Steve Williams, Executive Vice President, Oil Sands, Suncor Energy addressed the Alberta Chamber of Resources’ (ACR) Semi-Annual General Meeting in Calgary, on June 15. , 2006

Although Suncor is proud of its individual contributions to the ACR, it is the work we do together that I find most rewarding. Most notable is the Oil Sands Technology Road Map, which has served the oil sands industry so well since its launch in January 2004. While that was only two years ago in calendar time, it seems almost an eternity ago from an economic perspective. So much has changed since the report was issued. Now, don’t get me wrong. The Oil Sands Technology Road Map is still very relevant, providing great guidance to our industry.

But given recent changes in our collective operating environment – like labour and material shortages capital and operating cost increases and mounting environmental imperatives – I think it’s time to dust off the Oil Sands Technology Road Map and apply some of its concepts to assist all resource developers in Alberta. What I’m proposing is a sequel to the Oil Sands Technology Road Map a sequel that complements the work we originally did a sequel that recognizes that the economic health of this province rests on more than bitumen (or even upgraded bitumen!)

But before I suggest an outline for that sequel, let’s take a quick look at one of the biggest influences on our economy today:  the dynamics of world energy supply and demand.

Demand for energy is expected to increase from 80 million barrels per day, to more than 120 million barrels per day over the next 25 years. In the North American arena, oil sands will be the only net add to the total regional crude oil production over the next 25 years.  

The sheer size of the oil sands resource – second only to Saudi Arabia – means it will play an increasingly important role in the global energy mix.

The current forecast looks like this:

• Oil sands production is expected to grow from about 1 million barrels per day, to about 2 million barrels per day in 2010 and to 5 million barrels in the next 25 years
• Oil sands developers are expected to invest about $45 billion in the oil sands during the next four years. This on top of the $34 billion in capital expenditures to date
• As a result of this growth, the number of people directly and indirectly employed by the oil sands industry is expected to total nearly a quarter of a million in just two years.

Those impressive numbers are helping to create what some analysts call the best economic conditions we’ve ever seen in Alberta. They will cite, for instance, that Alberta’s GDP is rising an average of 5% a year. They will tell you that Alberta exports are growing even faster – setting a record 20% growth last year. And they will point out that manufacturing, construction and service sectors are booming.

All sounds great, doesn’t it?

Those statistics were drawn from the Canada West Foundation, in a report titled: ‘As Good As it Gets’. And while I share their enthusiasm for the current state of the economy in Alberta – and the benefits it brings to Canada as a whole – I think you’ll agree that today’s environment could, in fact, get a whole lot better.

Why? Because even the upside has a downside. 

In our case, the downside is illustrated in unprecedented labour and material shortages; a rising Canadian dollar that makes our resources a little less competitive; rising interest rates and general economic inflation.

Some people have argued we should relieve these pressure points by slowing down the industry that kick-started the economic boom: namely, the oil sands.  Now, I know I may have a vested interest, but putting oil sands investment on the back burner is not the right answer. Given that oil sands is the only add to our regional energy mix, any retraction in our industry would only widen the supply/demand imbalance that underpins our economy.

Instead, I believe it’s important that the oil sands industry continues to lead by example, by implementing solutions that strengthen the industry and the benefits it generates. Getting it right must be our highest priority.

And so, as I promised earlier, let’s look at some of those solutions, solutions that I’ve framed as a sequel to the ACR’s Technology Road Map. This sequel may not become a bestseller, but I’m hoping my suggestions today will help resource development in Alberta.

CHAPTER ONE: PUTTING TECHNOLOGY TO WORK

Like all sequels, this one has it roots in the original. The ACR had it right when it concluded that technology would unlock the full potential of the oil sands, a concept that was not new to Suncor.

As an oil sands industry pioneer, Suncor knew one of its greatest challenges – and opportunities – would be technology. By investing in new technologies, we generated higher and more reliable rates of production. We drove down operating costs. We drove up our safety performance. And we significantly enhanced our environmental record.

