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Clearing one major hurdle Proponent of BC refinery says he has debt financing for C$25B venture; needs producer, customer, aboriginals, government backing Gary Park For Petroleum News
A Canadian newspaper publisher is gradually attracting some believers from the ranks of many skeptics, seven months after publicly disclosing his dream of building a 550,000 barrel-per-day refinery at Kitimat on the British Columbia coast.
With no previous background in the petroleum industry and faced with the reality that a new refinery has not been built in Canada since the 1980s, David Black says he is now less than two months from making a final decision to proceed with a C$25 billion project — C$16 billion for the refinery itself, C$6 billion for a crude oil pipeline, C$2 billion for a gas pipeline and C$1 billion for ocean-going tankers.
Black said he is personally prepared to pay the estimated C$2 million cost of steering the proposal through the government regulatory process.
More importantly, he claims to have debt financing arranged and be on the verge of signing a memorandum of understanding to finance the project, although the obstacles ahead are considerable — lining up offtake customers, winning over First Nations and gaining the support of oil sands producers and governments, notably the British Columbia administration.
Investors interested But few expected him to reach the point where he and Richard Cooke, senior managing director of Oppenheimer Investments Group for the Americas and Asia, reported the Swiss-based financing company has enough investors interested in the venture to fund the total cost through a debt-financing model.
Cooke said interest in the refinery is strong, adding “we have the funding committed to do this whole project.”
Black said the financiers have an interest in products the refinery would produce, including diesel and jet fuel.
He said “there are huge pools of money that are looking for infrastructure investment that is safe and (the refinery) is safe. We will be the lowest-cost provider, there is a 100-year supply of oil and a 100-year supply of gas. That is a perfect situation.”
While working on the financing issues, Black has also opened exploratory talks with First Nations on a possible ownership stake in Kitimat Clean, the private company he has established to develop the refinery.
Pressure on Northern Gateway Both Black and Cooke expect the proposal will put pressure on Enbridge’s proposed Northern Gateway pipeline, which has encountered stiff opposition from aboriginal communities, environmentalists and local residents to the plan for shipping 525,000 bpd of oil sands bitumen from Alberta to the deepwater port at Kitimat.
Todd Nogier, a spokesman for Enbridge, said his company is “neutral” on the refinery proposal, leaving the decision on how Northern Gateway is used over to shippers.
Black said “very good progress” is being made on all fronts, including the completion of preliminary design work for the plant.
Refined fuels from the refinery would be transported to markets around the Pacific Rim, he said, adding that potential Chinese customers have indicated they would sooner buy refined products than bitumen.
He told the British Columbia Chamber of Commerce that the projected refinery cost is up C$3 billion from his initial estimate last summer, largely because of changes to technology he plans to use to reduce greenhouse gas emissions.
He said the refinery will consume about 1.25 billion cubic feet per day of British Columbia gas and process Alberta crude bitumen that is otherwise “in danger of being landlocked.”
“By changing the North American supply/demand situation this will have the additional positive effect of reducing the C$25 billion per year of existing sales discounts on all Canadian oil exported to U.S. refineries,” Black said.
He said that by eliminating coking equipment from the original design in favor of gasification and using Fischer-Tropsch equipment, GHGs per barrel of refined products would be lowered by 50 percent. The Fischer-Tropsch process converts bitumen into lighter fuels by injecting large quantities of natural gas rather than breaking down heavy crude molecules through a coking process.
New processing approach Black also announced that Calgary-based Expander Energy has recently patented a new approach for processing heavy oil and the Kitimat refinery would be the first to use the technology, which he estimated would be “roughly equivalent to running 40 diesel trucks or buses.”
He argued that turning bitumen into gasoline or diesel, which would evaporate if spilled, should remove a major worry for British Columbia residents about the risks to their coastal waters.
To support that view, he commissioned a poll through the Mustel organization, conducting 800 interviews between February 18 and 24 and discovered that 80 percent of British Columbians were aware of the proposal.
The respondents, after being told the project would create 3,000 permanent jobs and 6,000 construction jobs, generate tax revenues and use technology that would minimize pollution and greenhouse gas emissions, indicated strong support for the venture.
While 70 percent of British Columbia residents are opposed to Northern Gateway, that number was almost reversed when the refinery component was included.
Economic benefits cited The reasons most cited for support were economic benefits for British Columbia (20 percent) and job creation (17 percent), while those opposed cited environmental concerns (21 percent), concerns about oil spills (9 percent) and distrust about the information provided (9 percent).
If an environmentally sound method could be demonstrated for shipping crude bitumen from Alberta to the refinery, the poll indicated backing for the proposal increased to 66 percent and opposition dropped to 24 percent.
Among the doubters, University of Alberta business professor Richard Dixon said the idea is a gamble given that bitumen prices would have to remain at today’s levels — C$40 per barrel below world oil prices — to make economic sense.
“What (Black) is gambling on is that the price differential will hold for five years” and that’s unlikely, Dixon said.
He said the industry is cautious about new refineries when it is cheaper to retool existing plants to handle heavy crude.
Suncor Energy, the largest oil sands producer, and the Canadian Fuels Association say it is premature to comment on Black’s proposal.
But Suncor has recently signaled its own unease about building upgrader to convert bitumen into synthetic crude for refining into transportation fuels by shelving plans for its C$21 billion Voyageur upgrader.
Aboriginal criticism Art Sterritt, a spokesman for Coastal First Nations, an umbrella group representing some of the largest aboriginal communities on British Columbia’s north and central coasts, criticized Black for “making the same mistakes as Enbridge by going public and trying to jam people on the project” before talking to First Nations.
Black endorsed as “commonsense” the five conditions British Columbia Premier Christy Clark has attached to Northern Gateway: Full environmental approvals, the best possible marine spill protection for the coast, enhanced spill cleanup systems along the pipeline route, meeting First Nations’ concerns and guaranteeing British Columbia s share of the economic benefits for taking the bulk of environmental risks.
Clark told the British Columbia legislature her government, which faces defeat in a May 14 election, “wants to use every tool at our disposal to move the proposal forward where it can be judged on its merits by a robust, rigorous and, most importantly, independent environmental process (free) from political interference.”
She put the refinery in the same league as her government`s support for LNG projects, calling for a cooperative effort to address the legitimate environmental and safety concerns and find a way to get to “Yes” on projects that will grow our economy.”
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