Let's Get Moving In The Oil Sands: Infrastucture In Northern Alberta - Oil, Gas & Electricity

1. Overview

Billions of dollars in oil sands investment will result in hydrocarbon production in northern Alberta rising by an estimated 2.5 million bpd by 2020¹, and by as much as 6.0 million bpd in the Athabasca Oil Sands Area (AOSA) by 2045.² Approximately 8,000 over-sized modules - many being built in Edmonton - are scheduled for delivery to Fort McMurray and northward to the various oil sands projects over the next four years. Given the current regional transportation infrastructure deficit, there is conjecture that these modules will have to be transported bumper to bumper to achieve successful on-schedule delivery of all 8,000 over-sized modules by 2016! Oil Sands industry leaders believe delivery schedules will be substantially delayed because of this transportation infrastructure deficit. The oil sands services industry has expressed concern that such lack of infrastructure will ultimately hinder development of Alberta's oil sands.³

2. How government - at various levels - is planning for a robust future

In February 2009, Energy @ Gowlings published an article summarizing the Government of Alberta's 20-year plan for oil sands development, titled Responsible Actions - A Plan for Alberta's Oil Sands (the Strategic Plan). The Strategic Plan encourages the responsible development of the oil sands, in a manner that sustains industrial and provincial growth over the long term, and simultaneously enhances the quality of life of Albertans. The government highlights four priority actions in the Strategic Plan: environmental stewardship, strengthening communities, economic prosperity and building relations.⁴ Through regional planning, as well as other initiatives, Alberta intends to shift to what is anticipated to be a more effective and efficient management system that considers the cumulative effects of all activities and improves integration across economic, environmental and social pillars.⁵ Alberta's strategic plan for the oil sands, Responsible Actions, sets objectives for planning and developing healthy communities in Alberta's oil sands areas. It considers the regional impacts of growth from oil sands development, including: social and public infrastructure needs, the size of shadow populations, and the creation of affordable housing.

On a more specific basis, Comprehensive Regional Infrastructure Sustainability Plans (CRISPs) are the long-term and collaborative means of planning infrastructure in Alberta's three oil sands areas: the AOSA, the Cold Lake Oil Sands Area and the Peace River Oil Sands Area. Each CRISP will create a plan for infrastructure development based on possible future oil sands production rates and concomitant population growth, and will guide provincial and municipal governments in planning and working together.⁶ The preparation of each CRISP will assist the achievement of Alberta's vision for oil sands development outlined in Responsible Actions. It is a key implementation strategy promoting healthy communities and a quality of life that attracts and retains individuals, families and businesses.⁷

The CRISP for AOSA has been prepared, and the CRISP for the Cold Lake Oil Sands Area is in development. A CRISP for the Peace River Oil Sands Area will be completed over the next two years. CRISP for AOSA is a guideline for long-term infrastructure development in the region and supports Responsible Actions. It focuses on community development and identifies infrastructure needs relative to transportation, water and wastewater servicing, education and health care⁸. CRISP proposes extensive coordination among all stakeholders including municipal, provincial and federal levels of government and industry participants. Industry is required to align its project planning with CRISP; for example, roads and air facilities essential for industrial development would be planned and developed to integrate with the broader CRISP transportation network, while worker accommodations would be coordinated with other growth solutions identified in CRISP. The implementation and funding of CRISP proposals will rely heavily on coordination and integration with the more industrial-environmental regional planning coincidentally taking place under the regionally specific Land-use Frameworks (described below), as well as utilization of alternative financing mechanisms, partnerships and innovative project delivery.⁹

Regional plans developed under the Land-use Framework, such as the Lower Athabasca Regional Plan (LARP) and the Lower Peace Regional Plan, set a broad vision and objectives for environmental, social and economic development of the region. The focus of this regional planning is much broader in scope and is at a much less detailed level than the CRISPs, which are specific to infrastructure. There will, of necessity, have to be alignment between these various levels of planning, particularly in relation to multi-use corridors and areas set aside for future urban expansion. Planning assumptions regarding oil sand production levels for the AOSA and the Cold Lake Oil Sands Area CRISPs are now aligned with those in the LARP.¹⁰

3. Transportation

Probably the greatest infrastructure deficit in Northern Alberta is acknowledged to be in the transportation sector. The existing transportation infrastructure in the area consists of:¹¹

Ground transportation:

Road infrastructure is dominated by two major highway corridors: Highway 63 from Edmonton, through Fort McMurray to north of Fort MacKay; and Highway 881 north from Edmonton to Fort McMurray. There is no paved, all-season east-west transportation infrastructure in the AOSA, and no connections of this type to communities to the north or east of the AOSA.

