Following the shocks of Covid-19 and a plunging oil price, many of Canada’s hydrocarbon projects have been hit hard. However, the renewable energy and infrastructure sectors have been much more steady, writes Gregory DL Morris.
With its heavy focus on natural resources, the Canadian economy was booming last year and for the first few months of 2020, until the double whammy of a global public health crisis lowered overall economic activity and a rupture among major oil producing countries created a worldwide glut.
The price for Western Canadian Select, the heavy, sour crude used as a benchmark in the region, fell close to just USD4 a barrel at the end of March before plunging into negative territory during April.
The near and long-term effects of those blows varied greatly among companies handling project cargo in Canada. Some reported immediate slowing, some a flurry of activity. Others say they are steady on so far.
Ambercor Shipping, a freight forwarder headquartered in Toronto, was affected “as soon as China went down”, according to Christian Wagner, vice president. “Cargo out of Asia was extremely slow. By the middle of March it had started to resume somewhat, but that is when business started being delayed in Europe and also North America.”
With manufacturers shutting in production, Wagner said enquiries are down by 50 percent currently. “That said, we did move a cargo out of Italy very recently. We are going back to every piece of business that we were asked to quote and asking if it is going to proceed.”
He added that the oil industry has gone through downward cycles before. In terms of new capital investments, it will take time for the effects to be felt.
Outside the oil industry, business remains brighter. Ambercor is moving components for a paper plant in Quebec and a super-heavy piece into the US state of Oregon, said Wagner. “We are seeing activity across all industries, from automotive to the cruise sector to power generation. It is just that everything is delayed a month or so.”
To underscore the range of its clients, Wagner ticked through a variety of current activities. “Two of our biggest projects are breweries, one in Montreal and the other in Edmonton.
“The tanks for Montreal are being delivered. Those have to come first because the rest of the building is constructed around them. Then comes the rest of the equipment. There are 20 tanks coming from China for Edmonton.”
There is also a hydropower project in British Columbia for which the generators are scheduled for installation later this year and into next. Ambercor is also involved with the LNG project in Kitimat, as seem to be most project logisticians in Canada. Ambercor is also working on a refinery upgrade in the east, “and there are power and mining upgrades in Quebec and Newfoundland,” said Wagner.
Across the plains of Canada, the government’s commitment to wind power is sustaining project logistics activity in that segment. “Last year we shipped 250 rotor hubs for Siemens out of China,” said Wagner.
“In the immediate sense, we have been busier than ever,” said Kevin Kwateng, director of heavy haul operations at Bellemare Group. “Some companies saw what was coming from Asia and were rushing to get their projects done, or at least delivered and stored. There was a huge surge.”
We will all go through a tough time in the next six months to a year – especially in oil and gas, there will be dire times. So just put those projects at the bottom of your file drawer.
- Kevin Kwateng, Bellemare Group
Longer term, Kwateng is hopeful of recovery. “We will all go through a tough time in the next six months to a year – especially in oil and gas, there will be dire times. So just put those projects at the bottom of your file drawer. Mining projects are also being rethought but wind energy will continue. We expect to see a recovery in construction, especially infrastructure. The government will bring projects forward to get people back to work.”
Last year the firm completed its first major bridge replacement, in Quebec. “With the previous tight labour market there was too much demand for projects and not enough supply of skilled workers,” Kwateng explained. “Year-and-a-half projects were being compressed to 12 months, or even nine in a technique called rapid bridge replacement.” Another such project is already being prepared.
At Mammoet Canada Western, Tom McLeod, vice president, said there have been significant deferrals or postponements of heavy lifting and transport projects.
“The hardest-hit sector is oil production and refining where many of our customers have deferred their spring turnarounds to the summer or fall and have greatly slashed planned capital expenditures for 2020,” he advised.
The company has also seen deferrals of factory-to-foundation transportation projects. Process vessels destined for Canadian projects are being fabricated in European countries severely hit by the coronavirus outbreak, namely Italy and Germany.
