New report bullish on upgrading bitumen in Alberta

EDMONTON – Upgrading and refining bitumen near Edmonton is economically viable and would keep thousands of value-added jobs in the province, says a new report commissioned by the Alberta Federation of Labour.

The report by United Kingdom-based energy economist Ed Osterwald of Competition Economics Group will be presented Monday to business leaders, union officials and academics at MacEwan University.

“This is not the message we’ve been hearing from Alberta’s oilpatch or the provincial government and that’s why we want to start a discussion,� said Gil McGowan, AFL president. “Alberta should move up the value-added chain to create more jobs instead of shipping them to the U.S. gulf coast or China.

“We’re hoping this (report) will encourage our province to think like owners of the resource.�

Plans for several plants in a so-called “upgrader alley� northeast of Edmonton were abandoned half a dozen years ago, and the oil industry has repeatedly characterized the facilities as too costly and the shipment of raw bitumen to the United States as more profitable.

The most recent upgrading project in Alberta — the North West refinery near Redwater which is designed to produce diesel fuel — jumped in price to $8.5 billion in 2013 from its original tab of $5.7 billion.

The Osterwald report took into account the impact of inflation on the province’s high construction costs, and maintains that building a combined upgrader and refinery is viable despite those increases.

The report also notes that while a combined upgrader-refinery project near Edmonton is “commercially attractive and viable, the onus would likely be on the government of Alberta to move it forward at the initial stages at the very least.�

University of Alberta economist Andrew Leach has long questioned the economics of building upgraders or refineries in the province.

“It makes more sense to invest in an oilsands plant,� said Leach, who will attend the Monday discussion. “Building a refinery is just competing for the same skilled trades and it makes the oilsands more expensive.�

Also on hand Monday will be representatives from the Industrial Heartland and the Bowman Centre, a research centre in Sarnia, Ont., a city with a large petrochemical sector.

McGowan said former premier Peter Lougheed understood the need for keeping upgrading jobs in the province and called for “orderly development� of the oilsands.

Previous governments maintained a goal of upgrading 60 per cent of the bitumen produced in the oilsands. But only about 40 per cent is upgraded in Alberta currently and that will fall to about 24 per cent if Enbridge’s Northern Gateway pipeline from Bruderheim to Kitimat, B.C. is built, McGowan noted. The AFL commissioned the study after it uncovered a 2006 report on a similar proposal for a combined upgrader-refinery project. That report, commissioned by the Alberta government’s Hydrocarbon Upgrading Task Force set up by former premier Ralph Klein, also had a favourable view of building an upgrading and refinery complex. The 2006 report had never been released to the public, said McGowan.

Osterwald, who advises governments in the Middle East, also did a study for the British Columbia government on the potential of a new refinery at Kitimat.

spratt@edmontonjournal.com

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