Providing coverage of Alaska and northern Canada's oil and gas industry
January 2016

Vol. 21, No. 5 Week of January 31, 2016

British Columbia refinery plans advance

Proposal for plant on BC coast submitted to regulators, second expected to follow suit, third plan seeking First Nations agreements


For Petroleum News

The race to build an oil refinery on the British Columbia coast is formally underway, with one proponent filing a 124-page project description to provincial and federal environmental agencies and the other expecting to submit its plan to the same regulators in February.

Shrugging off industry opinions that such enterprises are uneconomic, Vancouver-based Pacific Future Energy is doggedly pursuing its dream of building a plant to convert 200,000 barrels per day of oil sands bitumen into such products as diesel, gasoline, butane and liquefied petroleum gas.

It entered the regulatory stream in late January by submitting the main points of its idea to the British Columbia Environmental Assessment Office and the Canadian Environmental Assessment Agency, estimating it could take two years for that phase of the approval process to be completed.

Pacific Energy puts a current price tag of US$9 billion-US$11 billion on the venture and said it has no plans to seek federal or provincial financing.

The company, a unit of Mexico’s Grupo Salinas, a multi-industry enterprise, has targeted 2021 to start operations.

It hopes to establish the refinery and a tanker port on 1,600 acres of provincially owned land near Kitimat.

Samer Salameh, the project executive chairman, said along with the regulatory phase Pacific Future is giving priority to meeting environmental standards and winning over First Nations.

He said the filings are the first step towards “making this vision a reality.”

Eliminating petroleum coke

Salameh said his company is committed to eliminating from the refining process a byproduct called petroleum coke, which is a major source of carbon emissions.

The refinery would receive its bitumen by rail cars designed specially to hold and heat the bitumen over a 600-mile journey, mixing the feedstock with less than 2 percent diluent compared with 30 percent diluents used for delivery by pipeline.

Jacques Benoit, chief operating officer with Pacific Future, said the rail mix is known as neatbit, while the bitumen/diluent mix in pipelines is labelled dilbit.

Neatbit has a very low flammability threshold and, in the event of an accident, quickly becomes solid again once it hits the air to 20 degrees Centigrade, similar to lava out of a volcano, he said.

Benoit said about 15,000-20,000 bpd of neatbit is already being shipped from Saskatchewan to the Texas Gulf Coast.

He said refineries prefer neatbit because it is easier and cheaper to handle.

The competition

Pacific Future’s main rival is Kitimat Clean, privately owned by newspaper owner David Black, who has estimated his proposal to process 400,000 bpd of bitumen would cost US$22 billion to build a pipeline, refinery and port along with a fleet of tankers.

Black has commissioned engineering firm Hatch to draft a project description for environmental regulators, hoping to make his written submission in February.

Judith Dwarkin, chief economist at RS Energy Group in Calgary, told the Globe and Mail it has yet to be shown whether carrying bitumen by rail from Alberta to British Columbia can be done economically.

“You have to heat the bitumen to load and unload the rail cars. You need special insulated rail cars. And there are weight limitations on rail cars,” she said.

In addition, there is no certainty that Asian customers would accept refined petroleum products, preferring to keep the value-added end of the business under their control.

Also still a contender is Eagle Spirit Energy, a First Nations enterprise which hopes to convert 1 million bpd of bitumen in Alberta for transportation to a British Columbia tanker terminal.

It announced four months ago that it has obtained the support of every First Nations chief along the pipeline right of way in return for a promise to “fairly compensate” them through revenue, business, employment, education and job training.

The aboriginal communities are also being offered equity positions in the C$14 billion venture.

Eagle Spirit is currently working with its stakeholders on setting the final pipeline route to complete final binding agreements.

In an indirect warning to Kitimat Clean, the chiefs working with Eagle Spirit said they would refuse to allow oil shipments by rail through their traditional territories.

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