Canada Kuwait Petrochemical’s proposed USD4.5 billion polypropylene project (north of Edmonton) has also been deferred due to the current market environment.
In Canada, Mammoet had a successful 2019 and was projecting a very active 2020, until the pandemic.
“In February 2020, we signed a contract to provide heavy lift and transport services to the JGC Fluor joint venture for the construction of LNG Canada’s liquefaction plant in Kitimat, British Columbia,” said McLeod. “As of March 25, Mammoet is active on this project, receiving piling pipes from ocean vessels and transporting them to the site laydown area. The heavy lifting of modules was originally scheduled for late 2020. However, we will most likely see this move into 2021.”
LNG Canada is the largest project in Mammoet’s backlog. “We are preparing to offload and transport modules manufactured offshore to the plant site,” said McLeod. “While the engineering of these modules is not yet completed, we are expecting some of these modules to be in excess of
Earlier this year, Mammoet transported some very large evaporator vessels from Edmonton to Fort McMurray for an oil sands company.
As noted, Mammoet had been planning for a very busy spring turnaround season in April and May this year. Looking to the future, the company is hopeful that suspended projects will resume but there is no way of foreseeing when that might be. All sources acknowledge that some projects will not be revived.
For the resource-dependent Canadian economy in general, and Western Canada in particular, a protracted oversupply of crude oil could be a longer term challenge than even the pandemic. However, McLeod remains sanguine: “Mammoet is fortunately diversified both within the energy sector, such as in wind power, as well as outside of the sector. We are very active in the mining, civil infrastructure and industrial power sectors, which helps us flatten out the valleys when oil and gas prices are depressed.”
Following Mammoet’s acquisition of ALE earlier this year, the company “is now the global leader and innovator in bridge construction and replacement”, added McLeod. “Recently the potash sector in Canada has been hurt by declining demand in Asia, but we may see an uptick as federal governments focus on agriculture stimulus and protecting our food supply chain.”
Within its own operations, Mammoet opened a branch in Kitimat in late 2018 specifically to prepare for the LNG project. “There are a couple of locations we are looking at in the USA,” McLeod added, “primarily to handle additional wind maintenance and related business. Over the past 12 months we have added a handful of rough-terrain cranes to our fleet. Equipment utilisation had been increasing throughout 2019 and the first two months of 2020.”
Mammoet’s day-market crane rental business has been reduced but it is focusing on the utility sectors that are still active and providing essential services.
Omega Morgan has offices on both sides of the US/Canada border, noted Erik Zander, director of sales. “In Canada we were seeing some of the downturn earlier in 2019 with the decline of some of the major cargo for the oil patch. We were also seeing steady shipments of gas supply cargo as major producers kept line upgrades in construction.”
The USA had remained on an upward trajectory with new major project announcements throughout the nation in all sectors, Zander detailed, including oil and gas. “We were receiving quote requests at an all-time record high and enjoying a comparable closing ratio. As a company, we have always diversified our portfolio of clients – wind, power generation, infrastructure development, medical and manufacturing – to try to minimise sectoral risk.”
As a company, we have always diversified our portfolio of clients – wind, power generation, infrastructure development, medical and manufacturing – to try to minimise sectoral risk.
- Erik Zander, Omega Morgan
Even during the pandemic, “we continue to see quote requests and we are optimistic that this will be a stop/start situation,” said Zander. “We will stay the course. As a mid- size company, we still have the ability to react quickly. What has hit the water will deliver, what is inland will move and construction projects will resume. We continue to work on the Site-C dam project (a run-of-the-river hydroelectric dam on the Peace River near Fort St John in British Columbia) delivering major components.
“We had hit the ground running in the start of 2020 with crews scattered throughout North America working at a steady pace,” he continued. “New requests were funnelling in at an incredible rate and we are recruiting in all segments of our business. Wind projects throughout Canada were certainly notable as well as transmission distribution projects. There was also finally the announcement of the go-ahead on the Transmountain Pipeline and LNG Canada projects and we were seeing an uptick in requests.”
