Stelmach Tories bet on long-term with North West upgrader announcement:   Current markets see more bitumen exported

The Stelmach government is forging ahead with an upgrader partnership designed to process more oilsands in Alberta at a time when market forces are working against their goal and the premier actively promotes sending the product to Asia.

Alberta Energy announced Tuesday it has launched negotiations with North West Upgrading that would see the company build a new bitumen processing facility northeast of Edmonton, in an effort to keep more value-added jobs and investment in the province.

The 150,000 barrels-per-day upgrader proposed by North West would be built in three stages and see the provincial government collect its royalty share of oilsands production in-kind, as it currently does for conventional crude. Up to 75,000 barrels per day would be processed on behalf of the province.

The government believes collecting the bitumen royalties in place of cash will spur more upgrading, refining and petrochemical development in Alberta.

However, the province recognizes current market conditions -- including a small price spread between bitumen and synthetic crude -- are leading to more product than it would like being shipped to the U.S. for processing.

"That's a two-edged sword. The province gets a higher royalty on raw bitumen but there's less incentive to upgrade it here. The margin isn't there," Energy Minister Ron Liepert said Tuesday.

"We have to look at it from a longer-term perspective. We believe the shrunken (price) differential is short term and that longer term there will be enough margin that it will be profitable."

Liepert believes forcing companies to process more oilsands in Alberta will attach too many strings and "drive away investment."

The provincial announcement comes as Premier Ed Stelmach is in China promoting Alberta's oilsands and looking to open the world's largest market to Canadian crude. Stelmach has advocated for Enbridge's controversial $5.5-billion Northern Gateway pipeline from northern Alberta to the port of Kitimat, B.C.

The project would see Alberta petroleum, including bitumen, shipped to the coast and on to Asia where it could be upgraded, sending more of the product out of the province for processing.

The government is also facing criticism for allowing an increasing amount of bitumen to be piped to the U.S., as natural market drivers and a glut of oilsands processing capacity south of the border make it an attractive option for petroleum producers.

In the fall of 2006, Stelmach pledged during the Tory leadership race to stem the oilsands movement to the U.S., making it a key plank in his platform and comparing it to "scraping off the topsoil" from prime farm land.

Alberta produces approximately 1.4 million barrels of oilsands per day, with between roughly 60 and 62 per cent of that upgraded in the province -- down slightly from 63 per cent at the end of 2006 -- according to the Canadian Association of Petroleum Producers.

The current ratio is also behind the province's goal of 67 per cent and its plans to increase it to 72 per cent by 2016.

And as the percentage of bitumen upgraded in Alberta continues to lag behind the government's target, energy economists believe the situation will only worsen as market forces send more product stateside and erode the value-added sector.

"There's less value-added to be created by upgrading than we anticipated there would be a few years ago," said Andre Plourde, a professor at the University of Alberta and member of the government's past royalty review panel.

Plourde worries that picking a single firm and offering preferential treatment for upgrading isn't necessarily "a way of getting good value for the owners of the bitumen," as it blocks price signals from other participants.

CAPP, the oilpatch's main lobby group, believes Alberta will continue to process between 60 and 65 per cent of bitumen in the province over the next 15 years as more private sector upgraders come online.

The Alberta Federation of Labour, which represents 27 public and private sector unions with about 137,000 workers, called the government's bitumen royalty-in-kind announcement "a small step in the right direction."

But AFL president Gil McGowan noted that upgrading an additional 75,000 barrels a day out of 1.4 million is "really just a drop in a very big bucket." He wants the government to consider more aggressive policies such as export restrictions, and publicly financing upgrading and refining projects.

"One day we hear the government promoting the Gateway pipeline, and the next day we hear (Stelmach) talking about keeping value-added jobs in the province," McGowan said.

Calgary Herald, Wed May 19 2010
Byline: Jason Fekete

Be the first to comment

Please check your e-mail for a link to activate your account.