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The politics of pipelines


I like to think that everyone has a skill of some kind. That’s until I thought, “Wait, everyone has one? That means politicians, too?” This just cannot be – the only skill required is to be a lawyer, educated in the art of social shadow dancing; but that’s unfair. They are very good at justifying personal skills and projects that they should have kept personal.

Politicians at all levels are masters of all the ‘contortional’ variations of the Kama Sutra of taxation. Once out of this skill set, which they are pros at, then we, as consumers, must watch with financial horror at the processes of their decision-making!

A good for instance would be the soon-to-be commissioned first of three units of the Sturgeon refinery just outside Edmonton. Each of the three phases has been designed to process 50,000 bpd of raw bitumen, which has to be diluted to refine 78,000 bpd of dilbit. The end product is to be predominantly diesel, which will be marketed locally or exported.

Well that’s the plan anyway.

This project, initiated by the former Conservative Redford administration, was in response to strong constituent opinion that Alberta crude should be refined in Alberta for Albertans, and not shipped to the US for them to refine for export or domestic markets. The Alberta government will supply 75% of the feedstock under a royalty-in-kind formula and pay a process fee to the refiner.

The time period of this arrangement is, Ahem… 30 years! Six months after the first shovel broke ground on this refinery, which is really an upgraded upgrader, the cost jumped from $5.7 billion to $8.5 billion. This, to refine 50,000 bpd of bitumen! And there are two more phases in the plan so we are looking at a price tag of somewhere north of $20 billion to refine 150,000 bpd of raw bitumen.

But I have some questions:

  •  If this was, and I guess still is, a good idea from both the Conservatives and the inherited NDP governments’ perspective, why wouldn’t the resident refiners in Edmonton – Imperial Oil, Suncor, and Shell – have jumped on the idea some time ago? Surely with a total capacity of over 400,000 bpd, to say nothing of the vast upgrader capacity, with a tweak here and there, the cost would have come in at a fraction of $20 billion. But the political optics would have been clouded.

  •  Next, the new refinery will produce about 5 million litres of diesel per day, and the government says this will be sold locally or exported. To sell this locally means going up against the major oil companies and their marketing expertise. To sell the diesel it must be priced competitively against the majors who have a lot more experience and pricing buffers to fight with. There is already an excess of refining capacity in Alberta so adding another 5 million litres per day to the pool is just going to lower prices making the new refinery a financial question mark, let alone tripling the size of it in the future.

I’ll bet that the three resident oil companies in Edmonton are the largest taxpayers to the city, as well as the province.

Best to keep them that way.

Once phase one of the Sturgeon refinery is up and running, I would put it on the political mantel piece as a conversation starter.

Suggest they keep the conversation short.


Roger McKnight

Roger McKnight

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.
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1 Comment » for The politics of pipelines
  1. Lucien Bleau says:

    Maybe the Diesel fuel can be exported to Quebec via Energy East. I’m sure Mayor Coderre would appreciate a huge reduction of tanker trucks hauling from long distances to supply the product.

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