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Mega-refinery plan needs more work Alberta government pursues multi-purpose Edmonton refinery; consultant advises against in current over-heated economy Gary Park For Petroleum News
The Alberta government has no intention of quitting on the notion of a multi-billion dollar, multi-purpose refinery for the Edmonton area, despite warnings from its major consultant that such a venture is not possible in the province’s currently over-heated economy.
Energy Minister Greg Melchin, while conceding demands on labor, materials and equipment are a barrier, said it’s up to industry to decide whether to press ahead with evaluating a possible US$10 billion bitumen upgrader, refinery, petrochemical and 500-megawatt coal-fired electrical generation plant.
David Netzer, a Houston-based consultant hired to work with the government and 19 energy sector partners on a C$360,000 study of the proposal, was emphatic June 5 that the venture “can’t be done” today.
“The people are not there to build it” at a time when more than C$100 billion of capital investment is in the works for Alberta, he said.
Netzer said that 10 years ago it would have been cheaper to build such a complex in Canada than the United States.
Now there is a prevailing view that it is more expensive in Alberta, he said.
However, Netzer emphasized that the study phase is intended to initiate detailed engineering work rather than outline a design for the facility.
Industry has upgrader costs now prohibitive Imperial Oil has said costs in the oil sands region of building an upgrader are now prohibitive and Husky Energy has announced it is looking outside Canada for a means to process bitumen from its planned C$10 billion Sunrise project.
The mega-refinery proposal is based on converting 300,000 barrels per day of bitumen and heavy oil into gasoline, diesel and kerosene or jet fuel, plus using byproducts such as ethylene and propylene as feedstock for petrochemical operations.
Melchin was not prepared to accept that as the final word, describing Netzer’s work as “one study” and arguing that it’s now up to the industry, “which knows better than all how to handle cost escalation,” to decide on the next step.
Eager to implement a strategy of keeping more of the value-added components of oil sands production in Alberta, Melchin said the province wants to be positioned for a time when retooled and possible greenfield refineries are needed to handle the ballooning bitumen and heavy oil volumes.
He said it has never been the government’s intention to usurp the market role.
“We can’t create an industry that is not going to be economically viable,” he said.
The conceptual study projects that the complex could achieve an internal rate of return of 20 percent over 24 years, although a US$10 per barrel rise in oil prices would lift returns to 24 percent, while a US$10 drop would drag returns down to 15.6 percent. If there was a 10 per cent overrun in capital costs the returns would be 18.1 percent.
Participants in the 164-page study included Agrium, BOC Canada, BP Canada Energy, Canadian Natural Resources, Dow Chemical Canada, Enbridge, EnCana, Nova Chemicals and TransAlta.
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