ALF V1

AFL releases Energy Department analysis obtained under FOIP

Edmonton – In-province upgrading is highly economical according to secret government documents released by the Alberta Federation of Labour today.

The documents, obtained by the AFL under the Freedom of Information and Privacy Act, include a Department of Energy analysis that deals with the economics of the energy industry. This analysis of taxes, royalties and upgrading policy was deemed ‘secret’ by the Government of Alberta.

“These documents paint a picture of a Government that knows what needs to be done, but is afraid to act,” Alberta Federation of Labour president Gil McGowan said. “This ‘bitumen bubble’ has a silver lining, and the province knows it – they wrote the documents to prove it. Now they just need to have the courage to follow through on the evidence of their own research.”

The internal government documents show that as the light-heavy oil differential expands, integrated oil sands mining projects – those with upgraders – become hugely profitable. Integrated mining operations (bitumen extraction with upgrading to Synthetic Crude Oil) are realizing unprecedented returns under the current conditions.

“The economics of upgrading depends on who you ask,” McGowan said. “If you are asking the companies who want to rip and ship our raw resources, then the answer will always be ‘upgrading doesn’t make economic sense.’ But if you ask Alberta taxpayers, or energy-sector workers, or even integrated oil sands mining companies – then yes, upgrading is highly economic.”

The Government of Alberta continues to approve in situ oil sands projects without requiring associated upgrading, which is flooding the US market and driving down the price.

“These projects become less economically viable as the price difference between bitumen and crude expands,” McGowan said. “And yet these projects have mushroomed throughout the province. We’re flooding the market, and these documents show that the government knows it.”

The Alberta Federation of Labour has spent several months seeking to access these documents, and has spent thousands on government fees through the Freedom of Information and Privacy Act.

“There’s no reason other than politics to keep these documents secret,” McGowan said. “These documents are crucial to the debate over the budget, and it was a disservice to voters to keep them in the dark about this research.”

AFL Backgrounder:  “Secret Government Documents Show Bitumen Price Differential Makes Upgrading Highly Profitable”

MEDIA CONTACTS:

Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].

AFL to release Government of Alberta analysis of bitumen economy

Edmonton – Secret government documents that show upgrading is economically viable will be released by the Alberta Federation of Labour at 10 a.m. on Wednesday, Feb. 6.

The documents, which were obtained by the AFL under the Freedom of Information and Privacy Act, include a Department of Energy analysis that deals with the economics of the energy industry. This analysis of taxes, royalties and upgrading policy was deemed 'secret' by the Government of Alberta.

"These documents paint a picture of a Government that knows what needs to be done, but is afraid to act," AFL president Gil McGowan said. "This 'bitumen bubble' has a silver lining, and the province knows it – they wrote the documents to prove it. Now they just need to have the courage to follow through on the evidence of their own research."

Who: Alberta Federation of Labour President Gil McGowan

Where: River Valley Room, Lobby Level,

Crowne Plaza Chateau Lacombe Hotel

10111 Bellamy Hill Rd NW, Edmonton

When: Wednesday, Feb. 6, 2013 at 10 a.m.

-30-

MEDIA CONTACT:

Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].

Wants province to invest in oilsands refining capacity

CALGARY - The Alberta Federation of Labour called Wednesday for the province to burst the so-called "bitumen bubble" by creating a Crown corporation that could partner with industry to invest in oilsands upgrading and refinery capacity.

At a news conference in Calgary, AFL president Gil McGowan suggested the PC government take their cues from former premier Peter Lougheed, who created the Alberta Energy Company Ltd in 1973 to boost investment in the province's oil and gas industry. With the price differential between Alberta bitumen and benchmark West Texas Intermediate crude at historic levels (and expected to take a $6 billion bite out of provincial resource revenues in 2013-14), McGowan said the province needs to develop a "value-added" oilsands strategy that would produce a more marketable commodity.

"In this case, what the provincial government should be doing is taking the advice of former premier Peter Lougheed who said over and over again — in order to get the most for our resources, we have to start thinking like owners. And owners think not only about quick sales and quick production, but about the long-term benefits like best prices and job creation," McGowan said.

