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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

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

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

Real problems caused by low taxes, royalty giveaways and lack of upgrading strategy

Alison Redford's claims that Alberta's financial woes are caused by a 'bitumen bubble' are a distraction.

The 'bitumen bubble' Redford refers to is the difference between the price we get for our bitumen – known as Western Canada Select (WCS) – and the price of internationally traded oil – West Texas Intermediate (WTI).

"There has always been a difference in price between Alberta's bitumen and the West Texas Intermediate blend," AFL president Gil McGowan said, adding that the real causes of the budget deficit are royalty giveaways, tax cuts for the wealthy and the lack of a provincial upgrading strategy. "The budget crisis was not created by this. The real problem is the broken system for revenue generation in Alberta."

Although the difference in price between Alberta's bitumen and WTI crude has been around for a while, this is the first time an Alberta finance minister has raised it as a drag on the economy. In 2005 and 2006, the difference in price was larger than it is now, yet Alberta was enjoying massive surpluses.

"The difference might be greater than it has been for the last couple of years, but they're disingenuous to blame all their budget woes on this differential," McGowan said. "The government has always created budgets that take this difference in price into account. Last year, they delivered a budget that was exceedingly optimistic. Now they're acting shocked. It's a misleading distraction."

According to the government's own studies, Alberta could collect $11-billion more in taxes and still remain the lowest-taxed jurisdiction in Canada. If Alberta were to collect enough in taxes to cover its current projected deficit, we would still be the lowest-taxed province by about $8 billion.

"There have been successive years of massive tax breaks to Albertans who earn more than $250,000, there have been giveaways to mega corporations, and the royalty rates that Alberta charges for our resources are actually lower than they were under Ralph Klein," McGowan said. "If the government is going to tackle the deficit, they need to be honest about the causes, rather than hiding behind distractions."

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For a fact sheet on the bitumen 'bubble'

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].

Public sector unions are girding to fight impending provincial cutbacks driven by a multi-billion dollar cash crunch.

And a prominent economist says Premier Alison Redford's TV address to Albertans Thursday fails to come to grips with a looming budget shortfall larger than the province is letting on.

Even before Redford's speech, the Alberta Federation of Labour was readying a public relations offensive to offer alternatives to slashing spending on crucial programs, said AFL President Gil McGowan.

"The public sector unions have been meeting the past couple of weeks to discuss the implications of the budget and like a lot of Albertans, we're prepared for the worst," McGowan said Friday.

Alberta's fiscal chickens are coming home to roost after years of tax-slashing for wealthier Albertans and a resource revenue giveaway to a wildly profitable energy industry, he said.

"Our provincial GDP is literally 75 percent higher than the rest of the country yet we can no longer afford even to have run-of-the-mill services," said McGowan.

"I call it the great Alberta disconnect."

After meeting with Finance Minister Doug Horner last Tuesday, McGowan said it's clear areas like education and health care won't be spared drastic action in the budget expected in March.

"Everything we've heard is suggesting the budget won't be as bad as what we saw in the Klein years but worse than anything we've seen since," he said.

University of Calgary economist Dr. Jack Mintz said Redford's TV address muddied the fiscal waters, adding unmentioned obligations like financing requirements could see a shortfall of up $8-$10 billion.

"This government has considerable credibility problems as far as their budget plan," he said.

Even with budget cuts averaging 5% over all departments — or a $2 billion slim-down — an ocean of red ink will remain because the discount on Alberta bitumen will also persist for years, added Mintz.

"If they don't make major cuts this years, the sustainability fund will be depleted and they'll be borrowing because they don't want to take it from the heritage fund," he said.

Educators watched Redford with considerable interest, hoping the province's commitment made to them last year in a three-year funding pact will hold in March, said Calgary public school board vice-chairman Lynn Ferguson.

"We are certainly aware of the economic challenges facing the province," said Ferguson.

"I would hope since education is a consistent priority for Albertans, that value would be reflected even in a difficult budget year."

She noted there's a possibility the province could delay funding building projects, noting her district has 16 projects including modernizations and new schools, one of them a northeast high school.

"I would like them to know in a growing community like Calgary, new schools are always needed," she said adding 24 Calgary communities have no public schools.

Ferguson also voiced some concern about the fate of its full-day kindergarten program.

Redford said an unforeseen discount on the province's bitumen is largely to blame for the fiscal gap.

But the AFL's McGowan echoed right-wing critics like the Wildrose Party in arguing that situation has long existed.

"That differential between world oil and bitumen prices has existed for years," he said.

The Calgary Sun, Friday, Jan. 25, 2013
Byline: Bill Kaufman

CALGARY - Public sector unions are bracing to fight impending provincial cutbacks driven by a multi-billion dollar cash crunch.

And a prominent economist said Premier Alison Redford's TV address to Albertans Thursday fails to come to grips with a looming budget shortfall larger than the province is letting on.

