A tale of two Alberta towns: One in the throes of a boom, the other mired in the energy downturn
Geriatric orphan wells, boomtowns going bust and the fate of coal-mining towns in the age of renewables. In a four-part series, FP visits Alberta’s forgotten small communities to see how they are struggling with changes in the broader economy.
GRANDE PRAIRIE, Alta. — Looking down at the outskirts of Grande Prairie from 25,000 feet above sea level is akin to staring up at the stars on a clear dark night: bright white lights as far as the eye can see, peppered amidst the black swaths of nothingness that make up the foothills of the Canadian Rockies.
In some sense, it’s a visual indicator of the economic activity in northwestern Alberta, where scores of drilling rigs, active gas wells and processing plants chip away at the Montney formation, which is so rich in hydrocarbons that it could fuel the entire country and beyond for the next 200 years.
A much different terrain and, lately, pace of life is found 600 miles southeast in Medicine Hat. Once flush with gas wells and a reputation as the Pittsburgh of the West, it now lies quiet in the rolling hillocks of the Prairies, having recently shut most of its gas operations due to plummeting prices.
Although similar in size and vulnerable to the same economic pressures of being dependent on oil and gas, the two towns are at opposite ends of the boom-bust cycle that has been a defining feature of Alberta’s economy for most of the past 100 years.
But climate change and federal policies intent on reducing its effects, coupled with the inevitability of slowing demand for fossil fuels over the next few decades are forcing smaller towns in the province to grapple with fundamental questions about their future survival.
Grande Prairie might be thriving now, but it has to look no further than its southern counterpart — in the throes of manoeuvring this downward shift — to grasp the urgency of diversification, and the devastating consequences of hesitating to do so.
For now, however, as tankers and trucks continue to congest Grande Prairie’s narrow highway, it’s hard to imagine the town’s upswing, similar to the one Medicine Hat experienced for decades, ever coming to an end.
‘The last bubble in this province’
It is considered a grave faux pas with residents of Grande Prairie — 69,000 of them living four hours northwest of Edmonton — to call their town rural.
“We’re a northern hub. You can get to straight to Alaska from here, and if you’re in any of the parking lots of our big-box shops, you’ll notice it’s full of cars from the Yukon and B.C. We serve a region of about 300,000 people,” said Cindy Park, a longtime resident and director of community engagement at Seven Generations Energy Ltd., which is the area’s most prominent employer.
Despite the snowy, sometimes unlit roads, Park deftly navigates her town in a sturdy SUV, proudly pointing out a sprawling new regional hospital that is set to open next year, generating hundreds of medical and administrative jobs in the process. Grande Prairie Regional College, which has a student population of almost 10,000, is just blocks away — yet another symbol of its place as a centre of sorts for Canada’s north.
“I used to not be able to wait to go out of town so I could go shopping. Now you don’t need to because anything you want is right here. We’ve attracted some big-name retailers,” Park said.
Indeed, Grande Prairie is home to the largest single-storey Canadian Tire franchise and the biggest Ford dealership in the country, much to the pride of its residents.
“There’s lots to do in Grande Prairie. You name it, whatever you want to do, you’ll find it and you’ll be welcomed with open arms by our community,” she said.
Grande Prairie’s economy is driven by three main industries: agriculture, forestry and, most crucially, oil and gas. The region is strategically located on two of the largest oil and gas plays in North America, the Montney and Duvernay basins.
As of September 2019, the town and its surrounding region was home to 25 per cent of Alberta’s active rigs, with more than 10 producers including Seven Generations, Arc Resources Ltd., Tourmaline Oil Corp. and Paramount Resources Ltd. operating in the area.
It has been an oil and gas town for more than 50 years, but the real boom occurred in the early 2000s when hydraulic fracturing technology started taking off in a big way, enabling producers to extract natural gas from hard rock, even three kilometres deep and a further three kilometres wide.
But the southern part of the Montney is also liquids-rich, meaning that in addition to extracting natural gas, producers — depending on where they are drilling — can extract natural gas condensate, a low density mixture of hydrocarbon liquids used primarily to dilute heavier oils, the kind that makes up the oilsands.
The Montney’s product diversity, combined with major innovations in fracking technology, put Grande Prairie on the map and, to some extent, insulated it from the broader energy-driven downturn the rest of the province is facing, said Jordan Johnson, vice-president of Operations and Engineering at Seven Generations, the biggest operator in the Montney.
