Canada's megaprojects suffer megaproblems
The recent collapse of two Alberta megaprojects and the deferral of another have delivered a major blow to Canada's industrial strategy.
In addition to putting $34 billion in investment in the deep freeze, the situation has done little to help Prime Minister Pierre Trudeau's plummeting popularity.
Megaprojects are mammoth industrial undertakings generating tens of thousands of jobs and untold economic spinoff benefits. At a time when the country's labor-intensive industries (vehicles, shoes, and textiles) are in the deep waters of recession, some analysts sense that the massive energy investment boom may be close to over.
The three Canadian projects that fell to the ax of high interest rates and slumping world oil prices in April were:
1. The $13.5 billion Alsands oil project.
2. The $12 billion Esso Resources Cold Lake heavy oil plant.
3. The $37 billion Alaska Highway natural gas pipeline, which was delayed two years because of uncertain natural gas markets and high interest rates.
The gas pipeline, a joint Canada-US energy venture designed to carry natural gas 4,800 miles from Alaska through western Canada to the United States, represented a $17.5 billion capital investment to construct the Canadian portions.
But it is not just Canada's megaprojects that are encountering megaproblems. Industrial behemoths are floundering elsewhere as well:
* Exxon has decided not to proceed with its $5 billion Colony Oil Shale Project in Colorado or with its $4 billion lignite gasification venture in Texas.
* Houston's Panhandle Eastern Corporation has folded its $3.5 billion coal gasification project in Wyoming.
* Mexico's $30 billion nuclear energy program is facing an unclear future and may be postponed or cancelled.
* Nigeria has dropped its ambitious $14-billion liquefied natural gas export program.
So Canada is not the only country feeling the loss of megaprojects. But perhaps nowhere else is the political heat so intense. In other words, with swelling unemployment Prime Minister Trudeau must come up with some new economic strategies -- and fast.
The huge synthetic oil projects to tap Alberta's 250 billion barrels of recoverable crude bitumen in the 19,000 square miles of oil sands, as well as the building of the Alaska pipeline were a major part of the Canada's plan for economic resurgence in the 1980s.
Indeed, for many of Canada's 24 million people, energy megaprojects were the signal of a new prosperity.
Through all of this, the Liberal Party government in Ottawa is keeping a stiff upper lip, pointing to smaller projects such as the $1 billion extension of the natural gas pipeline from Quebec to the maritime provinces.
But for Prime Minister Trudeau the problem is complex. Notwithstanding the billions in direct investment and the tremendous psychological boost the highly visible megaprojects would have given the country, the Liberals are facing some political fallout. (The latest Gallup Poll shows Trudeau would not hold the federal government if a general election were called now.)
As the chief economist for the Conference Board in Canada, Thomas Maxwell, puts it: ''It is largely a political problem. . . . They hitched their wagon to this particular star (megaprojects), and this particular star ran out of gas. . . . If I was on the Liberal strategy committee, I would be spending a lot of sleepless nights.''
Maxwell adds there is plenty of head scratching going on in Ottawa. He suspects ''the (Liberals) will try to do something visible . . . in terms of any energy projects, they (likely) will hang their hat on (Newfoundland's) offshore oil.''
As a disappointed Alberta Premier Peter Lougheed witnessed the evaporation of billions in investment in this province, he noted rather philosophically:
''It is clearly not the era of large projects. . . . Maybe it's going to be the era of 'small is beautiful.' ''
Mr. Trudeau's political foes are barking at the door and eager for a general election. Progressive Conservative opposition leader Joe Clark recently summed it up this way: ''We're fighting away, using every opportunity we can to defeat this government that has no support and is not supportable.''