Royal Dutch Shell Plc  .com Rotating Header Image Fort McMurray strangling on oilsands development strain

Morning business file:
Published: Wednesday, January 10, 2007

FORT McMURRAY — Fort McMurray, in Canada’s western oil-sands belt, is so rich it’s known as Fort McMoney. Yet local officials are pleading for government handouts.

“Even if we doubled taxes for every ratepayer, we still wouldn’t be able to achieve all that we need,” says Melissa Blake, mayor of the sprawling Alberta municipality of Wood Buffalo, which includes the urban center of Fort McMurray.

Oil-sands investments of more than $50 billion have brought in swarms of workers. The result: Roads, schools, water supplies and other services in Fort McMurray can’t keep up. The city says its population will almost triple to 100,000 by 2012 from 1996, when oil-sands investments started taking off.

Enrollment at the St. Martha School has more than doubled since May. “Some of my classes are getting to the point where I’ll need to split them eventually,” said Principal Jeff Clow.

Blake, 37, is asking the provincial government to help cover an estimated $1.9 billion budget shortfall through 2009. The city needs money now because it doesn’t collect property taxes from the new oil-sands projects until they start producing oil in the next few years, she said.

Blake says Wood Buffalo, a regional municipality about the size of West Virginia, is “virtually tapped out” in its ability to borrow.

Alberta’s government has agreed to build more schools and add a bridge across the city’s main river. Last year, the government said it would spend at least $74 million for roads and education in Wood Buffalo.

It also pledged to double the number of lanes on Highway 63 at a cost of about $940 million. Most of the road, which connects Fort McMurray with the provincial capital of Edmonton 435 kilometers to the south, has a single lane in each direction.

“The money that the government is investing in Fort McMurray is an attempt to address some of their infrastructure needs,” said Kathryn Wiegers, spokeswoman for Alberta’s department of municipal affairs and housing. “The government knows that there are growth pressures.”

Shell Canada Ltd. and other oil companies are developing Canada’s oil sands, the world’s second-largest crude reserves. Most of the reserves are in Alberta, where companies are extracting heavy oil from tar-like sand and turning it into synthetic crude for refining into fuels.

Top pay is luring workers. Wood Buffalo’s median income for a two-parent family is $120,100, Canada’s highest and about twice the Canadian national median.

Shell Canada, the country’s No. 4 oil company, is budgeting as much as $12.8 billion on its project near Fort McMurray, a former trading-post town with a current population of 65,000.

Calgary-based Suncor Energy Inc., the second-biggest oil sands producer, said it may spend more than C$7 billion to boost output by 2012.

Blake says her budget is so strapped she wants provincial regulators to delay the oil-extraction projects until services are in place. So far, she hasn’t been successful.

Alberta’s Energy and Utility Board last month approved Shell’s application to expand its Muskeg River mine near Fort McMurray. The regulator also recommended “coordinated action” by all levels of government to ensure that Wood Buffalo can “service the anticipated level of sustained growth.”

The growth is squeezing the housing market. The number of people without homes rose 24 per cent to 441 from 2004, according to the Homelessness Initiatives Steering Committee. The per- capita count is almost twice that of Calgary and Edmonton, Alberta’s two biggest cities.

The housing shortfall more than doubled the average price of a detached home in Fort McMurray to $435,000 in March from 2001, according to the city.

The housing shortage hasn’t deterred new workers, including Tyler Gracie, who moved with his family in 2005 from Florence, Nova Scotia. “Five of us in a little car and a bag of clothing each,” said Gracie, 23, who works at a construction site for a unit of Calgary real-estate company F.M. Shah Building Design Ltd. “I love the fact that if I left this job today I could get another one tomorrow,” said Gracie, who earns $5,000 to $6,000 a month and shares a two-bedroom apartment with his parents and a brother, splitting the $1,500-a-month rent. “Back home is more like a welfare community,” he said.

Unlike Gracie, other workers have brought children. In Timberlea, Fort McMurray’s fastest-growing neighborhood, Clow had to accommodate 25 students in the library at the St. Martha School until portable classrooms were installed.

The city’s water supply is under strain, too. Blake has a $136 million loan from Alberta to expand a waste-water plant to serve 80,000 people, up from 50,000. The upgrade, to be completed in 2008, may not be enough by then, she said.

Crime is also rising. Offenses including homicides and assaults rose 23 percent in 2005 from 2004, according to the Royal Canadian Mounted Police.

Oil companies have pitched in, giving C$40 million since 1996 to help pay for health and recreational facilities, said Heather Kennedy, a Suncor vice president who is chairwoman of the Regional Issues Working Group, an oil industry association.

Fort McMurray is “playing catch up,” she said.

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