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November 2009

Vol. 14, No. 44 Week of November 01, 2009

Trading coal for bitumen at Christmas

Alberta issues revised RFP for a processor in the province to process 50,000-75,000 bpd of bitumen; goal more processing at home

Gary Park

For Petroleum News

It’s a bit early for Christmas wish lists, but the Alberta government isn’t waiting for a spot on Santa’s lap.

Rather than visions of sugar plums dancing in its head, the province has images of bitumen from oil sands operations overflowing its stocking.

What Premier Ed Stelmach and his cabinet want is success in their campaign to keep more of the “value-added” end of the oil sands business within Alberta for upgrading and refining, rather than seeing the product shipped to plants in the United States.

But the plan has encountered a few hitches and snags.

To spur more secondary processing at home, the government issued a draft Request for Proposals two months ago, seeking industry comment.

A final draft was issued Oct. 19 with some minor tweaking.

Initially, the government proposed collecting 50,000-75,000 barrels per day of bitumen in kind rather than cash and using that as feedstock for an Alberta-based processor.

For companies to qualify for that feedstock, they were required to propose a new plant with capacity of at least 100,000 bpd, with a startup by the end of 2016.

Deadline extended

In response to some negative reaction, the government had stretched the deadline to year-end 2018 and will give companies more time to build the second phases of their upgraders.

Whether that will attract more contenders is not clear.

Energy Minister Mel Knight said the changes made to the draft RFP “are relatively minor, but illustrate out commitment to listen to stakeholders, take firm action and prepare the province for future economic growth.”

The two-year extension was prompted by industry observations that commercialization of a new upgrader would need more time to be planned and move through the regulatory phase.

Knight said the royalty-in-kind scheme will “add value to the bitumen resource, diversify our economy, keeps jobs in the province and will produce larger total energy revenues for Alberta.”

Proposals due in January

Whether that will translate into a belated Christmas gift will be known by Jan. 27, 2010, the deadline for industry proposals.

So far, the only openly declared contender is privately held North West Upgrading, which has targeted a possible C$15 billion project in three phases, each processing 77,000 bpd of diluted bitumen feedstock (50,000 bpd of raw bitumen) for diesel fuel.

To qualify for the royalty bitumen, North West must have two phases operating by year-end 2018.

North West already has a commitment of 25,000 bpd of heavy oil from Canadian Natural Resources and, having raised C$400 million to date, hopes to have the first phase up and running by early 2013.

Company Chairman Ian MacGregor said that securing royalty bitumen would allow the company to negotiate financing.

He said it was encouraging to “see this government continuing to move forward to ensure that all Albertans will benefit from the added value of upgrading and refining here at home.”

MacGregor estimated upgrading in Alberta would double revenues collected by the government from royalty bitumen production.

He said the credit markets are paying close attention to determine that Alberta is serious about achieving its goal and cautioned that any “significant” delays could cause financing problems.

U.S. refining surplus

Chris Theal, an analyst with Macquarie Securities, said reduced shipments from Mexico and Venezuela have created a surplus of refining capacity in the United States, making it more attractive for producers to ship Alberta bitumen south of the border.

Suncor Energy has already dropped plans to add a C$1 billion heavy oil processing unit to its Montreal refinery and decided output from its Alberta oil sands expansion will be shipped directly to U.S. refineries. In addition, it has postponed indefinitely plans for a new upgrader.






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