Alberta walks out on bitumen upgrader project

Alberta walks out on bitumen upgrader project

The Alberta’s government’s decision to withdraw support for a $6.6 billion oilsands upgrader could be another nail in the coffin for the Mackenzie Gas Project (MGP), says Western Arctic MP Dennis Bevington.

“The Mackenzie Valley pipeline is contingent upon building an upgrader for bitumen in Alberta,” he told The Journal.

Last Friday, Alberta Energy Minister Ted Morton pulled out of a conditional agreement with Teedrum Inc. and a number of First Nations looking to develop the Alberta First Nations Energy Centre, which would process 125,000 barrels of bitumen per day into synthetic crude, diesel, jet fuel and more.

The developers were seeking 93,000 barrels of bitumen a day from the Alberta government through the province’s bitumen royalty-in-kind program, which seeks to process two-thirds of the province’s bitumen inside its borders. Oilsands production is set to triple by 2035, with companies like Suncor, Total, PetroChina and others expanding their operations.

Morton refused the deal, telling reporters the government’s immediate objective would be to focus on the upgrading deal it signed with North West Upgrading Inc. last February.

“We were not convinced that the risk-benefit ratio was appropriate, particularly because we are committed to a significant upgrader project,” said Morton.

Alberta Party leader Glenn Taylor said the decision was “another blow to Albertans”  and a letdown for the Aboriginal community as it tries to move towards local autonomy and financial independence.

“Although the project went through the proper process, the PC government has made a seemingly arbitrary decision to pull support for a viable project,” he said.

Bad news for MGP

Bitumen upgraders require a steady flow of natural gas to upgrade crude to high-quality gas and diesel fuel – a dream opportunity for the type of demand that could finally get the MGP off the ground, said Bevington.

But a lack of industry interest in doing upgrading internally means at least one third of bitumen from Alberta is being exported for upgrading by other markets, including Asia and the US on the Gulf Coast.

Alberta Energy spokesperson Bart Johnson said that while the government attempts to take a “balanced approach” to oilsands processing with incentives like the bitumen royalty-in-kind program, it ultimately leaves energy decisions to corporations.

“We leave it to the market, to private industry, to determine what’s economical,” he said. “And so if it’s economical to build upgrading and refining in the province, private industry will do that and they have done some of that, but our goal is to get the best prices we can for our products, whether that involves exporting raw bitumen or exporting refined and upgraded products.”

He said industry was more interested in exporting bitumen to Asia and the US “at this time.” Companies are swayed by cheaper labour prices overseas and existing capacity in places like Port Arthur, Texas, which houses a cheaper alternative in older Venezuelan upgraders looking to process more product.

“We produce a lot of natural gas and a lot of oil and bitumen in this province, and we don’t produce it for ourselves. We produce it to sell to other markets,” said Johnson.

This is what concerns Bevington, who sees the proposed Enbridge Northern Gateway and Keystone XL pipeline proposals as added threats to Canada’s energy security. Currently, Canada imports much of its oil supply from overseas where the upgrading happens.

“The Northern Gateway and Keystone take the requirement of upgrading out of Alberta and put it elsewhere. Why don’t we simply do it in Canada?” he said. “Canada is the only energy exporter in the world without an energy plan. Stephen Harper said the other day in an interview, ‘I believe in free trade.’ Canada is the only one still buying into this nonsense. No where else in the world are they doing this.”

He said upgrading in Canada would ensure less harm to the environment than in other countries and use top-grade natural gas from the source, rather than the liquefied version necessary for shipping the product overseas.

“Thirty per cent of the gas is taken to liquefy it, so we’re losing all that just to ship it,” said Bevington.

Refined oil could then be shipped through existing pipelines to Vancouver, he said.

But with or without upgraders, Johnson said, the province is going to need more pipelines like Keystone and Northern Gateway to accompany expanding operations.

“There seems to be a common misconception that you don’t need pipelines,” said Johnson. “Even if we refined everything that was produced here, you’d still need the pipelines. In fact, you’d need more pipelines, different pipelines, to export the product to market.”

He said the pipeline running between Alberta and Vancouver does not have the capacity to move as much product as the province predicts it will need to meet future demand.

Still, Bevington worries that abdicating the upgrading capacity to other countries gives them a leverage tool that could put Canada in a sticky situation once dependent on outside agencies to do the refining.

“If the US had an upgrader they could set the price on us and we’d be dependent upon them as an exporter.”

He said the entire process shows a sad truth about energy policy in Alberta.

“It just shows the powerlessness of those (Albertan) politicians if the oil companies say they don’t want to build it,” he said.

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