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Notley calls for bids
Hopes for investment in new or expanded refineries to gain full resource value
Gary Park for Petroleum News
Alberta Premier Rachel Notley has issued an urgent plea for someone, anyone, with the financial means, to help build a new refinery in her province and pull her administration out of its financial swamp.
At the same time, anger in Alberta over the blockade mounted by other provinces against oil pipelines to tanker ports on the Pacific and Atlantic coasts has boiled over to the most strident talk in 40 years of the province leaving the Canadian confederation.
Notley announced her government has invited bids by Feb. 18 from companies willing to build a new refinery or expand an existing facility.
She said such an investment would help Alberta obtain full value for its energy resources.
“Let’s stop the talk and start acting; let’s start making, right here at home, more of the product that the world needs,” Notley declared.
Without disclosing what role her government would take in such a venture, she said “the project must have a return on investment for Albertans and it must diversify the way we use the energy resources that we as Albertans all own.”
Obvious candidate The most obvious candidate for increasing Alberta’s current refining capacity of about 500,000 barrels per day is the long-delayed North West Sturgeon - a joint partnership by North West Refining and Canadian Natural Resources that is scheduled, after six years of construction, to finally start commercial operation in 2019 at 50,000 bpd and expected to peak at 80,000 bpd.
The cost so far is C$9.7 billion, a substantial overrun from the original price tag. Even with support from the Alberta government, which will refine a portion of the bitumen it collects through a royalty-in-kind program, plans for two more phases of 20,000 bpd each have been withdrawn by North West until the company has a chance to evaluate the changing economic environment facing the oil industry and demonstrate that the initial phase is working as expected.
As the first new refinery in Canada since 1984, North West Sturgeon also poses to added uncertainty as the world’s only facility designed to minimize its environmental footprint through carbon capture and storage, while producing the cleaner, high-value products needed to meet North America’s energy demand.
No shortage of doubters Although Notley said “we know companies are interested; we’ve heard it first hand,” there is no shortage of doubters that Alberta can achieve its goal of finding new outlets for heavy crude through the refinery business, which is currently operating at near capacity in North America.
So far her plans to buy 7,000 new rail tanker cars and 80 locomotives, subsidize petrochemical pants and impose an 8.7 percent cut of 325,000 bpd on production have attracted extensive and solid backing.
Embarking on the refining sector, widely viewed as the riskiest element of the petroleum industry, is another matter.
Even the obvious candidates to build and operate a refinery have treated the idea with skepticism, notably Suncor Energy, by far the largest oil sands producer, which already upgrades or refines 70 percent of its production of close to 800,000 bpd in Alberta.
The company said the decision to impose a production cutback of 8.7 percent has “resulted in winners and losers in the market, shutting in valuable upgrading (of bitumen for further refining to fuels) throughout and has made transporting crude out of the province by rail uneconomic.”
It said government intervention “creates long-term market uncertainty and reduces any incentive for market participants to invest in crude oil processing facilities or commit to long-term transportation agreements.”
Plentiful refined oil Jean-Sebastien Rioux, a University of Calgary professor, said North America is awash in refined oil, while new Alberta refineries would be far removed from potential customers and would also need new pipelines.
He said it was “hard to comprehend who would stick their necks out in the current environment.”
Richard Masson, at the School of Public Policy at the University of Calgary and a former head of the Alberta Petroleum Marketing Commission, said he is not aware of any companies lined up to build a refinery.
“That’s not an easy thing to accomplish,” he said, noting the risks associated with Alberta’s harsh climate.
Roger McKnight, chief petroleum analyst with En-Pro International, said Notley’s gambit “sounds, if I may be so blunt, like a little bit of desperation,” while Drew Barnes, the finance spokesman for the opposition United Conservative Party, said the announcement suggests the premier’s plan to expand pipeline capacity is in doubt.
Production cuts Against this tide of opposition, Notley is refusing to step back, insisting her announcement of production cuts in 2019 is already working, as the price differential between Alberta heavy crude and the West Texas Intermediate benchmark has fallen from US$50 a barrel to as low as US$12.50.
“At least so far we’ve seen the right result, but you never want to shut down production as an economic plan. It’s counter-intuitive. It’s not a long-term solution,” she conceded.
Opposition from Quebec While that debate rolls on, another issue seized the attention of Albertans when Quebec Premier Francois Legault hardened his opposition to any talk of TransCanada reviving plans for its Energy East pipeline to ship 1.1 million bpd of Alberta and Saskatchewan oil through Ontario and Quebec to New Brunswick, with a large portion earmarked for export to Europe and Asia.
“It is very clear,” he told a meeting of Prime Minister Trudeau with Canada’s 10 provincial premiers and three territorial leaders, “there is no social license in Quebec for a pipeline running through Quebec.
“I’m not ashamed at all of refusing dirty energy, while we’re offering clean (hydro power) energy at a very competitive price,” he said, ignoring the C$11 billion a year it costs Quebec to import crude from Saudi Arabia, Africa and Venezuela as feedstock for Montreal and Quebec City refineries.
That stand coincided with word that under Canada’s equalization program, which sees “have” provinces (currently the oil producing regions of Alberta, Saskatchewan and Newfoundland) transfer a portion of its federal tax revenues to “have-not” provinces, the latest allocation shows Quebec will receive C$13.1 billion in 2019, compared with a combined C$11 billion for the other “have not” provinces.
Surplus vs deficit Quebec is currently sitting on a budget surplus of C$3 billion, although it has the second largest ratio of net debt to gross domestic product after Ontario, while Alberta is grappling with a budget deficit of C$7.8 billion, reflecting the sharp decline in oil and natural gas revenues.
Paula Simons, an Alberta member of the Canadian Senate said “our fellow Canadians are holding us hostage” by opposing the Energy East, Northern Gateway and Trans Mountain pipeline projects.
“It seems that every time we see a way to get our oil to (tanker ports) we are stymied by a broken regulatory model,” she said. “Small wonder if Albertans are starting to feel that Confederation itself is broken.”
Doug Black, also an Alberta Senator, said that for the first time in his life he hears talk of separation by Alberta from the Canadian Confederation.
“People are basically angry, frightened, disillusioned, but more importantly they have lost confidence in this ability of this country to work for them and their families,” he said.
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