Today, Suncor’s capital spending on development of the oil sands resource, including investments in new technologies, is about $3 billion per year. That’s a fraction of the amount the entire industry is investing to apply new technologies aimed at driving down production costs and boosting competitiveness.

And while I’m well aware that different industries require different levels of capital intensity, one thing is certain as we move forward in a high-cost environment: continued investment in technology will make all of our industries more competitive.

Throughout Alberta, we’re witnessing a number of technological advances that are making industry more efficient and environmentally responsible. For example, Footner Forest Products has constructed a world-class facility that uses state-of-the art technologies to drive costs down and EPCOR Power is leading the charge by adopting the latest in clean-coal technologies. 

These are just two examples of companies that are proving that innovation and imagination must replace exploration and development as the watchwords for this new era of resource development. In the road-map sequel, I believe the ACR can build on these efforts and engage the resource sector in identifying how new technologies can provide better ways to bring Alberta’s products to market.

CHAPTER TWO: HUMAN CAPITAL

The next chapter in our road map for resource development in Alberta is simply this: assembling the skills to put innovation and imagination to work. Today, our respective industries are facing a skilled trade shortage of unprecedented magnitude.

In Alberta, here’s what we’re facing:

• 65,000 new jobs created in 2005
• The lowest unemployment rate in the country at 3.4%, which, in turn, is driving hourly wages up
• The need for more than 25,000 skilled workers to take dozens of planned new oil sands projects from concept to reality during the next few years.

As the ACR has noted, the labour shortage may indeed have serious impacts on the viability of new growth projects and the operational stability of our industries. This is putting the economic health of our province, and our nation, in jeopardy. Clearly, the Road Map sequel must quickly address this challenge. And I’d like to propose some high-level solutions for the report’s first draft.

First, we need to develop and diversify our workforce by working with governments and investing in innovative approaches to education and training approaches that will provide greater access to more students, and ultimately, draw more people to our industries. In particular, we must step up our efforts to engage aboriginal communities as partners in economic growth, ensuring that aboriginal youth participate more fully in resource development.

But our industries can’t wait years for the workforce to catch up to our labour needs – we need to find immediate inter-provincial, cross-border and even off-shore solutions. In the near term, we need a coordinated strategy for domestic migration – to ensure more Canadians participate in the employment opportunities in Alberta. And we must accept both permanent immigrants and temporary workers who have the skills and talents we need.

We can’t stop there. We need to collaborate on a common approach to labour and employment challenges, working to minimize workforce scheduling conflicts and duplication of efforts – in short, not just working harder, but smarter.

In that light, investments in technology will again be part of the solution, making resource production less labour-intensive – in other words, producing more with less.

But that’s just one aspect of the human capital impact of resource development.

We all know only too well that the current rate of growth in our province has exacted a heavy toll on community infrastructure. As we move forward, we must be more mindful not only of the fiscal and technological imperatives but the social imperatives as well.

While industry and government may have perhaps failed to adequately anticipate the human and social impacts of aggressive economic growth, we have the opportunity now to be equally aggressive in seeking solutions to these challenges. We must work together to ensure new investment in social and physical infrastructure investments that will improve the quality of life offered by our towns and cities and, ultimately, investments that will make these communities healthier for workers and their families. This will have the added benefit of attracting more workers.

Here, too, I believe the ACR can play a leading role, by ensuring that management of human capital is part of the path forward.

CHAPTER THREE: MANAGING COSTS OF MATERIALS AND GROWTH

Labour, of course, is only one of the inflationary pressures we’re facing. Supplies and material costs are also on the rise. For example, the price of structural steel has increased more than 50% over the past four years. And seemingly simple products, like tyres, gravel and lumber, are all becoming increasingly scarce. (And don’t get me started on cement even if you can find it, the prices are astronomical!)

This “hyper-inflation” is driving Alberta’s capital construction costs continually higher. When Suncor completed its Millennium expansion in 2001, capital costs were about $33,000 per daily flowing barrel of oil. Today, according to Scotia Capital, it’s more like $50,000.

