Asian service firms eye opportunity in an Alberta industrial hub
By Ben Freeland
September 10, 2012
For Tony Wang, Nisku, Alberta is business nirvana. In 2007, Wang’s employer – the Shanghai-based Hilong Group of Companies – established a semi-autonomous subsidiary company in the heart of this industrial hub south of Edmonton. Five years later, Hilong Petropipe Co., Ltd. is striving to make a name for itself in Alberta’s crowded energy services field providing drilling tools and tubular goods to Western Canada’s oil patch out of its Nisku facilities. “Nisku is an ideal site,” says Wang, Hilong Petropipe’s general manager. “It’s a mini-oil town, a one-stop shop for oil companies with a lot of great companies.”
Photograph Curtis Comeau
Developments over the past few years have shifted relations between oil-rich Alberta and energy-hungry Asia into high gear and the public has noticed. Much of the attention has centered on Asian firms – many of them national oil companies (NOCs) – who are taking equity stakes in Canadian companies or swallowing them whole (Exhibit A: the blockbuster $15.1 billion deal whereby China’s state-owned Cnnoc Ltd. acquired – pending the federal government’s approval – Calgary-based Nexen Inc.)
But in Nisku and surrounding Leduc County, a second, quieter phase of Asian investment in Alberta’s oil patch is poised to take hold. This one involves Pacific Rim oilfield service firms like Hilong Petropipe, who are looking to establish a presence in a province where oil sands production is forecast to grow by 3.4 million barrels per day between 2011 and 2030.
Hilong’s interest in establishing a presence in Alberta and the oil sands isn’t hard to figure. The oil sands represent a resource that could provide oilfield service companies business opportunities for decades. And Hilong already has operations in a number of oily and gassy hotspots such as Russia, Central Asia, the Middle East and North America.
For a long time, Alberta and Asia were worlds apart. British Columbia – and more specifically Vancouver – was the location of choice if Asian companies wanted to invest in Canada. However, Alberta’s emergence as an oil and gas powerhouse, coupled with the economic ascendency of China and other Asian economies, has had a profound impact on this relationship. Today China is Alberta’s second-largest trading partner, with a two-way trading relationship of over $5.6 billion – over 10 per cent of the entire provincial budget – while its economic relationships with other Asian economies continue to grow in importance.
Major state-owned energy companies represent the lion’s share of the Asian presence in Alberta’s oil industry, but independent players like Hilong are beginning to make their mark. For Wang, a Chinese oil and gas entrepreneur with over 25 years’ experience in the industry, the sky is the limit for Asian involvement in Alberta’s oil industry. “There is a tremendous need among the Pacific Rim countries,” he says. “Canada is probably the most attractive market out there. You’ve got the third largest oil reserves in the world and you also have a lawful, democratic country with a stable political culture, which is very attractive.”
“It’s a mini-oil town,” Hilong Petropipe’s Tony Wang says of Nisku – an Alberta industrial hub Photograph Curtis Comeau
While he says it’s hard to predict if a strategic industry enclave like Nisku will see other Asian companies set up shop in the coming years, that’s certainly the hope of the Leduc-Nisku Economic Development Authority, an organization launched in 1984 to develop strategies for Nisku and Leduc County. With that in mind, the authority has promoted the “Alberta Advantage” the Nisku-Leduc area possesses – no provincial sales tax, a highly skilled and productive workforce, safe and growing communities – to businesses in Canada and abroad.
Nisku is an attractive setting for any firm – domestic or foreign – looking for a base to chase opportunities in Alberta’s oil and gas sector. The 8,000 acre Nisku business park is North America’s second largest energy park. More than 600 companies are located there and an estimated 8,000 to 10,000 local workers are employed there.
The authority’s desire to see international firms put down roots in Nisku is helped by the Alberta government. In June, Alberta Premier Alison Redford and International and Intergovernmental Relations Minister Cal Dallas embarked on a trade mission to Beijing and Hong Kong to link Alberta companies with potential Chinese investors.
The awareness Alberta trade missions like this build in the Far East could cause Asian firms to move to Nisku and invest in Alberta’s energy sector. “It’s really not a hard sell,” asserts Paul Paynter, business development manager for energy with Calgary Economic Development, who helped organize the mission. “A lot of the investments are simply based on the fact that it’s a good investment with great long-term returns. And that benefits business here.”
Source: Leduc-Nisku Economic Development Authority
But Asian service firms establishing offices in Nisku and Leduc will benefit more than the foreign shops. It will help keep the post-recession momentum in the oil patch rolling. New players keep the sector vibrant, force businesses in the space to be more efficient, and provide additional jobs for the region. In the case of Hilong Petropipe, Wang says his company’s staff is over 95 per cent Canadian. “We may be a subsidiary, but we essentially function as a Canadian company,” Wang says. “We always hire locally and we’ve grown up with our Canadian employees.”
“When a country makes a significant investment, it brings people. And we have emerging skilled labor shortages in this province.”
But there is a limit to how many local workers new and existing companies can get. Alberta’s current post-recession economic resurgence is threatened by looming labor shortages resulting from retiring baby boomers. In July of this year the job vacancy rate in Alberta was 3.5 percent, up from 2.3 per cent a year prior (compared to a national rate of 1.8 percent).
It is estimated Alberta could face a shortfall of 350,000 workers by 2025. That number is troubling, but Rahul Sharma, senior director of International and Intergovernmental Affairs for Southeast Asia and Oceania, says that Alberta’s Pacific shift will help alleviate this shortfall by attracting newcomers. “When a country makes a significant investment, it brings people. And we have emerging skilled labor shortages in this province. The government has specifically identified Thailand and Vietnam as potential sources of skilled workers.”
But in the energy industry nothing is certain. Asia’s fondness for Alberta and its oil sands reserves could fade if, for example, projects such as Enbridge Inc.’s controversial Northern Gateway pipeline that would transport up to 525,000 barrels of oil sands crude to British Columbia’s coast are not built.
Would Asian NOCs continue to invest in Alberta assets if there were no pipelines that could get Alberta crude oil and bitumen to markets in the Far East? And how would decreased investment impact activity in the field, the kind of activity companies like Hilong Petropipe hoped to capitalize on when it established operations in Nisku?
It’s Gary Mar’s job to ensure that doesn’t happen. Appointed by Redford as Alberta’s Asian envoy after a failed bid to become premier in the fall of 2011, Mar says he is promoting Alberta rather than simply focusing on the province as a crude oil supplier of choice to Asia. “In the long run, we will want to see energy exports in the region. In the near-term, we want to seek opportunities for our services sector to expand over there and we want investment,” he says.