Air transportation:

The primary public airport in the region is in Fort McMurray, with smaller public airports in Conklin, Lac La Biche and Wabasca. Numerous private airfields exist across the region at various oil sands project sites, privately owned and operated by the respective oil sands companies.

Rail transportation:

Freight rail service terminates just south of Fort McMurray. The movement of over-sized loads is constrained in many areas, particularly through the Fort McMurray community and in the area south of Conklin.

The AOSA CRISP proposes a phased transportation development plan intended to be flexible and responsive to changes in population and hydrocarbon production rates. CRISP AOSA anticipates that a staged approach would incorporate more immediate, shorter term, and longer term transportation improvements to be implemented over a 35 year horizon:

More immediate activity would include¹²:
- additional lane capacity on Highway 63 north of Fort McMurray and south of Mariana Lake;
- upgrades to Highway 881 south of Conklin to improve movement of over-sized loads;
- directing population growth away from traditional work camps and towards existing communities, a possible new community north of Fort McMurray and planned work camp communities in the Conklin and Wabasca areas;
- development of an eastern bypass route around Fort McMurray to access project sites east of the Athabasca River;
- implementation of bus based rapid transit north of Fort McMurray and between Lac La Biche and project sites near Conklin; and
- upgrades to the Lac La Biche and Fort McMurray airports to accommodate increased demand.
Short terms plans include¹³:
- extension of the eastern bypass route to ultimately become a highway to access projects east of the Athabasca river;
- completion of a Fort McMurray ring road;
- a road connecting Fort McMurray to Wabasca and extension of Highway 813 north from Wabasca;
- specific consideration of commuter rail systems to provide efficient access between communities and project sites, and to locations outside of the AOSA; and
- extensions and improvements in rail, bus and airport services.
Proposed longer term plans include:¹⁴
- extension of Highway 63 north to Fort Chipewyan;
- upgrades to the Wabasca airport as oil sands activity increases in that region; and
- development of a northwestern highway route to connect the new urban growth node and planned work camp community to project sites related to carbonate development in the northwest of the AOSA.

4. The Highway 63 Bottleneck

Improvements to Highway 63 are among the infrastructure projects generating the most attention from media, government and the oil sands industry. It is the main corridor from Edmonton to AOSA. It is the only all-weather road extending out of Fort McMurray, which ensures its criticality to the oil sands industry and in the Regional Municipality of Wood Buffalo. Most of the roadway is a two-lane undivided highway. Between 2001 and 2005, over 1,000 motor vehicle accidents occurred on Highway 63 in which 25 people were killed and 257 others were injured.¹⁵ As recent as Spring 2012, two major accidents occurred claiming an additional nine lives and involving eight vehicles. It has been reported that there has been at least 149 fatalities on the so-called Highway of Death since 1990.¹⁶

Industry is concerned that deficient ground transportation in the region will delay project investment and consequent development. Since 2006, only 16 km of twinning has been completed south and 17 km north of Fort McMurray. Construction resumed May 13, 2012 on the twinning of 36 km of Highway 63 north of Wandering River, which is anticipated to be completed and open to traffic by Fall 2013. Under current plans, approximately 50 per cent of the Highway 63 twinning will be completed by 2015. The cost of twinning the remaining 240-kilometers of Highway 63 is estimated at $1 billion. The federal government has committed to contribute up to $150 million toward the project under the Canada Strategic Infrastructure Fund.¹⁷

The development and widening of transportation corridors has been well understood for centuries. The greatest impediment is not technological, but rather financial – how should the project be funded?

