EDMONTON – A $10-billion complex to upgrade and refine bitumen into gasoline is viable even in Albertaâ€™s high-cost economy, energy expert Ed Osterwald of London-based Competition Economics Group said Monday.
But a partnership with government is essential for the 500,000-barrel-per-day plant, which could also produce petrochemicals, possibly plastics, said Osterwald, who presented his report to 50 energy economists, union representatives and academics at MacEwan University.
The report was commissioned by the Alberta Federation of Labour.
â€œThe point is, here Iâ€™d get the players lined up beforehand,â€� said Osterwald. â€œFor something like this, industry has to see a long-term commitment from government to ensure a stable (fiscal regime). Without that, it will never happen.â€�
Government involvement could come through providing feedstock under a BRIK (bitumen royalties in kind) program, said Osterwald.
Under BRIK, the province takes a share of its royalties in feedstock and sells it to upgraders. Osterwald has worked a similar joint project between the Saudi government and Mobil Oil to build a petrochemical complex after Saudi Arabia decided it wanted to capture more value from its oil reserves, he said.
But energy experts at the presentation raised concerns that construction cost overruns that constantly plague oilsands projects would undermine the viability of this proposal.
Andrew Leach, a University of Alberta business professor, expressed skepticism with the reportâ€™s numbers. He noted the North West upgrader under construction was first costed at $5.7 billion, but the price tag is now estimated at more than $8 billion.
Matthew Foss of the provincial energy departmentâ€™s economic and marketing branch said the report lacked detail and its estimates donâ€™t match Albertaâ€™s experience with rising construction costs in recent years.
â€œThe question of how to get the most value out of our resource occupies a lot of our time,â€� said Foss. â€œBut this report does not jibe with anything weâ€™ve seen.â€�
Under repeated questioning, Osterwald said he ran different scenarios with increased inflationary costs and higher oil prices, and the numbers still showed the project is viable. he said.
â€œIn one case, we doubled the labour costs and it dropped the margins, but still was attractive,â€� he said.
Meanwhile, the Bowman Centre, a research group in Sarnia, Ont., a city with several petrochemical plants, is also trying to create more value-added industry from Alberta bitumen.
In August, the centre launched a feasibility study for a new, more technically advanced â€œpetrochemical refinery,â€� said spokesperson Walter Petryschuk.
â€œThis is not an Alberta problem, itâ€™s a Canadian problem,â€� said Petryschuk. â€œWe should be converting as much bitumen as we can.â€�
Osterwaldâ€™s study assumes a bitumen price the same as the world oil price â€” though bitumen is cheaper, making the project more attractive.
â€œThe outlook for the value of bitumen is going to get worse, and as the gap widens (between bitumen and oil price), the economics of this project get better,â€� he added.
Such a large project requires a lot of collaboration, but itâ€™s a project for the longer-term, with more than a 30-year lifespan, he added.
â€œYou have to look at this in the round â€” what are the secondary economic effects.â€