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Pursuing an exit for oil sands crude Three plans look for ways to bypass barriers to export from British Columbia; Kitimat Clean owner ‘never thought’ he’d explore rail GARY PARK For Petroleum News
Believers and backers of proposals to refine oil sands bitumen on the British Columbia coast and in Alberta to overcome a barrier to selling the crude in the Asia-Pacific region have yet to abandon their dreams.
There are three plans in the works - Kitimat Clean, which is proposing a 550,000 barrels per day facility; Pacific Future Energy, which has a first-phase refinery project of 200,000 bpd; and Eagle Spirit Energy, which hopes to convert 1 million bpd of oil sands bitumen for shipment to the coast.
If they can deliver refined or upgraded crude to the tanker ports, along with offering equity stakes to First Nations, the proponents are confident they have a chance to get around Canadian government plans to ban tanker movements of heavy crude and raw bitumen in British Columbia’s northern waters.
Kitimat Clean David Black, the owner of Kitimat Clean as well as his Black Press Group, is adamant that his plan for a C$22 billion refinery makes even more sense now that Enbridge’s Northern Gateway and TransCanada’s Keystone XL have effectively been sidelined.
“You’re going to have to focus on what it takes to get a West Coast exit for your oil,” which is “far more lucrative” than building pipelines to U.S. Gulf Coast refineries or to a tanker port in Atlantic Canada, he told the Financial Post.
The toughest selling job Black currently faces is negotiating contracts with major oil sands producers, without which he will be unable to obtaining project financing.
Although Black has yet to meet with cabinet ministers in the new Canadian government, he is certain a moratorium on crude oil tanker traffic in the challenging waters off northern British Columbia would not extend to refined fuels.
In addition, he said Kitimat Clean is reconfiguring its proposal to eliminate pipeline shipments of oil sands bitumen to the refinery, to “go where I never thought I would” by starting talks with Canadian National Railway, which has lines connecting the oil sands region with the deepwater port at Kitimat.
He said the discussions with CN Rail and terminal operators in Alberta have involved moving 100 percent bitumen by rail, thus avoiding the cost of blending the bitumen with diluents to facilitate its shipment by pipeline.
Black said that unlike Bakken crude from southern Saskatchewan and North Dakota, oil sands bitumen without diluents has a low flash point, which makes an explosion unlikely in a train derailment.
He said that if Kitimat Clean can win over oil sands producers and secure financing, the project could be operating within eight years, assuming the regulatory process would take two years followed by six years of construction.
Seven years ago, CN Rail, having acquired Athabasca Northern Railway that links the oil sands with Edmonton, estimated it could ship 4 million bpd of oil sands production to the British Columbia coast and southern U.S. for less than the pipeline tolls.
CN estimated it could handle 2.6 million bpd from Edmonton to Kitimat by adding 20,000 tanker cars to its fleet, adding up to 36 unit trains per day to access the Pacific Coast, in addition to the 130 trains a day it moves in Western Canada.
Pacific Future, Eagle Spirit Pacific Future has also been exploring the possibility of moving crude by rail, while Eagle Spirit’s concept involves twin pipelines - one to move refined crude and one to deliver natural gas to communities in British Columbia or to provide feedstock for LNG plants.
Both are understood to be engaged in negotiations with First Nations on possible equity stakes or economic benefits.
But, despite the view among many observers that Northern Gateway will never happen, others are not prepared to consign the twin pipeline system to the scrap heap.
First Nations The strangest twist involves First Nations’ communities, many of whom were responsible for prolonging regulatory hearings, while many others have an economic stake in the project that they don’t want to lose.
Enbridge - which claims aboriginal communities could share C$1 billion if the project goes ahead - has claimed that more than 40 First Nations along the pipeline right of way have given tentative endorsement to the venture, with 28 signing equity agreements giving them a 10 percent share of the profits and other incentives. Enbridge is expected to soon announce it has reached equity accords with 10 or more other native communities.
It is also in the process of working with First Nations, local communities and the British Columbia government to address 209 conditions set out in National Energy Board and Canadian government approval of the project last year.
Enbridge has indicated its total investment in Northern Gateway is now about C$500 million.
That represents a risk to the Canadian government of Prime Minister Justin Trudeau if Enbridge seeks legal recourse to recover what it has spent based on its “good faith” participation in the regulatory process.
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