The Canadian and Alberta governments may have come closer than ever before to running up the surrender flag on Keystone XL on April 28 when they agreed to turn their attention to domestic pipeline and upgrading solutions.
Following a meeting with Prime Minister Stephen Harper, Alberta’s interim Premier Dave Hancock — who is filling a position vacated in March by Alison Redford until the governing Progressive Conservative party can hold a leadership contest — told reporters that it seems the Obama administration is ready to further delay an XL decision.
He said that if the United States is “not keen” to access Canadian crude and benefit from the revenues and jobs that XL would create, the Canadian and Alberta governments “must make sure our energy industry gets the markets it needs.”
Those solutions include expansion of the Trans Mountain pipeline system and construction of the Northern Gateway pipeline to the Pacific Coast and approving TransCanada’s Energy East pipeline to the Atlantic Coast, Hancock said.
To make pipelines designed to primarily carry oil sands bitumen more palatable, he said the two governments are also open to pursuing more domestic upgrading of the heavy crude — seen as one of the most costly and least profitable options.
Deep pessimism
Although Hancock said XL is “not dead,” there is deep pessimism around the timing and whether a final decision will be made during the current Obama administration.
He said he and Harper agreed they will keep pressing President Barack Obama, but “it’s clear that the decision-making process (in Washington) is not anything we can influence and we need to move forward.”
“We need to keep up the discussion (about the benefits of XL). We also need to look at the Canadian alternatives,” he said.
The prospect of building upgraders in Canada and reducing the risks associated with bitumen spills on ocean water has been floated by two proponents — newspaper magnate David Black who is seeking financial and customer backing for a possible C$26 billion pipeline and upgrader at Kitimat and by First Nations-backed Eagle Spirit Energy and the Aquilini Group, which has pegged its costs of a 1 million barrels per day project at C$18 billion.
Little support for upgraders
But analysts, observers and industry players consistently warn that there is little support among prospective Asian buyers of crude for upgraders in Canada. The Asians have made it clear they prefer to refine the raw bitumen themselves by tailoring the end products to their own needs.
University of Calgary energy economics professor Michael Moore has repeatedly hammered home his view that the notion of simply building an upgrader to overcome opposition to crude bitumen exports is hopelessly naive and shows no regard “for what it costs to build and operate an upgrader or refinery.”
Dinara Millington, vice president of research at the Canadian Energy Research Institute, told the Vancouver Sun that “right now, the economics don’t support building a new upgrader in Canada, period.”
A report last year by consultant IHS CERA said that upgrading in Alberta or British Columbia was challenged because the price of synthetic oil was not high enough to cover the refining costs, adding that from 2000 to 2008 the capital costs of refineries or upgraders in Alberta rose 70 percent.
That partly caused Suncor Energy and its partner Total E&P Canada to abandon their C$11.6 billion Voyageur upgrader in 2013, despite having invested C$3.5 billion in the project.