At Suncor, we believe one solution is to engage contractors, suppliers and vendors more effectively in the planning and execution of projects and maintenance activities. We expect this approach to generate cost efficiencies as learning curves are reduced and new ideas are carried from project to project. In return, of course, these suppliers become partners in growth, ensuring their own long-term stability.

As well, we also need to look at our supply chain differently. One solution is to address regional supply bottlenecks by moving more work off-site. For example, through a modularization program, Suncor expects to move 30% to 40% of the construction requirements for our third upgrader to shops and suppliers throughout Alberta and across Canada. And we must also be open to the concept of off-shore solutions for materials and services, including engineering.

Some of these solutions aren’t popular, but I do believe they have broad benefits. Labour and supply mobility go a long way to raising the standard of living for under-employed citizens in Canada and around the world, while also encouraging knowledge transfer and information sharing. 

In the Road Map sequel, we need to put labour and materials solutions at the forefront, recognizing our competitiveness depends on better planning and coordination within industry, within nations and within the global marketplace.

CHAPTER FOUR: MANAGING THE ENVIRONMENT

While we are always intensely focused on the hard, financial costs of investing and operating, we need to also focus on the environmental costs of resource development.

The oil sands industry has made major strides in managing its environmental impacts. But we continue to be challenged by the scale of growth.

For example, Suncor has reduced greenhouse gas intensity by about 25% per barrel since 1990. However, over the same period, our production has increased more than four-fold, resulting in an increase in total emissions. We’re tackling greenhouse gas emissions with a climate change action plan that features technologies that utilize co-generation and energy efficiency – as well as investments in wind power and biofuels. But climate change is not our only environmental issue. We also face significant challenges in the way we deal with land and water. Again, technology has a major role to play. 

Suncor, like many other companies, is now seeing the results of SAGD technology, by which we reduce surface disturbance by 90% and recycle about 90% of the water that’s required to produce steam.

I know other industries are working to minimize their environmental footprint and I congratulate the ACR for contributing so thoughtfully to such made-in-Alberta solutions as Water for Life, the Forest Care project, and Clean Air strategies.

As industry partners, we will need to step up our efforts to ensure the environment we enjoy today is not depleted as we continue to develop resources for tomorrow.

Thanks in part to the cross-sector collaboration fostered by the ACR, we’re starting to see innovation that reaches across the silos of individual industries. Today, many of us are sharing data, infrastructure and expertise to reduce our collective footprint on the environment in which we work.

We must also continue to work together to address how our industries affect the physical and social infrastructure of the communities in which we operate. We must reduce our footprint not only on the environment, but on the towns and cities that are populated by our employees, contractors, customers and suppliers.

I believe our Road-Map sequel will not be complete unless it guides us toward the highest standards of environmental and social responsibility.

FINAL CHAPTER

To conclude, my comments today were intended to provide some context about the environment in which we’re operating. And to share some of the lessons we’ve learned in addressing the challenges of supplying a valuable, but complex oil sands resource. 

The fact is that success in the oil sands wasn’t and isn’t a given. But through innovation, imagination and collaboration we have continually turned challenges into solutions.

The Oil Sands Technology Road Map says our industry could one day establish new patterns of corporate and government cooperation. It asserts that the Wood Buffalo region can become a world-class model of sustainable development. We are not there yet, but I believe in the vision. Because anything less for our industry and our province is just not good enough.

There is no reason to limit this kind of thinking to just one resource. I believe it’s time to collaborate with like-minded industries and develop the oil sands sequel: a Resource Development Road Map to guide Alberta through the many complex challenges we’re facing as we strive to meet the oncoming demand from world markets.

This sequel won’t make Oprah’s book club. But by applying our knowledge, experience and energy to these challenges – and renewing our commitment to collaboration with industry partners and governments – we will no doubt, receive favourable reviews. Why? Because Alberta’s resource companies will once again prove they are models of innovation and inspiration.

I look forward to ongoing collaboration with the ACR and I thank you for your support and leadership. And, of course, thank you for the opportunity to be with you today.