Alberta rolls bitumen dice

Gary Park

Petroleum News

Faced with losing an estimated C$9 billion in royalties over the next five years unless the pipeline bottlenecks are solved, the Alberta government is ready to take a gamble.

Premier Rachel Notley said her government would provide C$800 million in loan guarantees and C$200 million in direct grants to private-sector firms who are willing to embark on partial upgrading of raw oil sands bitumen, reducing the thickness of the molasses-like substance to improve its flow through pipelines.

“Make no mistake, there is a role for us in incenting and fostering energy innovation and diversification,” she said. “We don’t need to sit on the sideline and watch places like (the U.S. Gulf Coast refineries) eat our lunch.”

Currently, 10 companies are working in upgrading technologies, but more investment is needed to commercialize the ventures.

If successful, partial upgrading would increase the value of bitumen by increasing the number of refineries that can process Alberta’s heavier crude and generate fewer greenhouse gas emissions per barrel than full upgrading.

It could save producers billions of dollars a year by reducing the C$13.3 billion they spend for diluent to blend with bitumen, allowing it to flow through pipelines, and free up space on constrained pipelines by as much as 30 percent.

The government estimated that a C$1 billion investment would leverage up to C$5 billion in private sector investment.

But the idea comes with risks after billions of dollars of public money was flushed down the drain on four failed upgrader projects, although Notley said investments will be independently evaluated.

If bitumen can be partially upgraded in Alberta and give a boost to exports, producers should be able to narrow the gap between the price they receive and the price elsewhere.

A spokeswoman for Alberta’s United Conservative Party doubted whether offering small loan guarantees and grants would slow the flight of investment out of Alberta, adding her party is concerned about “gambling with taxpayer dollars in trying to micromanage our economy.”

- GARY PARK