Advocates spar over government investment in new bitumen upgraders

Report says Alberta will be upgrading 26 per cent of bitumen by 2025

EDMONTON - A labour group on Tuesday urged a government committee to support construction of new upgraders to stop oil conglomerates who want to "rip and ship" Alberta's resources.

The Standing Committee on Alberta's Economic Future also heard from an industry group that said market forces alone should decide whether a new upgrader is necessary, and from a project proponent who would benefit from provincial support.

The committee is trying to decide whether the province should renew its commitment to the Bitumen Royalty in Kind Program, or BRIK, in which the province forgoes royalties in favour of bitumen and then uses that bitumen to feed upgraders.

Alberta Federation of Labour president Gil McGowan told the committee that upgrading bitumen in Alberta should be a condition of resource development, not an option, because it creates jobs and adds value in Alberta.

"It is our resource and it is we, the citizens of Alberta, who should be seizing the value opportunity, not some foreign-based energy giant," McGowan said. "It may make all sorts of sense ... for Exxon and Sinopec to rip and ship our raw resources, but just because it makes sense for them, it doesn't mean it makes sense for Albertans."

McGowan said Alberta has traditionally upgraded roughly two-thirds of its bitumen, a figure that will drop to 47 per cent by 2017, according to the Energy Resources Conservation Board. He said an independent consultant's report prepared for the province estimated that by 2025, Alberta would be upgrading just 26 per cent of its own bitumen.

Government reports obtained through freedom of information requests show exporting raw bitumen captures 35 per cent of the value, McGowan said, while upgrading to synthetic crude captures 70 per cent of the value and refining to diesel and jet fuel nets 100 per cent of the value.

"At the same time, there is compelling evidence that moving up the value ladder will also generate more revenue for government to help pay for things that Albertans need, like health care or education," McGowan said.

The BRIK program was developed in 2007, one year after former Premier Ed Stelmach famously said "shipping raw bitumen is like scraping off the topsoil, selling it and then passing the farm on to the next generation."

Stelmach pledged Alberta would upgrade 72 per cent of its bitumen by 2016. In May 2010, the province announced the first BRIK-backed upgrader would be built by North West Upgrading northeast of Edmonton.

The province initially backed a $6.6-billion refinery proposed by Alberta First Nations Energy Centre, but pulled support in February 2012. Teedrum president Ken Horn said the BRIK program could help make the First Nations refinery a reality.

"What is being considered in this room today is whether to introduce a second round of brick barrels under a request for proposals," Horn said, highlighting the economic benefits of the projects. "(The province is) facing a lot of challenges. ... These particular projects could yield a tremendous amount of money for the Alberta government."

Neil Shelly, executive director of Alberta's Industrial Heartland, said "overall, we think (BRIK) is a great long-term strategy for Alberta.

"It helps diversify our markets, it provides long-term stability in the future and it's definitely the role of government. When industry acts, they're acting on behalf of an individual company," Shelly said. "What may not make sense to an individual company may make sense to the province as a whole."

Emilson Silva of the University of Alberta School of Business said he believes the North West Upgrader should go ahead but doesn't think the market will support a second BRIK-backed upgrader.

Martyn Griggs of the Canadian Association of Oilsands Producers said the organization thinks BRIK is a good program but won't comment on whether implementing it is the right political choice for Alberta.

Patricia Nelson, vice-chair of the In Situ Oilsands Alliance, said if building an upgrader makes economic sense, the industry will do it.

"If it doesn't make sense, they will not. And I think you need to have some faith. We've had some pretty good ... trends with industry players here in Alberta making this a world-class place for energy development," Nelson said.

"So keep the faith."

The committee is expected to table its findings on April 30.

The Edmonton Journal, Tuesday, Feb. 26, 2013
Byline: Karen Kleiss

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