5. Possible Funding Strategies

a) Government Funding

Government has traditionally funded most infrastructure projects. However, government does not necessarily have one or more of the time, expertise, or capital for Highway 63 twinning and extension.

b) Industry Funding

Private funding of infrastructure is currently more philanthropic than commercial and industry is hesitant to finance the twinning of Highway 63. Ken Chapman, executive director of the Oil Sands Developers Group (OSDG) has argued that industry already pays very substantial royalties and taxes to the provincial government and that road improvement is a provincial (government) responsibility. The OSDG suggested that "the sector is already doing its part in making the artery safer by trying to take as many people off the road by using the aerodromes for workers and using buses".¹⁸ A potential solution to encourage the timely completion of the Highway 63 twinning project may be that industry funds same with the opportunity to sell the widened highway back to the Province at a set percentage of profit at a future date certain.

c) Public Private Partnership (P3)

Collaboration between government and industry (both oil sands and road building and maintenance industries) and a mix of funding options may be a more feasible approach for the timely twinning of Highway 63. This is often cited as a preferred approach as government can borrow money at lower rates than other entities and private industry can develop the roadway on a cost-efficient basis.

Features of a P3 model could include:

the roadway design, build, finance, operate and maintain (DBOFOM) by private entity/consortium;
repayment of development and maintenance costs on a monthly ("tariff") basis over a long term (e.g. 40 years); and
a more balanced allocation of cost/risk.

Ownership of the infrastructure (in this case, the roadway) could fall within one of numerous ownership models including:

Design Build Transfer ("DBT") with License to Operate;
Build, Own, Operate, Transfer (at End of Term) ("BOOT"); or
Government Own with Government Permission (license) to Operate.

If government is reluctant to pay the full cost of the Highway 63 twinning, additional revenue could be generated through a mix of use-base (a toll model) and/or development fee (charging only those making extraordinary or heavy-duty use of the road) models.

By utilizing any of the aforementioned models, the completion of the Highway 63 twinning project, for the purpose of saving lives and promoting the further development of the AOSA, consistent with both LARP and CRISP, could well be accomplished on a more timely and cost efficient basis.

6. Conclusion

The Province of Alberta should be applauded for the consultation and analysis that have resulted in the very thoughtful development of LARP and AOSA CRISP. It will be in the implementation of these plans, with the involvement of the relevant levels of government, regulators and private industry, that infrastructure improvement and upgrade must take place, permitting the proverbial "rubber to hit the road".

Footnotes

1 Infrastructure Struggling to Keep Pace with Oilsands Development, Calgary Herald, May 29, 2012: http://www.calgaryherald.com/business/Infrastructure+struggling+keep+pace+with+oilsands+development/6693201/ story.html#ixzz1wqNqSnXZ.

2 Comprehensive Regional Infrastructure Sustainability Plan - Athabasca Oil Sands Area, Government of Alberta, May 2011: http://www.energy.gov.ab.ca/Initiatives/3240.asp (CRISP AOSA).

3 Calgary Herald, supra note 1.

4 Responsible Actions – A Plan For Alberta's Oil Sands, ENERGY @ GOWLINGS, 2009: http://www.gowlings.com/resources/enewsletters/energy/Htmfiles/V7N03_20090220.en.html#c.

5 Lower Athabasca Regional Plan, 2011 – 2021, Government of Alberta: https://www.landuse.alberta.ca/REGIONALPLANS/LOWERATHABASCAREGION/PLANNINGPROCESS/Pages/DraftLARP.aspx (LARP).

6 Land-use Framework, Government of Alberta: https://landuse.alberta.ca/Planning/LocalMunicipalPlanning/PlansOilSands/Pages/default.aspx.

7 Comprehensive Regional Infrastructure Sustainability Plan, Government of Alberta, Treasury Board and Enterprise: http://www.treasuryboarduat.gov.ab.ca/1211.cfm (CRISP).

8 CRISP AOSA, supra note 2 at 2.

9 Ibid at 4.

10 Ibid at 7.

11 Ibid at 46.

12 Ibid at 48-50.

13 Ibid at 50.

14 Ibid at 52-55.

15 Multi-vehicle crash on Highway 63 kills 2, CBC News Edmonton: http://www.cbc.ca/news/canada/edmonton/story/2008/03/28/boyle-crash.html.

16 Highway 63, Road Of Sorrow, Calgary Herald, May 25, 2012.

17 Highway 63, Government of Alberta, Transportation: http://www.transportation.alberta.ca/4942.htm.

18 Oil Industry Balks At Covering Twinning Costs For Killer Highway, Calgary Sun, December 2011.

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Canada: Let's Get Moving In The Oil Sands: Infrastucture In Northern Alberta