Even before Redford's speech, the Alberta Federation of Labour was readying a public relations offensive to offer alternatives to slashing spending on crucial programs, said president Gil McGowan.

"The public sector unions have been meeting the past couple of weeks to discuss the implications of the budget and, like a lot of Albertans, we're prepared for the worst," McGowan said Friday.

Alberta's fiscal chickens are coming home to roost after years of tax-slashing for wealthier Albertans and a resource revenue giveaway to a wildly profitable energy industry, he said.

"Our provincial GDP is literally 75% higher than the rest of the country, yet we can no longer afford even to have run-of-the-mill services," said McGowan. "I call it the great Alberta disconnect."

After meeting with Finance Minister Doug Horner last Tuesday, McGowan said it's clear areas like education and health care won't be spared drastic action in the budget expected in March.

"Everything we've heard is suggesting the budget won't be as bad as what we saw in the (Ralph) Klein years, but worse than anything we've seen since," he said.

University of Calgary economist Dr. Jack Mintz said Redford's TV address muddied the fiscal waters, and unmentioned obligations like financing requirements could see a shortfall of $8-$10 billion.

"This government has considerable credibility problems as far as their budget plan," he said.

Even with budget cuts averaging 5% over all departments - or a $2-billion slim-down - an ocean of red ink will remain because the discount on Alberta bitumen will also persist for years, added Mintz.

"If they don't make major cuts this years, the sustainability fund will be depleted and they'll be borrowing because they don't want to take it from the heritage fund," he said.

Educators watched Redford with considerable interest, hoping the province's commitment made to them last year in a three-year funding pact will hold in March, said Calgary public school board vice-chairman Lynn Ferguson.

"We are certainly aware of the economic challenges facing the province," said Ferguson.

"I would hope since education is a consistent priority for Albertans, that value would be reflected even in a difficult budget year."

Sun News, Friday, Jan. 25, 2013
Byline: Bill Kaufmann

CALGARY - Public sector unions are bracing to fight impending provincial cutbacks driven by a multi-billion dollar cash crunch.

And a prominent economist said Premier Alison Redford's TV address to Albertans Thursday fails to come to grips with a looming budget shortfall larger than the province is letting on.

Even before Redford's speech, the Alberta Federation of Labour was readying a public relations offensive to offer alternatives to slashing spending on crucial programs, said president Gil McGowan.

"The public sector unions have been meeting the past couple of weeks to discuss the implications of the budget and, like a lot of Albertans, we're prepared for the worst," McGowan said Friday.

Alberta's fiscal chickens are coming home to roost after years of tax-slashing for wealthier Albertans and a resource revenue giveaway to a wildly profitable energy industry, he said.

"Our provincial GDP is literally 75% higher than the rest of the country, yet we can no longer afford even to have run-of-the-mill services," said McGowan. "I call it the great Alberta disconnect."

After meeting with Finance Minister Doug Horner last Tuesday, McGowan said it's clear areas like education and health care won't be spared drastic action in the budget expected in March.

"Everything we've heard is suggesting the budget won't be as bad as what we saw in the (Ralph) Klein years, but worse than anything we've seen since," he said.

University of Calgary economist Dr. Jack Mintz said Redford's TV address muddied the fiscal waters, and unmentioned obligations like financing requirements could see a shortfall of $8-$10 billion.

"This government has considerable credibility problems as far as their budget plan," he said.

Even with budget cuts averaging 5% over all departments - or a $2-billion slim-down - an ocean of red ink will remain because the discount on Alberta bitumen will also persist for years, added Mintz.

"If they don't make major cuts this years, the sustainability fund will be depleted and they'll be borrowing because they don't want to take it from the heritage fund," he said.

Educators watched Redford with considerable interest, hoping the province's commitment made to them last year in a three-year funding pact will hold in March, said Calgary public school board vice-chairman Lynn Ferguson.

"We are certainly aware of the economic challenges facing the province," said Ferguson.

"I would hope since education is a consistent priority for Albertans, that value would be reflected even in a difficult budget year."

SunNews, Friday, Jan. 25, 2013
Byline: Bill Kaufman, QMI Agency

It has been, for Alberta, a dismal new year. With pipelines out of the province effectively full, Canadian crude has become a discount brand, and once-expected money is evaporating. The future looks little better. Alberta's Finance Minister has taken to dramatic language to describe the financial duress striking his province.

"This is not an ordinary storm," Doug Horner said this week. The dipping price of Canadian oil will strip some $27-billion from the Canadian economy this year, he said in a speech to the Calgary Chamber of Commerce that was designed to soften the ground for what is certain to be a grim provincial budget on March 7.

