By Vipal Monga | Photos by Jason Franson for The Wall Street Journal
CALGARY, Canada -- The massif of steel and glass skyscrapers at the core of this city's downtown once stood as a testament to the rise of Canada's oil-and-gas industry.
Now, more than a quarter of the space in these buildings is empty. In December, the unemployment rate, at 7.5%, was the highest among Canada's largest cities, 2 percentage points above Toronto's and nearly 3 points higher than Vancouver's.
Calgary's economy is closely tied to the country's oil and gas sector, which has been punished by a collapse in prices as supply from the booming U.S. shale industry has crowded out Canada's brand of heavy crude. Producers are having trouble even getting their oil to market as pipeline companies struggle to build new arteries to transport the crude amid a heated public debate over climate change.
In recent weeks, climate activists and indigenous groups blockaded Canada's rail network and disrupted the country's supply chain to protest a gas pipeline being built along the west coast.
On Sunday, Teck Resources Ltd. said it would abandon a plan to build a new oil sands mine in the northern reaches of the province of Alberta, citing Canada's inability to reconcile resource development and environmental policy. The project would have created thousands of jobs and added billions of dollars to the local and regional economies.
Teck is the latest company in a long list to have abandoned Canada's oil patch. In October, oil-and-gas producer Encana Corp. -- since renamed Ovintiv Inc. -- said it would move its corporate headquarters from Calgary to Denver to make it easier for U.S. funds to buy the company's stock.
Since June, several companies have announced layoffs in the city, including Spanish energy company Repsol SA, China National Offshore Oil Corp., known as Cnooc, and Canadian oil-and-gas company Husky Energy Inc. In recent years, foreign companies like Royal Dutch Shell PLC, ConocoPhillips and Norway's state-owned Statoil ASA -- since renamed Equinor ASA -- which had poured money into the region when oil prices were surging, have pulled out, citing concerns about expenses and high greenhouse-gas emissions from the oil sands.
Calgary is used to boom-and-bust cycles, but people here say they haven't seen a bust quite like this one.
"We went from having the lowest unemployment rate in the country to the highest," Calgary Mayor Naheed Nenshi said. "We went from having a 0% vacancy rate in the downtown core to more than 30%. There's been a tremendous dislocation."
And the blows keep coming. The flare up of the coronavirus epidemic has squeezed Canadian crude-oil prices. Bill Morneau, Canada's finance minister, warned local businesses in a speech earlier this month that the epidemic would have a significant impact on the energy sector, putting added pressure on the city's struggling economy.
Canada holds the world's third-largest crude-oil reserves, behind Venezuela and Saudi Arabia, and the industry makes up roughly 11% of Canada's gross domestic product.
According to an analysis by Trevor Tombe, associate professor at the University of Calgary, the decline in Canadian oil prices has cost the country more than C$130 billion (US$98.19 billion) a year in lost growth since 2014, when Canadian oil prices began falling.
Since then, Calgary has been reeling, said Mary Moran, head of Calgary Economic Development, a nonprofit created to support business growth in the city.
"For the first couple of years, it was very challenging, but a lot of people assumed it would bounce back," she said. "But there's been a structural change in the industry."
The growth of the shale-oil industry has turned the biggest customer of Canada's oil -- the U.S. -- into its biggest competitor, she said, and there is a widening acceptance that the dynamic won't change again soon.
With jobs in energy scarce, many are giving up on the sector. Winston Hope, 50 years old, was laid off almost four years ago from his engineering job working at energy-services company Bantrel Co. Since then, he has taken a job building and developing supply-chain robots for local logistics company Attabotics Inc., and says he won't be going back to energy even if new jobs do open up.
"In Calgary, oil and gas was primarily the place to make money," he said. "The salaries were good and the opportunities were so great, but then they just disappeared."
The energy job cuts have hollowed out the city's downtown core, which is dominated by more than 80 glass towers that jut out of the flat Canadian prairie. According to CBRE Group Inc., a real estate advisory company, more than a quarter of Calgary's downtown office space is empty, leaving roughly 11 million square feet unused. Another 450,000 square feet is set to become available in the coming weeks as completion nears on a 60-storey tower called Telus Sky. Many expect that to be the last skyscraper built in the city for years to come.
Local developer Riaz Mamdani, founder of the Strategic Group, said he has tried to repurpose many of his empty office buildings by converting them to apartment buildings, storage warehouses or retail spaces. Late last year, he had to concede he couldn't pivot fast enough to stay ahead of the downturn and asked a court to put almost half of the 7.5 million square feet of space he owns into creditor protection, allowing him time to restructure the debt or sell the buildings.
Mr. Mamdani said the current economy is the worst he has seen since he started investing in real estate in 1996. He estimates it could take another 16 years before the vacant office supply in the city matches demand, based on historical growth rates.
"It's not the magnitude but the length of the downturn," he said. "It's unheard of."
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