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Kenney government emptying Alberta’s purse on high-risk ventures
Piling up billings of dollars in losses from crude-by-rail, refinery and pipeline deals that observers insist need investigation Gary Park for Petroleum News
The Alberta government keeps trying to save high-risk elements of its petroleum industry - crude-by-rail contracts, refineries and pipelines - only to discover it has been tossing taxpayers’ money into a bottomless pit.
Billions of dollars have gone down the drain in recent months and worse could be in store next year.
The quick summary shows losses and dubious gambles on three ventures have already tallied C$5.5 billion.
They start with a badly timed acquisition of a C$1.5 billion equity stake in TC Energy’s Keystone XL pipeline that could be swallowed whole if Joe Biden becomes the next U.S. president and could grow by another C$6 billion if TC Energy takes up the government’s offer of a loan guarantee in 2021.
The only reassuring note has been sounded by Energy Minister Sonya Savage, who says the C$1.5 billion investment caps the government’s participation in the pipeline at this point, while Alberta awaits the U.S. election outcome which could immediately put the spotlight on Biden’s pledge to scrap the U.S. regulatory permits awarded to Keystone XL.
Alberta Petroleum Marketing Commission Next in line is C$1.9 billion in net losses at the Alberta Petroleum Marketing Commission, a government corporation which sells the government’s royalty share of oil sands production.
That setback is largely tied to public involvement with the Sturgeon refinery, which processes bitumen into ultralow-sulfur diesel.
The province has a 30-year agreement to supply feedstock to Sturgeon, whose capital cost soared to C$10.1 billion from an initial C$5.7 billion before the facility came on stream earlier this year.
In addition, APMC’s annual valuation of its bitumen processing deal shows a negative C$2.5 billion.
The APMC in its annual report in August called the government’s commitment to Sturgeon “onerous.”
Overall, Premier Jason Kenney said the refinery’s losses have been a “bitter pill,” though he holds out distant hope that there “will be some revenue flow (from the facility) that will mitigate the risk and the loss to taxpayers.”
Savage said the negative value attributed to the refining agreements “represent a snapshot in time” - numbers she believes are “likely to improve,” yielding a “positive cash flow in the years to come.”
Those prospects depend heavily on an end to COVID-19 and a rebound in diesel prices.
For now, what they represent is a bruising setback for those who pin their hopes for a recovery in Alberta on “value-added” projects such as refineries and attempts at “diversification.”
Potential sales by Shell The prospect of building new downstream facilities to generate jobs could face an even harsher punishment if Royal Dutch Shell succeeds with plans to sell its Ontario and Alberta refineries and the remainder of its stake in the Alberta oil sands.
There is talk of a blockbuster deal in the offing, with Canadian Natural Resources tagged as the possible buyer of the refineries along with Shell’s 10% share of the Athabasca Oil Sands Project, plus Chevron’s 20% share of the same project at an estimated price tag of up to C$8.5 billion.
CBR contracts Lastly, the Kenney government is out C$2.1 billion after unloading crude-by-rail, CBR, contracts signed by the previous New Democratic Party government led by Rachel Notley.
But that loss is a small fraction of the province’s projected deficit of C$24 billion for the 2020-21 fiscal year.
Faced with stalled and slow-moving new pipelines to ship crude bitumen from Alberta to the U.S. and offshore markets, the Notley administration hitched its wagon to CBR, committing itself to ship 120,000 barrels per day for three years.
Following his election in mid-2019, Kenney pledged his government to sell off the CBR deal, a promise that started to crumble almost as fast as it was made. Although buyers were found for 50,000 bpd of the rail capacity, negotiations for the remaining 70,000 bpd have hit a wall.
COVID nosedive Crude demand went into a nosedive because of COVID-19, dragging some Alberta energy prices to their lowest point on record.
A spokesman for Savage said the Notley government should “never have entered (the CBR deals) and forced this type of risk on to the Alberta taxpayer. It was a terrible gamble with taxpayer dollars.”
Speaking of such gambles, the Kenney government is now under mounting pressure to explain its own ventures.
Ted Morton, a former Alberta finance minister, told the Calgary Herald “the track record is brutal. Let’s face it, for politicians - I don’t care what party - you are not playing with your own money.”
Blake Shaffer, an economist at the University of Calgary, said there is need for a “deep dive” by a third party to investigate the agreements. “We need to see the details. That’s a fair thing for Albertans to ask for when it’s our money that gets lost in these transactions.”
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