Mr. Horner's argument hinges largely on "differentials." It's an industry term that describes, in the current context, price discounts. So for example, Canadian heavy oil – which is often traded as a blend called Western Canadian Select – has seen a differential of as much as $42 (U.S.) a barrel below the headline oil price numbers. In North America, the headline number is typically the "benchmark" West Texas intermediate (WTI) blend. A big dip away from West Texas intermediate means that Canadian oil is selling on the cheap – and cheap oil for buyers mean low prices for sellers, the reason Alberta is facing such dire straits.

Not everyone is buying it, though. Gil McGowan, president of the Alberta Federation of Labour, for example, says "the differential has been around for years, it's just now being used as a scapegoat to draw attention away from the government's failed revenue policies."

And it's true that differentials are nothing new. Canadian heavy oil takes more energy – and therefore more cost – to process into fuels like gasoline or diesel, so it's always sold for cheaper. According to Patricia Mohr, the Bank of Nova Scotia economist, that discount averaged $18.19 between 2005 and 2009. (Alberta budgets on a $15.97 differential.)

So a $40 discount for Canadian heavy oil is big – but nearly half that discount is perfectly normal. And over the past 12 months, the differential has averaged just over $25, which means it hasn't been much bigger than average.

Still, the current differential is obviously much bigger – and there are ways to sort out what it could be if there was plenty of space on pipelines. Take, for example, the differential between Louisiana light sweet oil (LLS) and Maya oil. Those two blends of crude traded on the U.S. Gulf Coast are roughly comparable to Canadian light oil and Western Canadian Select, respectively. In recent trading, the gap between LLS and Maya has been roughly $13. Some argue that in a logical world, the Canadian heavy oil discount would look more like that – a possibility that emphasizes how much is being lost today.

But the many different ways of calculating things have led to widely varying estimates of the missed revenues for energy companies today. The Canadian Association of Petroleum Producers did a back-of-the-envelope sketch and came to roughly $15-billion, based on current pricing. Martin King, a commodities analyst with FirstEnergy Capital Corp., pegs it at $18-billion.

The numbers are necessarily guesses, since they are based on estimates of what oil prices could be if pipelines weren't effectively full and product went to market unobstructed.

That said, the numbers can also be crunched to show much larger losses. If Canadian crude could make it to tidewater, it would access the kind of international prices that drive LLS and Maya. Compared to that, far more revenue is being forfeited – Mr. King puts it at nearly $30-billion, in the vicinity of the Alberta estimates. Still, that's far more hypothetical, since it's less certain that Canadian oil will achieve international prices, given the troubles industry has encountered building pipelines to the West Coast.

And at least part of the story is that the Alberta government didn't just underestimate differentials. It also overestimated the headline oil prices, expecting a WTI price of $99.25 when it's actually been about $93 over the past 12 months.

Either way, Mr. King said, current differentials are adding up to missed government tax and royalty revenues of about $4-billion to $6-billion. Most of that pain accrues to Alberta.

"You take the mid range of that; $5-billion that's wiped out just because we're taking a hit on spreads," he said.

The Globe and Mail, Tuesday, Jan. 22, 2013
Byline: Nathan Vanderklippe

Temporary Foreign Worker program under the microscope

• The program will be reviewed due to criticism over the approval of a deceitful application that allowed a northeast B.C. coal project to hire 200 Chinese nationals for jobs that could have been filled locally. The AFL has concerns that the review will be used as a smokescreen to hide deeper problems, and called for meaningful participation from labour activists and from the public at large.
  
  If they want to find the source of the problems with the Temporary Foreign Worker Program, the Harper Conservatives just need to look in the mirror," AFL president Gil McGowan said. "They created this monster by removing any checks and balances from the Temporary Foreign Worker Program, and by rubberstamping every application."
  
  For more information see Nov 9 AFL release and backgrounder.

AFL and UFCW lead the charge for food safety

• The Alberta Federation of Labour and United Food and Commercial Workers are calling on Premier Alison Redford to stand up for the province's beef industry by conducting an independent public inquiry.
  
  In a public letter sent to the Premier on Thursday, October 18, AFL president Gil McGowan and UFCW Local 401 president Doug O'Halloran explained the reasons a public inquiry into the causes of the E.Coli outbreak at the Lakeside plant in Brooks would be in the best interest of consumers, the cattle industry and of Albertans.
  
  Read the whole story:  Oct 18 AFL Release
  
  

Urgent Action

Help us defeat Bill C-377

• The Alberta Federation of Labour is calling on all of our affiliates and members to help quash the anti-union Bill C-377.
  
  This private-members bill is not about transparency; it is an effort on the part of the Harper Government to undermine the ability of unions to act as an effective voice for working people. The bill is designed to increase costs to unions and divert resources from collective bargaining and servicing towards accounting and bureaucracy.
  
  "This is a political bill. In the same way that they have cut funding to environmental groups and women's groups, they are trying to weaken and muzzle a strong progressive voice," Alberta Federation of Labour president Gil McGowan said. "We have an obligation to act together to protect the labour movement, and in doing so, protect broader civil society."
  
