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Providing coverage of Alaska and northern Canada's oil and gas industry
January 2007

Vol. 12, No. 2 Week of January 14, 2007

New Canadian refinery hub for northeast United States in works

Atlantic Canada has taken another step towards becoming a key source of refined petroleum products for the northeastern United States, with plans for a possible 300,000 barrel per day facility in Newfoundland deemed to be “economically feasible” by a group of private investors.

Backers of Newfoundland and Labrador Refining say the refinery in Newfoundland’s Placentia Bay could generate a rate of return of 15 percent on a US$4.6 billion investment.

The company said the base-case projection was based on its own “conservative long-term refining margin outlook.”

An earlier estimate had put the cost of the refinery at $2 billion, but the investors have since incorporated a number of equipment additions that would expand the options for handling various crude oil types.

The company’s objective is to take advantage of the surging demand for petroleum products, especially in the U.S. northeast, and Newfoundland’s accessibility for tanker traffic.

Newfoundland and Labrador Refining backers comprise Altius Minerals, a base-metal explorer; Dermot Desmond, founder of Irish-based International Investment and Underwriting; Harry Dobson, a Scottish financier; and Stephen Posford, former head of European operations for investment banker Salomon Brothers.

The plant would be located close to Newfoundland’s 115,000 bpd Come By Chance refinery which was acquired in October by Harvest Energy Trust as part of a C$1.6 billion purchase that included gas stations and a home heating business.

Harvest indicated it is prepared to invest C$700 million in expansion projects, although it has yet to indicate whether its future has changed under the new rules for Canadian energy trusts.

However, Harvest has taken a bruising since the trust announcement on Oct. 31.

It was forced to reduce the price of trust units it plans to issue by 14 percent and more than double the number of units on offer as part of its C$638 million financing to pay down debt from the Come By Chance acquisition.

Also in the works is a plan by privately held Irving Oil to build a second refinery at its Saint John, New Brunswick complex.

If it proceeds with the C$7 billion investment, its capacity would double to 600,000 bpd. Currently 175,000 bpd of Irving’s refined products are exported to the U.S.

—Gary Park






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