McGowan said the benefits of increased refining capacity in Alberta would include better prices for the product, and long-term job creation here in the province rather than down the pipeline in another jurisdiction. Currently, less than half of Alberta's bitumen is being upgraded before it leaves the province.

"Yes, we need pipelines to get our product to market, but the first thing the government should be doing is using whatever power it has at its disposal to make sure we're upgrading here. Then we can talk about how to get the upgraded product to market," he said.

University of Alberta energy expert Richard Dixon said while it's easy to see why the low price of bitumen might lead the AFL to make the argument, there's no guarantee the current price environment will last.

"We don't know what's going to happen," said Dixon, executive director of the U of A's School of Business. "By the time you build this refinery, by the time you build this upgrader, is that (price differential) going to exist still? ... It's a huge gamble."

Dixon pointed out that Suncor Energy Inc. is currently reviewing the cost effectiveness of its proposed Voyageur upgrader. A decision on whether it will go ahead with the project is expected by the end of March. And the North West Upgrading project — which will be the first new refinery to be built in the province in 30 years — is being encouraged along by the government's "Bitumen Royalty in Kind" (BRIK) program, where the province receives oil for its share of the royalty from producers and aims to stimulate value-added activities like refining and upgrading. He said if industry isn't rushing to build refineries right now, it's because it doesn't make economic sense.

Michael Moore, senior fellow with the University of Calgary's school of public policy, agreed.

"Whether it's a crown corporation to build roads or a crown corporation to build rocket ships, you've still got to cover costs. So why would a crown corporation be more efficient at this than Nexen or Shell?" he said.

Moore said Alberta is better off continuing down the path it's on now — working to improve access to markets that are already set up to handle oilsands product.

The AFL proposal was met favourably by Alberta Liberal Leader Raj Sherman, who only last week also proposed the establishment of a Crown corporation aimed at giving Albertans an equity stake in their natural resources. He said again Wednesday that it's time for the province to have that conversation.

"Premier Lougheed did it ... we need to revisit the policies of Premier Lougheed," Sherman said. "Let's have a shared partnership with these (energy) corporations. If they're going to succeed, let's succeed with them and let's let Albertans have a share of the profits."

Mike Deising — spokesperson for Alberta Energy Minister Ken Hughes — said the discussion around value-added activities in the oilsands is nothing new. He said the government has no interest in creating a new Crown corporation, but is very interested in continuing with its BRIK program.

"Minister Hughes has been quite clear in his public comments that if there are companies out there that have economically viable proposals that could be of benefit to the province, he's fully open to sitting down with industry and having conversations on those projects," Deising said.

Wildrose Leader Danielle Smith said the creation of a new crown corporation would be a "horrendous" idea.

NDP Leader Brian Mason said his party is open to multiple ideas on ways to enhance value-added aspects of Alberta's energy industry, but is not currently advocating the creation of a Crown corporation.

The Calgary Herald, Thursday, Jan. 31, 2013
Byline: Amanda Stephenson
with files files from James Wood, Calgary Herald

When Premier Alison Redford talks about "a bitumen bubble," she's referring to the record amount of Alberta bitumen for sale, and the low price it's fetching in the U.S. these days.

That is partly because of competition from new supplies of higher quality crude oil from the U.S.

The price of bitumen dropped another $20 a barrel this month, so Redford's treasury will be short $6 billion by the end of next fiscal year.

Is this price gap between conventional oil and bitumen normal?

The fact is there has always been a gap between the North American price of conventional oil (West Texas International) and a barrel of sticky, thick bitumen, known as Western Canadian Select. (The world price, known as the Brent price, is another benchmark set by North Sea oil).

WTI is hovering around $95 a barrel, Brent slightly higher around $110, while bitumen, usually about $20-a-barrel less, dropped to $50 last month.

