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Providing coverage of Alaska and northern Canada's oil and gas industry
February 2019

Vol. 24, No. 5 Week of February 03, 2019

Alberta offers loan guarantee of C$440 million for partial upgrader

Gary Park

for Petroleum News

Stalled in its efforts to open up new markets for its oil sands output, the Alberta government is now attempting to make a breakthrough on the home front.

Taking an interventionist role, the administration of Premier Rachel Notley is offering a C$440 million loan guarantee to help push a C$2 billion partial upgrading facility near Edmonton across the finish line.

If completed according to plan, the Heartland upgrader proposed by Calgary-based Value Creation will turn 77,500 barrels per day of bitumen into a higher-value medium synthetic crude and ultra-low sulfur diesel.

By taking up Alberta’s offer, the company will make a final investment decision later this year, create 2,000 construction jobs and fulltime work for 200 once the facility starts operating in 2022.

The greater hope for the industry and the government is to fully commercialize the partial upgrading technology and unlock greater value for oil sands producers, generating revenue for provincial coffers.

“There is a promising set of technologies that are aimed at creating new upgraded bitumen products,” Notley told reporters.

“We have been spending decades sitting around, wringing our hands over the fact that we are not getting full value - or anything close to that - for the resources that are so fundamentally important to our economy.”

In its determination to shake off that frustration, the government is also providing C$1 billion in royalty credits that those willing to provide new petrochemical plants and another C$1 billion in loan guarantees and grants through a separate petrochemicals feedstock infrastructure program.

Third stage of diversification

Partial upgrading is viewed as the third stage of Alberta’s energy diversification strategy.

Notley said she expects more announcements in the coming weeks but would not indicate how many more upgrader projects are likely to receive government backing.

“We know we have to get off the roller coaster and make out economy more resilient,” she said.

In addition, Value Creation estimates its technology could reduce greenhouse gas emissions by 16 percent per barrel and increase pipeline capacity by 30 percent as its lowers the need for diluent to move raw bitumen to more distant markets.

Prasad Panda, energy spokesman for the United Conservative Party, said that if his party is elected in an election due in the March-May period it will “immediately review this proposed loan guarantee to assess its viability and whether it is a prudent risk for Alberta taxpayers.”

Value Creation confident

Columba Yeung, chief executive officer and the majority shareholder of Value Creation, expressed confidence that the upgrader will go ahead, noting that investors have already spent C$700 million and the project is “shovel ready.”

However, the company must still secure its financing, even though the government’s loan guarantee will help assure private sector investors about the security of the oil sands.

Kevin Birn, vice president of North American crude oil markets at IHS Markit, issued a vote of confidence in the government’s policy, saying “there is a lot of promising technologies and every producer seems to have their own technology.”

That was reinforced by a 2017 study by the University of Calgary’s School of Public Policy, which estimated more than 10 different partial upgrader technologies were under development.

It said that based on building a single facility capable of processing 100,000 bpd, the value gain could be C$15 a barrel of bitumen, pumping C$505 million a year into Alberta’s economy.

Ben Brunnen, a vice president with the Canadian Association of Petroleum Producers, said the offer to Value Creation is intended to stimulate investment “in value-added for our sector, so overall it’s positive.”

- GARY PARK






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