If I were to personify the state of this country’s interest (or lack thereof) of advancing energy production and global investor visage, I would settle on that of a one-handed circus juggler! Yes, the exercise normally incorporates hand-eye coordination using two hands, which I will personify as the west and the eastern portions of the country.
In the west, Alberta premier Rachel Notley has launched yet another ball in the air. Her logic for doing this, I assume, is that the more balls thrown up in the air, the more likely one or more can be caught. Sort of like air bingo!
This week, the Alberta government announced that it will be looking for proposals at best, or expressions of interest at least, to build a new refinery or expand an existing one so that the province can take advantage of producing higher valued refined products, as opposed to exporting lower valued raw dilbit. I acknowledge and support Ms. Notley’s most recent efforts to kick-start the movement and pricing of Western Canadian Select (WCS) with production cutbacks, and the revving up of crude by rail option to the rudderless, Trudeauless Trans Mountain pipeline, which is rapidly becoming the White Elephant in the room. However, that being said, the addition of new refining capacity in Alberta requires some pragmatic Grinch-like comments.
The current Edmonton refinery capacity owned and operated by Suncor, Imperial Oil, and Shell, totals close to 470,000 bpd. The independent but provincially funded Sturgeon refinery, also in the Edmonton area, with a plated capacity of 80,000 bpd at a current cost of $9.2 billion, is designed to produce diesel, not gasolines. Construction began in 2013, but little or no diesel has been produced to date.
With this experience in the books, I would say that the government should stick to governing and let refiners do the refining. This means that any expansion or new refinery will have to come from one of the majors. But they already have ample, if not excess, capacity operating in Edmonton.
If a new refinery were to be built, it would have to have a capacity of at least 200,000 bpd, which would take eight to 10 years to come on stream at a cost of at least $10 billion.
Riddle me this: If new production were to happen, then where is the market, and how will the refined product get to the customer?
And, if the target is the Asian market, then it will have to be pipelined to the west coast by, you guessed it, the Trans Mountain.
So, the horse will still be pushing the cart.
When the WCS cutbacks were being drawn up, the integrated majors strongly objected because lower WCS production would increase its price and lower their refining margins. It will be a tough sell to get any one of them to invest in new facilities unless some form of production guarantee from the government is included. Over a 10-year construction span, the governing body could change at the whim of the electorate, so guarantees are temporary, if not temperamental.
I will now go into de-Grinching mode and suggest that one solution would be to add petrochemical production to the existing refinery hub, as demand for petrochemicals is increasing globally, and the pricing doesn’t have the volatility of refined transportation fuels. The second, although long shot suggestion would be to forcefully renew discussions on the Energy East pipeline. This is a long shot because Quebec has said recently that, “dirty” Alberta crude has “no social acceptability.” Wow! Does this mean that the 175,000,000 barrels of Saudi and other foreign crude that annually feeds Quebec refineries by tankers up and down the St. Lawrence River is socially acceptable?
Better call Belugas Anonymous for the answer. The circus is closed, and the balls are all being dropped.
~ The Grouch
Roger McKnight is the Chief Petroleum Analyst with En-Pro International Inc.
Roger has over 25 years experience in the oil industry, and has held senior marketing management positions responsible for national and international accounts. He is the originator of the card lock concept of marketing on-road diesel that is now the predominant purchase method of diesel in Canada. Roger's knowledge of the oil industry in North America, and pricing structures has resulted in his expertise being sought as a commentator by local, national, and international media. Roger is a regular guest on radio and television programs, and he is quoted regularly in newspapers and magazines across Canada. All posts by Roger McKnight