Despite a pause on many projects, Omega Morgan continues invest in its fleet, and improve or modify existing equipment for specific projects. Omega Morgan has also moved into the Houston market with a sales focus to service its existing client base and to identify its next location for an office and equipment.
At the time writing, Logistec had not seen any significant reduction in project cargo volumes at any of its key breakbulk terminal facilities in Canada, said Shawn McMahon general sales manager for Canada. Although, he noted that the company is “monitoring the situation closely”.
He added: “Strategically, we always take the long-term view while we will adjust tactically to the conditions as they evolve in the coming months.
“Until the pandemic, project cargo was steady into Canada’s eastern coast early this year,” McMahon said, notably “on the ro-ro liner services we handle and, so far, with the recent opening of the St Lawrence Seaway system, we have actually noticed a slight increase in project cargo inquiries [in mid- March]. This suggests a pent-up demand for the movement of cargo related to previously approved projects.”
However, this may be the surge before the slump. “While it is far too early to tell, we expect project cargo enquiries and shipments to soften significantly in mid- 2020 as the overall economic impact of Covid-19 makes its way through the general economy,” said McMahon. “We expect a few major capital projects and final investment decisions (FID) to be delayed by 12 months or so, though it is tough to tell at this point.”
Softening oil sector
Even prior to recent developments, the Canadian heavy oil sector had already began to soften significantly due to a lack of new pipeline capacity, growing environmental and indigenous opposition, and regulatory uncertainty with respect to project approvals and timelines.
“Sustained lower oil prices will definitely place additional pressure on new oil-related project development in Western Canada,” said McMahon, “particularly in the oil sands of northern Alberta, thus limiting opportunities for related project cargo growth in the near term. With this in mind Logistec has pivoted to focus its marketing and sales efforts to target other areas.”
Trying to keep the recent plummet in oil prices in perspective, McMahon emphasised: “It is worth noting that global demand for Canadian energy, especially in Asia, remains relatively strong, and LNG- related projects in Canada enjoy more broad-based support [than some other types of energy development] due to their relatively lower carbon footprint.”
In that regard, he added: “Logistec has a long history of general and heavy project cargo handling in support of offshore gas production in Nova Scotia and we recently offered our ship stevedoring services in port location to the final inland project sites.” For example, the port of Thunder Bay is about 1,500 km closer to Calgary than the port of Houston. Furthermore, sustained lower bunker fuel prices might actually favour the seaway from an overall transportation perspective, encouraging more project cargoes to move further up the inland waterway system.
Across its system, McMahon suggested that Logistec is well positioned to provide double-ended handling to major component manufacturers such as Marmen, Vestas and GE through its network of port facilities in the St Lawrence, US East Coast and the Gulf areas. “We also see significant cargo handling opportunities in the growing offshore wind energy sector in both Canada and the USA,” said McMahon.
“While lower oil prices will surely reduce the attractiveness of new heavy oil production in Canada,” he added, “we feel that existing commitments to renewable installations will be honoured by utilities and most regional governments, supported by legislation. Furthermore, given the decline in the cost of renewables and ongoing political and popular support in Canada, we expect the trend toward movement of more onshore and offshore wind, hydroelectric a nd related transmission components to continue.”
Before the pandemic and oil price collapse, 2019 was a big year for Logistec in the Canadian project cargo arena, particularly with respect to wind energy cargoes. “We handled several large projects, including one through our recently Kitimat, where Shell and its partners are just beginning construction of the massive LNG Canada export terminal.”
In preparation for that project, Logistec established an office in Kitimat in late 2018 through its Sanexen environmental subsidiary.
