Skepticism greets report pushing Alberta to upgrade bitumen

EDMONTON – A $10-billion complex to upgrade and refine bitumen into gasoline is viable even in Alberta’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.

“The point is, here I’d get the players lined up beforehand,� said Osterwald. “For 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.�

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 report’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 department’s economic and marketing branch said the report lacked detail and its estimates don’t match Alberta’s experience with rising construction costs in recent years.

“The question of how to get the most value out of our resource occupies a lot of our time,� said Foss. “But this report does not jibe with anything we’ve seen.�

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.

“In one case, we doubled the labour costs and it dropped the margins, but still was attractive,� 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 “petrochemical refinery,� said spokesperson Walter Petryschuk.

“This is not an Alberta problem, it’s a Canadian problem,� said Petryschuk. “We should be converting as much bitumen as we can.�

Osterwald’s study assumes a bitumen price the same as the world oil price — though bitumen is cheaper, making the project more attractive.

“The 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,� he added.

Such a large project requires a lot of collaboration, but it’s a project for the longer-term, with more than a 30-year lifespan, he added.

“You have to look at this in the round — what are the secondary economic effects.�

spratt@edmontonjournal.com

Leave a Reply

Your email address will not be published. Required fields are marked *