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Financial Post (Canada): Athabasca takes the offshore route: Oilsands players look abroad for added expertise

Athabasca takes the offshore route: Oilsands players look abroad for added expertise
Financial Post – Canada; May 02, 2006

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In his groundbreaking 2005 book, The World Is Flat, Thomas L. Friedman, the New York Times columnist, talks about how technological advancements such as the World Wide Web flattened the world by eliminating global geopolitical barriers, encouraging trends including the offshoring of knowledge work to China and India and other lower-cost, skills-rich and eager places.

Mr. Friedman focuses, in particular, on how the offshoring trend is altering technology companies.

But developers of the Athabasca oilsands are also discovering the benefits of the flat world.

Stung by cost overruns thanks in part to a shortage of skills in Alberta, not only are they quietly luring platoons of foreign workers and pushing out the manufacture of key components to shops all over the world, but they are also outshoring the knowledge work — engineering — to places India, Italy, Holland and the United States because they can't find enough engineers in Alberta to do it all.

The result is that many parts of the giant structures being erected in the wilds of northern Alberta are now designed in far-away places such as Mumbai.

It may not be what the Alberta government had in mind when it orchestrated the sweetest fiscal conditions on the continent, billed the Alberta Advantage, to attract investment.

It's also an interesting twist on globalization –a developed economy (Alberta's) recruiting knowledge workers in the developing world to better exploit its resources.

“If you can't get enough engineers locally, then you look elsewhere to get the job done,” said Neil Camarta, who recently joined Petro-Canada to run its Fort Hills oilsands venture after leading Shell Canada Ltd.'s move into the oilsands with the construction of the Athabasca Oil Sands Project.

At Shell, Mr. Camarta had the piping for the upgrader designed in India, and plans to outshore some engineering work for Fort Hills, too.

The quality of the work was great — though it had to be managed carefully, he said.

Jim Arnold, chief operating officer of OPTI Canada Inc., which is building the Long Lake oilsands project with Nexen Inc., said parts of its upgrader were designed by 300 engineers in New Delhi employed by Fluor Corp., the U.S.-based engineering giant, under the supervision of Calgarians.

The outshoring of engineering work allowed OPTI to keep all the engineering within one engineering contractor, allowing for consistency in software and design standards, rather than breaking it up among multiple companies, Mr. Arnold said. It also allowed it to ensure the job received the attention it required, he said.

Outshoring doesn't offer a cost advantage, but it does allow “the projects to progress and ensures that they can be given the appropriate amount of design, management and so on,” Mr. Arnold said. “I think, otherwise, the engineering market [in Alberta] would be very hard-pressed to do a good job on these projects. It would be too stretched.”

Alternatives such as educating more engineers or boosting immigration can help, but not fast enough, he said.

Besides, they may not be the right solution.

“Large project work tends to come in spurts and nobody likes to see the situation where a whole bunch of people are brought into something and then two years later, half of them are out of work, either.”

Still, the trend has caught the attention of the Association of Professional Engineers, Geologists and Geophysicists of Alberta, which licenses the province's 30,000 practising engineers.

Neil Windsor, executive director and registrar of the Edmonton-based group, said APEGGA was initially concerned about the loss of business to the province.

When it was assured by oilsands developers that they have to look outside Alberta because they can't keep up, the worry switched to ensuring the work meets Alberta standards.

“If you don't have good level of engineering competency, then that is when you get into difficulty; changes are required, costs go up,” Mr. Windsor said. “If we find areas where that is not the case, our discipline process would kick in. We have not found that to date, and the companies are ultimately responsible to ensure that they have competent engineering. It's in their best interest.”

SNC-Lavalin Group Inc., Canada's largest engineering firm, is one of the major oilsands players distributing work across its global network, including its offices in Mumbai, where several hundred engineers have the ability handle the entire spectrum of work required for Alberta projects.

And they are really good at it, too, said Harry Sambells, SNC-Lavalin's Calgary-based vice-president of business development.

“There is a shortage of engineers and other technical talent and we are sourcing worldwide,” he said.

“Being part of a global family, we have standard approaches for project control and monitoring.”

With $100-billion in projects underway to develop the deposits — the biggest construction effort on earth — on top of everything else that is going on in Western Canada, outshoring of knowledge work is expected to grow.

Already, there are skills shortages in many areas of Alberta's economy and the peak in oilsands development isn't even expected until later in the decade.

The higher the peaks, the flatter the oilsands. Some may not like it, but it's a reflection of what it's now taking to keep Alberta booming.

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