“That is really what has helped us remain competitive,” said Johnson, who was born and bred in Grande Prairie. “As commodity prices have fallen, we’re just getting better at what we do. For example, we used to take 60 to 65 days to drill a well, now we are down to 30 days. We have bigger pipes, better bits, faster drills and our liquids-rich play.”
That’s not to say Grande Prairie was completely spared from the recession. Natural gas prices on the Alberta market (AECO) dramatically fell between 2014 and 2018 while the number of active gas wells in the region declined by almost 50 per cent, with a slew of companies such as Baytex Energy Corp. and Shell Canada Ltd. shutting their Montney operations almost completely.
Although Statistics Canada doesn’t track unemployment rates for Grande Prairie specifically, the area that encompasses it and Peace River had an unemployment rate of more than 10 per cent at the peak of the fossil fuel slump in 2016. That figure has improved to 5.7 per cent today, markedly lower than the provincial average of 7.2 per cent.
Grande Prairie Mayor Bill Given said 2015 and 2016 were some of Grande Prairie’s worst years, but by 2017 and 2018, retailers and car dealers were telling him that they were having some of their best years ever.
There’s lots to do in Grande Prairie. You name it, whatever you want to do, you’ll find it and you’ll be welcomed with open arms by our community
Cindy Park, director of community engagement, Seven Generations Energy
“I always use the analogy that GP is kind of like a raft on water during a recession. The forestry sector was still doing well (in that time period). The agricultural sector was doing well. GP continued to serve as a trading area for about a quarter-million people offering retail services and professional services like our hospital, our college,” he said. “All those factors acted as moderating influences on our community that not every other community might have had.”
To his point, Grande Prairie really comes alive at dusk. Trucks stream to and from the gas fields and lumber mills on the region’s lone one-lane highway. Most of the residents work shift hours, so there’s rarely a time when the roads or restaurants and bars are empty. On a Tuesday evening, the town’s most popular chain, Earl’s, is filled with people, and a hostess starts a wait list.
“It’s the youngest town in the province, did you know that?” she remarks, pointing out that Grande Prairie’s average age is just 31 years old.
Although the nature of the town’s diversified economy perhaps mitigates it from extreme economic swings, it is undeniable that it remains deeply dependent on the continued success of the Montney.
“This is the last bubble in our province. This is the last area where it is busy,” said Gordy Klassen, a professional trapper and local industrialist who has worked in both the fur industry and oil and gas for more than four decades.
Klassen, 61, wears a signature black rancher hat, and speaks slowly, taking swigs of coffee in between a running commentary on the state of the province’s economy.
“Investors are not just scared of Alberta, it’s more like they are simply terrified to put any money out here,” he said. “One of the things we always knew was that our government was very pro-industry. And we were always confident that outside of Pierre Trudeau senior, the rest of Canada was supporting us. Now I don’t think so.”
Klassen has lived in Grande Prairie all his life and witnessed multiple booms and busts. He continues to have faith that “everyone will come to their senses and realize that natural gas is a resource that everybody needs,” but, at the same time, is keenly aware of the political and social forces that might eventually relegate Grande Prairie to a post-gas town, devoid of its biggest economic driver.
“If we can’t get our gas out, and if prices go down more, that’s definitely going to have a major impact here, no doubt,” he said.
The simple answer for Grande Prairie, and all the other places, big and small, is to diversify their economic base. Klassen scoffs.
If we can’t get our gas out, and if prices go down more, that’s definitely going to have a major impact here, no doubt
“You sucked in young men and young women from all over Canada and filled up this province to work in oil and gas, because that’s where the employment was, how do you diversify out of that?” he asked rhetorically. “And if you’re moving in with your little startup firm … what are you going to do? Compete with oil wages?”
Mayor Given is a little less defensive. He points out that a large methanol firm, Nauticol Energy Ltd., plans to set up shop in the next few years, potentially creating hundreds of new jobs. But Nauticol’s chairman Leo de Bever said the company is still struggling to raise the kind of money needed to break ground on its Grande Prairie site, leaving the future of the project up in the air, at least in the near term.
“Look, the thing is, maybe in the short term, we lose our population when these booms die off,” Given said. “But we still have a long time horizon left in natural gas, although, of course, we appreciate that it’s not infinite.”