Bitumen fetches a lower price partly because it needs more upgrading before it can be turned into gasoline, says Michael Moore, energy expert in the University of Calgary's School of Public Policy. That costs money, so refineries won't pay as much for bitumen.

Usually the gap has hovers around 20-25 per cent, and in the last few months it went higher. But the gap has been higher in the past.

The lack of pipeline capacity makes it more difficult to get bitumen to market and using rail is expensive, says Moore. But there are other challenges, he adds.

The new supplies of lighter, easier-to-use oil from North Dakota are more attractive to refiners.

Then, not all U.S. refineries can handle bitumen, says Moore. Alberta bitumen has to get to specially adapted refineries on the U.S. Gulf coast.

But there's competition at those special refineries too - from heavy oil from Venezuela and Mexico which can get there cheaper, says Moore.

"So the refiners call the shots and they establish the discount. Our oil always had to go a long way and takes more processing."

So will more pipelines help?

Yes, the Keystone pipeline to the U.S. Gulf coast will be a big help, says Moore - "though we will still be trading in competition with other heavy oil like ours from Mexico. Right now, there's a lot of competition."

Gil McGowan of the Alberta Federation of Labour says there's no doubt Alberta is facing a glut in the oil market and that puts downward pressure on the price of bitumen.

The low price is a sign the market doesn't want to buy more Alberta bitumen, he says. The better solution is to upgrade the bitumen into synthetic crude in Alberta, "so we can sell a product the market wants."

"For Redford to suggest the only solution is to build more pipelines is not only simplistic, it is misleading. There are many other options," McGowan said.

Synthetic crude (upgraded bitumen), produced by a handful of oilsands companies, can be used in any refinery to make jet fuel or gasoline and it has occasionally fetched higher than the WTI price of oil, he noted.

U of C economist Ron Kneebone said the government has created its own problems by continuing to rely on volatile oil and gas revenues - despite frequent warnings from economists and its own advisers.

Calgary Herald, Wednesday, Jan. 30, 2013
Byline: Sheila Pratt, Edmonton Journal

Creating upgrading jobs in Alberta has never been more viable

CALGARY – The so-called "bitumen bubble" is actually an opportunity for the province to add value and create jobs, says the Alberta Federation of Labour. R

In a new report, the AFL shows that the difference in price between bitumen and crude makes it economically viable to invest in the infrastructure needed to upgrade Alberta’s oil resources here.

“The price of bitumen is low right now because we’re flooding the market with bitumen,” Alberta Federation of Labour president Gil McGowan said. “And the solution they’re proposing is building more pipelines to flood the market even further. That’s just not how markets work. We need to refine the bitumen here, so that we’re selling what the international markets want: synthetic crude.”

Using the government’s own estimates, the report shows that Alberta can build on the Lougheed legacy and create more than 12,000 long-term stable jobs through upgrading.

“The Conservatives have promised to make sure that 65 per cent of Alberta’s bitumen is upgraded here, but have repeatedly broken that promise because they say that the price of bitumen is too high,” McGowan said. “The price isn’t high anymore, but they’re still not listening to the markets. The differential should be seen as an opportunity, not a threat."

In light of Alberta’s projected $3-billion deficit, getting a fair value for the province’s natural resources is of paramount importance. According to the report, if Alberta were selling synthetic crude oil instead of raw bitumen, producers would be earning $38 more per barrel.

“By not requiring upgrading in Alberta, we’re pumping out more of the wrong thing,” McGowan said. “We’re shipping good oil sands jobs elsewhere, when the economics of upgrading make a lot more sense.”

30-

 AFL report: Bitumen glut has silver lining

MEDIA CONTACTS:

Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].

The premier's claim that Alberta's financial woes are because of a bitumen bubble is being challenged by a provincial labour group.

The bitumen bubble refers to the growing gap between the price Alberta gets for its oil and the North American benchmark, West Texas Intermediate Crude.

Last week, the premier said the bubble will cost Alberta $6 billion in resource revenue in the coming fiscal year.

The Alberta Federation of Labour disagrees with Alison Redford's comments saying it believes the real causes of the budget crisis are royalty giveaways, tax cuts for the weather and a lack of provincial upgrading strategies.

