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Vol. 23, No.38 Week of September 23, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Alberta refinery plan

State-owned Chinese enterprises, First Nations, Edmonton firm, ink C$8.5B deal

Gary Park

for Petroleum News

Two of China’s state-owned industry giants, a Middle Eastern chemical company and a group of Alberta First Nations have teamed up with a Canadian engineering firm to revive plans for a bitumen refinery.

The partnership of China Petroleum & Chemical Corp. (better known as Sinopec), China State Construction Engineering Corp. and Huantong Jinggang Chemical based in the Middle East, along with a consortium of Alberta indigenous groups have inked a deal with Edmonton-based Stantec to seek permits for a refinery and petrochemical complex north of Edmonton.

If built, the facility would be capable of processing 167,000 barrels per day of bitumen into gasoline and other products, making it the second largest refinery in Alberta, next to Imperial Oil’s 194,000 bpd plant in Edmonton.

SinoCan Global

To be labeled the SinoCan Global refinery, it would cost about C$8.5 billion, though financing and partnership arrangements have yet to be worked out, said Ken Horn, president of Alberta management company Teedrum.

He told the Globe and Mail that SinoCan hopes to receive regulatory clearance within two years from the Canadian and Alberta governments, six years after Alberta withdrew provincial support for a similar C$6.6 billion venture, arguing that the undertaking was too risky.

At the time, Horn accused the province of “bad-faith dealing” during the previous four years, having earlier indicated it would be open to providing 75 percent of the feedstock over 30 years under a royalty-in-kind program.

The government of then-Premier Alison Redford said it was not satisfied with the front-end work done by Teedrum.

Now Teedrum has given up seeking a government participant, turning instead to a “pure commercial deal” with the Chinese investors.

First Nations involvement

Victor Buffalo, a former chief of the Samson Cree Nation, said that getting the refinery plan to its current stage has taken 11 years of a “real struggle,” but leaves him “very excited” about the new chance for First Nations.

However, there are no details on which First Nations will be involved, although Stantec said a group called the Alberta First Nations Energy Development Fund will own an equity stake.

Horn said it is hoped to start construction in 2021 and commission the facility in 2025, adding that “being aligned with First Nations certainly helps our outcomes on the approval process,” noting that has been a “big concern and hurdle to get over.”

North West Refinery

SinoCan would be only Canada’s second new refinery in almost 40 years, coming on the heels of the Edmonton region’s C$9.5 billion North West Refinery, which opened last year and is nearing full capacity of 80,000 bpd. Depending on the refinery’s performance its capacity could be doubled.

The plant, which is jointly owned by North West Refining and Canadian Natural Resources, offers welcome relief for Alberta heavy oil producers, whose growth has been stalled by a series of scuttled pipeline plans to deliver their output to the United States and beyond North America.

The refinery is generating an extra C$23 for every barrel after paying fees to North West Refining and could head off some alarming forecasts that a number of factors will conspire against Western Canada Select, the key commodity from the Alberta oil sands.

The International Maritime Organization, which regulates the global shipping industry, has announced that shippers will switch to fuel blends that emit less sulphur dioxide beginning in 2020, a move which would likely result in a wider price spread between WCS and sweet benchmarks in 2020-22.

Ian MacGregor, president and chief executive officer of North West Refining, said expectations that price differentials between WCS and West Texas Intermediate will remain wide due to the lack of pipeline capacity strengthens his case that more Canadian crude should be processed in Alberta.

If that goal can be achieved, domestic oil producers could make better use of existing export pipelines because they would need to use fewer blending agents to dilute bitumen and enable is to flow more easily through pipelines, he said.

MacGregor said any outages on crude bitumen pipelines puts pressure Alberta’s storage capacity of 15 million barrels, further depressing the return on bitumen.

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