‘Everything we had was paid for by natural gas’
That oil and gas production is deeply susceptible to the whims of global energy price fluctuations is something Medicine Hat Mayor Ted Clugston knows all too well.
“When I was first elected six years ago, we had 4,000 gas wells and we had oil production as well,” he said. “Everything we have was paid for by our natural gas.”
Those days are long gone and picturesque Medicine Hat — population 63,000 — has only 400 gas wells left in operation, a massive blow to its overall revenue and employment.
Medicine Hat, the only town in the province that has owned and operated all its natural gas wells for almost a century, can be seen as a microcosm of the larger Alberta economy: it thrived on a single, largely consistent source of revenue for decades, until the prolonged depression in oil and gas prices started five years ago, leaving it unable to afford to operate most of its wells.
Between 2011 and 2016, Medicine Hat’s unemployment rate soared 37 per cent, from 7.3 per cent to 10 per cent, one of the highest in the province. And although the job losses in 2015 and 2016 were almost completely reversed in 2017, the subsequent year was not a pretty one. Employment dropped below 2015 levels, declining a whopping 10.8 per cent from 2017. That trend appears to have continued through 2019.
“It’s almost like we got punched in the gut twice,” said Ross Buchholz, vice-president of product quality and development at Cancarb Ltd., the world’s largest manufacturer of carbon black. “Our city revenues dried up, and a lot of friends and people I know who live here, and fly in and out of the North (to work in the oilpatch) lost their jobs.”
Buccholz, a lifelong Medicine Hat resident, said most of the people he knows who are currently looking for work, either in town or the rest of the province, are not having much success simply because their jobs don’t exist anymore.
“Their salaries were very high,” he said. “That’s not going to come back.”
The effects are noticeable on a late Wednesday afternoon in December. Downtown Medicine Hat is almost empty. Shops have either closed early for lack of business, or are boarded up completely. Gas-powered street lights that used to flare almost all hours of the day are turned off for the most part, a poignant marker of the economic gloom that continues to plague this southern Alberta town.
Three major companies — Cancarb, Goodyear Canada Inc. and Canadian Fertilizer Industries, which moved to Medicine Hat at least 30 years ago in order to take advantage of the natural gas reserves — now employ most of the town’s residents. But they collectively employ just hundreds of people, not nearly enough to sustain what is now an aging population.
“If I would have ever lobbied or floated the idea of getting out of the gas business, I would be hung in the streets as the mayor of Medicine Hat,” Clugston said about the town’s efforts to move away from depending on natural gas. “Nobody ever, in the history of the city, ever wants to be the mayor who exited from the gas business.”
Yet Clugston has had to pull the plug, shutting down 2,000 of Medicine Hat’s gas wells in September. Town policymakers have now pivoted to agriculture, specifically greenhouses, in an effort to shore up employment. The strategy has had mixed results.
Big Marble Farms Inc., a vegetable grower, recently announced a 10-acre expansion to its greenhouse and the construction of a power plant on its site. Construction on both is scheduled to begin in August 2020.
One of Canada’s largest cryptocurrency miners, Hut 8 Mining Corp., is also expanding its facilities in Medicine Hat, which will benefit the town’s coffers more than employment numbers, since cryptocurrency mining requires so much electricity.
But the town was really banking on the opening of one of the largest cannabis greenhouses in Canada, operated by Aurora Cannabis Inc., which had promised to create at least 600 jobs. Due to declining revenues and stagnating sales, Aurora in November announced it was temporarily halting construction of the greenhouse.
Clugston believes the halt is just temporary and the Aurora facility will eventually open, though he admits his confidence in the cannabis company is shaken.
“You know, there’s a saying in Alberta: just one more oil boom, I promise not to waste it,” he said, a hint of resignation in his tone.
“Everybody in Alberta knows diversification. We all know we should be doing it; it’s just hard when things are going so well and you’re making money. But we’ve been hanging out with our fingers crossed for five years now, and we’ve finally accepted that it is not coming back.”
Back in Grande Prairie, Given hopes for some semblance of middle ground in the face of a shifting global economy.
“It’s better for our town to rely on industries where growth occurs at a manageable rate rather than some of the peaks or troughs we have seen, both of which have been really challenging for our communities.”