  To join the fight, contact your Member of Parliament:  CLICK HERE
  
  Download the AFL Submission to the House of Commons Standing Committee on Finance on Bill C-377:  CLICK HERE

Events

November 23-25: Parkland Institute's 16th Annual Fall Conference: Petro, Power and Politics

November 24: International Day for Elimination of Violence against Women

December 4: AFL Open House

December 7: Deadline to register for 2013 AFL/CLC Winter School

Did you know ...

• In 2010, 74 per cent of employers with workers under the TFW Program were found to be in violation of the Alberta Labour Code.
  
  
• There are currently more than 60,000 Temporary Foreign Workers in Alberta, giving the province the biggest TFW population in Canada as a proportion of the labour force.
  
  
• More than 50,000 additional TFW applications from Alberta employers were approved in 2011.
  
  
• Between 2002 and 2008, the number of TFWs present in Canada rose by 148 per cent, from 101,259 to 251,235.

CALGARY — The boom in U.S. shale oil and natural gas production threatens to cut off a key supply of skilled temporary foreign workers for Alberta companies, as more tradespeople opt to work on large infrastructure projects in the United States despite the lure of dramatically higher wages in Western Canada.

"There's going to be a battle between what goes up north versus what comes down south," said Mike Bergen, executive vice-president of Sugar Land, Tex.-based market research firm Industrial Info Resources.

Advances in drilling technology have unlocked new supplies of crude oil and natural gas from hard-to-reach reservoirs across much of the U.S. By 2025, shale gas alone could add more than one million workers to the U.S. manufacturing industry, according to a fall report published by PricewaterhouseCoopers, reducing costs for raw materials and energy by as much as US$11.6-billion annually.

"You get a big [liquefied natural gas] project that takes place and then you get several of these big refinery projects and then here comes a new ethylene plant," Mr. Bergen said. "That's going to draw a lot of labour."

Alberta's perennially tight labour market means average wages for electricians, boilermakers, plumbers and pipefitters, carpenters and structural steelworkers are anywhere from 70% to 136% higher than median U.S. wages, depending on the trade, according to a five-year outlook published Monday by Industrial Info.

The high wages contribute to an operating environment already seen as one of the most expensive regions in the world from which to extract oil, at a time Alberta's heavy blend of crude, Western Canada Select, is subject to steep price discounts in the U.S.

Larry Matychuk, business manager for the Edmonton-based Local 488 branch of the United Association of Plumbers and Pipefitters, said the base wage rate for members is $43.77 per hour plus benefits.

He said the union regularly turns to its U.S. affiliates for additional tradespeople during "shut down season," a four-month annual stretch when refineries and bitumen upgrading plants shut down for maintenance, exacerbating worker shortages.

"We've had 200 to 300 of them up here at a time," he said of the U.S. tradespeople. "We expect that that's going to increase. We offer jobs to Canadians first. However, there is work picking up across Canada now. There's work in Saskatchewan; there's work in Newfoundland. Work is starting to pick up in Ontario and B.C. We don't have access to as many of the Canadians as we used to have."

ExxonMobil Corp. said last week it was moving ahead with its US$14-billion Hebron development offshore Newfoundland and Labrador.

The project, designed to recover more than 700 million barrels of oil from the Jeanne d'Arc basin roughly 350 kilometres southeast of St. John's, will employ up to 3,500 people during construction, the Irving, Tex.-based energy giant said.

That could spell trouble for Alberta oil producers. The latest figures compiled by the Petroleum Human Resources Council of Canada suggest at least 9,500 jobs could go unfilled in the country's oil and gas industry by 2015.

Oil sands production is poised to increase 44% by then from today's levels, to 2.48 million barrels per day, according to the Canadian Association of Petroleum Producers.

An influx of U.S. tradespeople could help with facility expansions needed to boost production, Mr. Matychuk said, "if the Americans are available at the time when we need them."

Gil McGowan, president of the Alberta Federation of Labour, expressed concern about Americans filling Canadian jobs in the oil sands.

"We're not talking about sharing a cup of sugar with them," he said in an interview. "We're talking about jobs that pay in excess of $100,000 a year. We should not be allowing these jobs to go to people outside of Canada without first doing everything we can to provide opportunities to Canadians."

The point may be moot, as workers in the U.S. help rejig facilities to meet new sulphur specifications in gasoline plus accommodate soaring production of U.S. shale oil fields.

Refiners are "engaging in some pretty big projects" on the Texas Gulf Coast, Mr. Bergen at Industrial Info noted. "We're anticipating some pretty decent expansion work on distillate and crude conversions for taking the shale crude," he said.

Financial Post, Monday, Jan. 7, 2013
Byline: Jeff Lewis