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Atlantic Canada refinery plans stalled Irving Oil now estimates 8 years to build C$8 billion greenfield refinery; Harvest Energy Trust defers US$2 billion expansion Gary Park For Petroleum News
Atlantic Canada hopes of becoming a larger part of the North American refinery network are crumbling and may never recover.
Privately held Irving Oil says it will now take eight years to build an C$8 billion refinery — the first greenfield facility for the continent in 25 years — rather than the previously expected four years, while Harvest Energy Trust has deferred a US$2 billion expansion of its Come by Chance refinery in Newfoundland.
Irving, blaming a labor shortage in the Saint John, New Brunswick area, said a new timeline is needed for its Eider Rock project, designed to be built in two phases of 150,000 barrels per day each.
Kevin Scott, Irving’s director of refining growth, said that extending the target date will make the project “more viable at a time when many energy projects are being delayed or cancelled.”
He said Irving and partner BP will decide next year whether to go ahead with their plans, adding “we still believe strongly in the merits of the project … but a lot of things have changed since we first proposed it in 2006 and our industry is facing some huge challenges.”
“We see rising capital costs, a shortage of labor availability and increased global competition.”
Likely in two phases Scott said that if Eider Rock does move ahead, it would likely occur in two phases, with Phase 1 being built and operating, with a decision made on Phase 2 at some point during the development of Phase 1. Each phase would require a peak construction force of 2,500 to 3,000.
New Brunswick Energy Minister Jack Keir said he does not see the extended construction schedule as a setback.
“This is good news that they are coming up with a plan that still makes (the project) work and move forward.”
Currently, the province requires workers for a C$1.4 billion refurbishment of its Point Lepreau nuclear power plant and a C$1.6 million potash mine.
“The upside to the economic (slowdown) that is going on in the world, if there is an upside, is that it may free up some trades people from jobs (at large projects) that won’t go forward,” Keir said.
Irving made its case for a second refinery — its existing facility is Canada’s largest, with crude capacity of 280,000 bpd, turning out 300,000 bpd of refined products and exporting 175,000 bpd to the United States — based on an argument that more than half the U.S. Northeast’s refined products come from the storm-plagued Gulf of Mexico, whereas Saint John has an ice-free deepwater port that offers safe, reliable and secure supplies.
Harvest expansion delayed On Dec. 1 Harvest Energy Chief Executive Officer John Zahary said the North Atlantic refinery expansion “will proceed when we have calmer financial waters.”
Coming several weeks after the first deferral was announced, it puts on the shelf a planned addition of 75,000 bpd to the existing 115,000 bpd.
Zahary, noting that the facility has not been expanded in 30 years, said refineries tend to either grow or shut down, adding that North America now has only 150 refineries, half what it had 30 years ago.
As well as tough economic times, he said Harvest Energy, with the help of Deutsche Bank, is also continuing its search for a partner, without which most analysts doubt that the Calgary-based energy trust will have to scrap its plans.
Zahary said those being approached are not companies that would “have to go out and borrow money.”
If that process is not successful, he said final engineering may be completed and the hunt could be postponed for another year. Zahary said the Come by Chance plant is “one of the better ones … it creates a good mix of products and is the first clean-fuel refinery (in Canada).”
But, given the global financial situation, he said Harvest Energy decided it was better to be honest with investors, employees and the communities in the area.
“We think it’s unlikely we will be able to finance this in the near term,” Zahary said. “It will at least be delayed by a number of months.”
Michael Ervin, president of Calgary-based petroleum consultant M.J. Ervin & Associates, is not inclined to blame tough economic times alone for the project deferrals, suggesting both face a tough challenge to survive at all.
He said the dismal profit outlook for refineries, based on low crack spreads (the price differential between the cost of crude oil and petroleum products) and changed consumer habits mean that even an 80-85 percent capacity utilization at a refinery is “not a good business case to build a brand new refinery.”
Ervin said gasoline demand was in decline before the economic shocks of the last few months as consumers reacted to rising pump prices and showed personal concern about the carbon footprint they were leaving.
He said there is no chance of a return to high gasoline demand so long as consumers remember “how bad gasoline prices can get.”
Other than the 2001-07 period, Ervin said the profitability of North American refineries has been dismal over 30 years.
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