Energy companies trying to raise almost $50 billion for Canada’s first network of natural gas export terminals will face an even more basic challenge: finding the workers to build them.
Housing complexes boasting an indoor golf driving range, a two-story gymnasium and a private movie theater are among perks companies are mulling to lure tradesmen to Canada’s remote, snow-swept West Coast and mitigate wage inflation that could blow up project budgets. Labor shortages in the country already have pushed wages for some oil and gas workers as much as 60 percent higher than their counterparts in the U.S., according to U.S. and Canadian labor data.
“The lack of skilled workers is a major component for the reason why you’re often behind schedule and over budget,” said Geoff Hill, partner and oil and gas leader at financial advisers Deloitte Canada in Calgary. A dearth of labor for oil sands and mining will be “exacerbated” by a new wave of construction to enable gas exports, he said.
Chevron Corp. (CVX) will need as many as 5,500 workers to build a pipeline across Canada’s western mountains and a plant on the country’s frosty Pacific Coast for shipping gas to Asia, according to company estimates.
It may be vying for workers with as many as nine other proposed liquefied natural gas, or LNG, export terminals on the West Coast that have received or applied for permits. Chevron, Royal Dutch Shell Plc (RDSA) and Petroliam Nasional Bhd. are among energy companies planning to profit from rising gas demand in Asia, where Japan imported 6 trillion yen ($58 billion) of LNG last year.
LNG project leaders such as Chevron are working to secure additional financial partners and negotiate long-term contracts with suppliers before they make their final investment decisions to proceed. If five of those Canadian projects are built by 2021, they’ll require 21,600 workers at the peak of construction, according to estimates from Grant Thornton LLP, an audit, tax and advisory firm.
Producers are expected to spend C$47.8 billion ($44.8 billion) building five LNG export terminals in Canada by 2021, according to a forecast from National Bank Financial.
Investors want to prevent the spiraling labor costs that have contributed to a budget overrun of more than 20 percent at Chevron’s Gorgon LNG project in Australia. Canada’s fast-growing development in oil sands, shale fields and mining has put a premium on skilled workers in the nation.
Oil and gas drill operators, for example, can earn C$44.80 an hour in Canada, compared with $29.50 for the same job in Texas, according to figures from Nabors Industries Ltd., which operates the world’s largest land-based drilling rig fleet.
As many as 47,900 oil and gas jobs will need filling in Canada over the next decade, according to the Petroleum Human Resources Council of Canada.
Wages for pipefitters to drill hands are poised to rise if even two LNG terminals get built in Canada, as British Columbia fights with Alberta for workers, said Edward Kallio, director of gas consulting at Calgary-based Ziff Energy, a division of HSB Solomon Associates LLC. Cost escalation, including in labor, is the biggest risk for Canadian projects, he said.
“Labor cost gets bid up,” Kallio said. “It has happened in Australia, it has happened in Fort McMurray, it’s likely to happen in Kitimat and Prince Rupert and anywhere else there’s an LNG liquefier going in.”
Chevron’s site is located near one of western Canada’s snowiest communities, Kitimat, British Columbia, which adopted a snowflake logo to commemorate the 424 centimeters (14 feet) that drop on average each winter, Environment Canada data show.
Atco Structures & Logistics is currently building a 600-person starter work camp in Kitimat for Chevron, the third-biggest oil company by market value.
If Chevron and its partner, Apache Corp. (APA), proceed with the project, Atco expects to build a larger complex to accommodate workers over the years it will take to build the export plant. Calgary-based Atco is proposing some of the latest industry amenities to create a “home away from home” for workers spending weeks at a time on site, said Craig Alloway, Atco’s vice president of sales for North America.
A homey atmosphere and ample entertainment options are meant to help counter the isolated location of the project as Chevron recruits tradesmen from across Canada and the globe, Alloway said. Atco has designed housing camps for Canadian mining and oil-sands operations featuring a 200-seat movie theater, a two-story gymnasium with squash courts and a running track and recreation rooms with ping pong and foosball tables.
Not to be overlooked is an indoor golf simulator that mimics a driving range, using a computer to calculate the ball’s spin, force and accuracy as it hits a tarp. Common areas include fireplaces and high ceilings with exposed timber beams to give the feeling of a resort lodge.
Chevron’s project will have an advantage getting workers because it is one of the furthest ahead in planning, said Gillian Robinson Riddell, a company spokeswoman in Canada. Chevron can’t speculate on additional work-camp facilities beyond the initial “basic” 600-person camp Atco is currently building until it makes a final decision whether to proceed with the LNG terminal, she said.
In the oil sands region of Alberta, more than 70,000 people live in work camps, according to Black Diamond Group Ltd. (BDI), a Calgary-based accommodations provider. The cost to house a person in Canada has risen to about C$200 a day as competition for workers has made work camps become more like hotels than dorms, said Trevor Haynes, CEO of Black Diamond.
Labor costs can make up about half the construction budget of a typical LNG plant, and will vary dramatically depending on the local job market, according to KBR Inc., which has built LNG projects from Nigeria to Australia. Perks weren’t needed to lure workers to BP Plc’s Tangguh project in Indonesia because so many locals wanted the higher-paying jobs, said Heinz Kotzot, LNG technology manager for Houston-based KBR, which oversaw the facility’s construction.
In Australia, competition for workers spawned resort-style extras that didn’t stop wage inflation. Welders of cryogenic equipment earn as much as A$500,000 ($454,000) a year, Kotzot said -- more than three times the average annual salary of a U.S. lawyer.
Chevron will require as many as 1,500 people to build the pipeline and 4,000 to build the plant, including Canadian tradesmen and temporary foreign workers, Jeff Lehrmann, president of the Canadian unit, said at an October conference in Calgary.
“We’re talking a significant workforce,” Lehrmann said. The company plans to first source workers from native communities in British Columbia, as well as from the rest of Canada, before looking internationally, he said.
Petroliam Nasional will look to attract some of the 3,500 workers required to build its proposed Canadian plant with “good quality food” and recreation, said Greg Kist, president of the Pacific Northwest LNG subsidiary overseeing the project.
“Those needs over a four-year construction window will be very intense,” Kist said.
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