"They've been using the differential as an excuse to explain why the province is running a deficit when the real problem is frankly that we have a broken system for taxes and royalties," said Gil McGowan, President, Alberta Federation of Labour.

McGowan says the AFL would like to see the government take advantage of the bubble to create opportunities for Albertans.

"The differential, far from being a disaster for Alberta, actually represents a unique and important opportunity for us to build the kind of energy future that most Albertans support and that's a future that's characterized by more Alberta-based upgrading which would create more jobs here in Alberta as opposed to sending down the pipeline to places like the United States and increasingly China," said McGowan.

The AFL says it believes 12,000 stable jobs could be created in Alberta if the province commits to upgrading our oil at home rather than sending it abroad.

CTV News, Wednesday, Jan. 30, 2013

An Alberta judge has ordered the Canadian arm of a Chinese state-owned oil company to pay the biggest workplace safety fine in the province's history after the death of two foreign workers at a massive construction project about five years ago.

"The fine is good, but no amount of money can make up for what they did wrong in the first place," said Wayne Prins, Alberta director of the Christian Labour Association of Canada (CLAC).

"In our view, the fine sends the right message to contractors and people in the industry that you must follow the procedures and rules in place."

Alberta Provincial Judge John Maher ordered Sinopec Shanghai Engineering Company (SSEC) to pay a $1.5 million fine in a St. Albert court room on Jan. 24.

The fine is related to the deaths of a welder named Ge Genbao, 27, and an electrical engineer named Lui Hongliang, 33, at the Canadian Natural Resources Ltd. (CNRL) Horizon oilsands project.

They were killed on April 27, 2007 at the facility located north of Fort McMurray.

The Chinese temporary foreign workers were welding the wall structure inside a massive storage tank when the roof support structure collapsed onto them.

Two other foreign workers were seriously injured.

Under Alberta's Occupational Health and Safety Act, 53 charges were laid against three companies in the deaths of Genbao and Hongliang and the injuries of the other workers.

CNRL, who was in charge of the construction site at the Horizon oilsands project, hired SSEC to build the storage tanks.

SSEC is the Canadian subsidiary of Chinese state –owned oil company Sinopec.

Sinopec hired more than 100 temporary foreign workers in China and began work on the construction of two oil storage tanks in late 2006.

SSEC pled guilty to three charges in September 2012 of failing to ensure the health and safety of workers.

The company was given the maximum $500,000 fine for each charge. Despite this fact, some people believe the fine will do nothing to deter them from practices that endanger workers.

"Sinopec didn't just import workers from the third world, they also imported third-world health and safety standards," said Alberta Federation of Labour President Gil McGowan.

"Alberta missed its chance to send a message that Chinese companies working in the oilsands need to play by Canadian rules."

McGowan argued that the fines are too small to make a difference to the massive corporation.

"One and a half million dollars doesn't even amount to a rounding error in the annual budget of a monstrous global corporation like Sinopec," he said.

"This fine does nothing to dissuade them from playing fast and loose with the safety of their workforce."

The original plan was to build the tank walls first, then use them to support the roof while it was under construction.

That plan changed when the project fell behind schedule.

CNRL approved the construction change, but SSEC did not prepare any formal written procedures that should have been certified by a professional engineer.

As a result, other charges in this case include failing to ensure that a professional engineer prepared and certified drawings and procedures; failing to ensure the roof support structure inside the tank was stable during assembly; failing to ensure that U-bolt type clips used for fastening rope wire were installed properly; and failing to ensure that wire rope being used was safe.

"We shouldn't forget the circumstances that led to the deaths of Genbao and Hongliang," McGowan added.

"The company did not get the construction plans certified by an engineer. The wires weren't strong enough to hold up against the wind. It was a complete abdication of responsibility on the part of the employer."

Crown prosecutors and SSEC lawyers came up with an agreement, which allocates $1.3 million of the fine to create an education program to train temporary foreign workers about their legal rights, as well as workplace health and safety.

