Energy. “Our business is a commodity business though and there’s a lot of pressure on costs.”
Suncor spends about $12 billion per year, with approximately 90 percent falling to Canadian companies; the majority in Alberta, five percent in the US and two to three percent overseas. But the domestic market, at least in Alberta, is challenged, he said.
“We’ve seen significant price escalation and we’ve seen some quality issues…and when I think of what’s at the root of it…number one is labour constraints,” he said. “Our growth has taken us far past what the [Alberta] populace can handle.”
Yet manufacturers at the conference pointed to project management shortfalls on the part of energy companies and their subcontractors.
“What [manufacturers] are trying to do is provide the products and services and technologies that are in demand in an environment, frankly, where specifications are changing on a fairly constant basis and in a way where some of the solutions they bring to the table are not taken into account,” said Jayson Myers, president and CEO of Ottawa-based Canadian Manufacturers & Exporters (CME), adding he’s left “scratching his head” at the inefficiencies.
“Why is it that we constantly face time delays? Why is it that we’re struggling to make an ROI that is competitive and why is it that we’re losing international investment in some of the major projects that this economy in Alberta and across the country depend on?”
Myers called for better working relationships between energy project owners and manufacturers, beyond the current approach focused on getting the cheapest price.
“What woke me up was a discussion with one of the major oil companies that showed me their list of preferred suppliers and preferred supply chains. Did you know that for this global energy company, the Alberta supply chain is less efficient and less effective than how they rate their Nigerian supply chains? That’s the situation we face.”
There’s no doubt problems exist, but offshoring isn’t the solution, added Paul Zubick, senior vice-president and chief operating office with Supreme Group, an Edmonton-based steel fabrication and construction company serving the energy sector.
“Every time we outsource products or services we dilute the need for local workforce development in the form of bringing new people into the trades.”
Plus, products from overseas can have dubious quality, he added. Fabricated metal products from domestic suppliers have an average rework rate in the field of one percent. Offshore products are ranging from eight to 22 percent—throwing work schedules and budgets into turmoil.
Domestic fabricators provide pre-assembled products that don’t have to fit into a shipping container, to save time and labour in the field, said Zubick, who joined in the call by fabricators and steel associations at the conference for a total cost approach to oil sands procurement.
At the end of the day, innovation will prevail, concluded Burt. The Conference Board report identified common pain points for energy companies: enhancing the extraction process; environmental remediation; and reducing project development and operational costs.
Suppliers with solutions to those burning challenges will have a stronger chance of winning contracts, he said, and building the domestic energy supply chain.