“From our understanding, 500,000- 900,000 freight tons of cargo is expected to arrive in Kitimat in the next two to three years just to support the first phase of the buildout, which we see as a pretty attractive market opportunity,” McMahon said. “Furthermore, the expansion potential – the third and fourth liquefaction trains – as well as the downstream possibility of future development [in the area], indicates that there is significant potential for project cargo handling on the Canadian west coast over the next five to ten years.”
In renewables, McMahon said he sees “a fairly robust pipeline of wind energy projects on the horizon for Western Canada where we are well positioned at the port of Thunder Bay, as well as at other Great Lakes ports, to capitalise on imported and domestic component transport by water to the closest expanded Johnstown terminal in Ontario,” said McMahon.
In early March “we completed the first of two European-origin shipments of very large brewery equipment at our Contreceour terminal near Montreal. Later this spring, we will be handling a full complement of new container handling equipment, including a large fully assembled mobile harbour crane, at our new Corner Brook terminal in western Newfoundland, so we will be stevedoring our own cargo there.”
It is worth noting that mining, power generation and distribution, and manufacturing continue to be very important drivers of regular project cargo in Canada, particularly in the industrial heartland served by the seaway system. In that region Logistec has an extensive port network, McMahon said.
Sarens, meanwhile, has significantly expanded its presence in Canada. “Eighteen months ago we only had one facility in Alberta, south of Edmonton, serving the petrochemical industry,” said Lee Rowe, country manager for Canada. “We have since opened facilities in British Columbia, serving both petrochemical and general construction sectors, as well as in Ontario, serving general construction.”
The company has also doubled its number of cranes in the country in recent months. The addition of new bases has driven strong growth in general construction work. “We were about 95 percent petrochemical,” said Rowe. “And while that work has been steady, even growing a little, other work has gr own to the point that we are about 50:50 now.” Sarens has not had any major changes to commissioned work yet, but Rowe said he had heard of some delays on wind power equipment out of China.
Its biggest recent project was the removal of a 102-tonne tunnel boring machine (TBM) that had been used for the CAD5.3 billion (USD3.75 billion) Crosslinx rail project in Toronto.
“It was one of the biggest lifts on th e project,” said Rowe. In other work across the country, Sarens completed one wind energy project in Alberta and moved on to another in Saskatchewan. There has also been shutdown work on a refinery in British Columbia.
We saw positive signs prior to the pandemic regarding project starts in the second and third quarter, both in terms of high-probability opportunities and awarded projects...
- Tim Nickel, Nickel Brothers
“We saw positive signs prior to the pandemic regarding project starts in the second and third quarter, both in terms of high-probability opportunities and awarded projects,” said Tim Nickel, general manager of transport engineering specialist Nickel Brothers. “Last year we saw many projects experience delays, which indicated that 2020 would see many projects starting. We have been seeing inquiries from hydropower, oil and gas, coal and pipeline projects, as well as food service and manufacturing.”
Nickel Brothers has a broad service offering within industrial and residential markets, and so is not overly reliant on the energy sector, explained Cassidy van der Ros, manager of marketing. “Our residential division is active throughout British Columbia and Washington State [in the USA], and moves, skates and lifts around 300 structures per year. We find that generally speaking, when one of our branches is down, the other is up. Among standard freight, project cargo, jack-and- slide, rigging, installation, engineering and project management, there is always something for us to do.”
This year Nickel Brothers opened a new office in Montreal. “We have been forming partnerships in Eastern Canada over the last year,” said van der Ros. “We are are excited to have officially started operations there. We have invested in bringing more collaborators into our network, and on further diversifying our offerings.” For example, she detailed, “we have recently invested in containerising our equipment to be able to offer mobile operations”.
Tim Nickel added: “Because we are so mobile, there is value for our globally operating clients in being able to utilise us on projects in a wide range of locations. We have expanded our services to offer a turnkey approach; we have definitely seen a shift in our clients’ approaches as well. We are seeing more of them ask for full-service quotes, rather than splitting project phases into multiple requests for quotes.”
This article has been taken from HLPFI's May/June edition.