The program aims to hire 45 instructors to train about 5,500 workers in a three year period.

Journal of Commerce, Wednesday, Jan. 30, 2013
Byline: Richard Gilbert

Bitumen glut has silver lining (January 30, 2013)

The bitumen glut has a silver lining: Seizing Alberta's upgrading opportunity and creating long-term prosperity.
The low price of bitumen has a silver lining: a low price means upgrading oil sands here in Alberta makes good economic sense.
Upgrading accomplishes all our goals: more jobs for Albertans, better prices for our oil sands products, and a more reasonable pace of oil sands development.
We have an opportunity to build a diversified and sustainable economy, so let's seize it.

The time is right for Alberta to profit from bitumen's low price by processing more of it at home, say the province's unionists.

The so-called bitumen bubble makes it economically feasible for more local processing, which would create tens of thousands of jobs rather than piping them — and oilsands product — to the U.S. And China, Alberta Federation of Labour President Gil McGowan said in Calgary Wednesday.

"We should be taking advantage of this moment in time instead of wringing our hands over the price differential," McGowan said in the lobby of the Palliser Hotel, normally the domain of kibbitzing energy sector brass.

He said the energy industry itself has long embraced the theory and with the price differential only widening recently, it makes even more sense to add value to taxpayer-owned resources.

"Why would we accept 30 percent of the the value when we could get 70 percent?" said McGowan.

"We have to starting acting like the owners of our resources."

He also said the province needs to emulate the Lougheed Tory government of the 1970s by creating a publicly-owned company to encourage such activity.

"Alberta is the only major oil producing jurisdiction that doesn't have its own champion in the industry," said McGowan, adding former Newfoundland Premier Danny Williams has followed Lougheed's example.

The province's attempts to realize a world market price for bitumen have failed miserably, he said, and will continue to.

"We'll never get a world price because bitumen is not oil...we should start using policy levers to make sure we're upgrading here," he said.

McGowan noted that about 50% of the province's extracted bitumen is processed in Alberta — a number, he said, that's expected to drop.

While it's true the price differential makes refining more feasible, the increasing production of the rival light crude in the U.S. undermines that argument, said energy analyst Jackie Forrest.

"It has merits in the short term but now we have a domestic oil boom in the U.S. and that means Canadian light crude is going to need new markets," said Forrest, a director with energy consultant IHS CERA.

That means more pipeline capacity would be needed to reach those new markets, she said — west coast routes facing increasing resistance in Canada.

As for government involvement in refining, the weak economic merits would demand considerable taxpayer investment at a time of squeezed budgets, said Forrest.

"Because it's pretty challenging for the economics, upgraders in Alberta would take a lot of government support," she said.

Labour to build the refineries would divert already scarce workers from other royalty-generating sectors of the industry, she said.

"You could argue that's not the case with job creation, given the labour constraints in the province," said Forrest.

Calgary Sun, Wednesday, Jan. 30, 2013
Byline: Bill Kaufman

Alberta Federation of Labour says it's time for a new bitumen upgrader

The Alberta Federation of Labour says with the current sagging oil prices, this is the time for the province to invest in a new upgrader for oil sands bitumen.

"We should see it for what it is — an opportunity," says AFL President Gil McGowan. "Give the world what it wants, which is fuel in their tank and keep the jobs for us here in Alberta."

The provincial government expects a $6 billion shortfall this year because of the lower than expected oil revenues.

Gerry Angevine, an energy expert with the Frasier Institute, is not convinced building a new upgrader is a good idea.

"It's really something the government should stay clear of," Angevine. said.

She says if buidling a new upgrader was a good idea, private industry would do it and government subsidies are not a good idea either.

"If they were to default for one reason or another, at some point the taxpayers could be on the hook for some substantial amount of funds," said Angevine. "There isn't a single refiner in this country, which isn't making money hand over fist," said AFL President Gil McGowan who maintains it would create thousands of jobs.

CBC News, Wednesday, Jan. 30, 2013