Labour federation slams gov’t bitumen royalty program

A move by the province to increase bitumen upgrading on this side of the border has at least one labour group saying it's too little to be of any significance.

The Alberta Federation of Labour has long been asking the government to plug what it calls a "bitumen superhighway" taking Alberta jobs and bitumen south to the U.S., and says this plan does little to stem the flow. However, the Canadian Chemical Producers Association and Alberta's Industrial Heartland Association are applauding the government's action on the value-added program. But the Canadian Association for Petroleum Producers doesn't see it having much of an impact yet for oilsands operators.

On Tuesday, the provincial government issued a request for proposals to process a share of royalty bitumen in-kind in a move it says will increase bitumen upgrading capacity, enhance Alberta's value-added activity and strengthen Alberta's economy.

Simply put, Alberta will be taking up to 75,000 barrels of bitumen as royalty payment instead of cash and selling it to an operator at commercial prices to upgrade it in Alberta at no additional costs to taxpayers.

"If we take our royalty in cash, we get the cash, and that's the benefit the tax payers get out of it. That's it," said Jerry Bellikka, Alberta Energy spokesman. "If we take it in kind, like we do with conventionals, we have the opportunity to leverage that not only in jobs and economic growth, in upgrading potential, but also some downstream, some petro-chemical potential there as well. So we have the opportunity to leverage it several times and that's what we're trying to do."

Dec. 2 is the deadline for proposals.

"We've been waiting for two years for the Stelmach government's new plan for the oilsands, and now that we've seen it, the best word to describe it is 'underwhelming,'" said Gil McGowan, president of the AFL, one of the province's strongest proponents of an Alberta-first oilsands policy. He predicts thousands of jobs will continue to be "lost down the pipeline" to places such as the U.S. Midwest and Gulf Coast as a result of government's failure to adopt more aggressive policies.

Admitting he didn't have high hopes for the program to begin with, McGowan added he thought once it was rolled out it would provide larger volumes of bitumen for Alberta-based upgrading.

"When I saw the figures, 50,000 to 75,000, I was completely shocked because that's ... a drop in the bucket when it comes to the overall volume of oilsands production." He points out that it represents only 6.25% of the 1.2 million barrels per day produced annually from the Alberta oilsands. McGowan added bitumen collected under the program will, at most, provide feedstock for one new upgrader, and a small one at that. Comparisons with the capacity of existing upgrading facilities put the government's promised bitumen reserve in perspective: Syncrude Canada currently processes 300,000 barrels of bitumen per day; Suncor Energy processes 275,000 barrels and Shell Albian Sands-Scotford processes 155,000 barrels.

"The government's rhetoric on this issue has been big but the program they delivered is shockingly small," said McGowan. "If this is all the Stelmach government has to offer, then Albertans should get used to losing refining jobs to the U.S. because this program is not going to turn the tide."

But Bellikka defended the amount, saying, "We don't want to be the sole supplier of product to an upgrader. ... This is a reasonable figure to look at as an initial supply. It would guarantee a base level of supply to an operation. We would expect that they would go out there and find other sources as well, well beyond the 75,000 we're going to guarantee."

He explained the program has been introduced because it's an opportunity to build some more economic growth into the province to stimulate value more so than the industry hurting in this economic downturn.
Initially, bitumen volumes will not include Alberta's integrated operations such as Petro-Canada, Shell Albian and Syncrude Canada but there's some discussion with industry which may broker change to the program slated to start in 2012.

With the government getting in the upgrading game, Bellikka says government doesn't see it as competing with the major energy players.
"Looking out at the volumes that are being forecast five, 10, 20 years out, he sees a lot of room for a lot of players here," said Bellikka of Energy Minister Mel Knight's take on Alberta's participation.

Even if the program is successful in kick-starting one small upgrader, McGowan predicts it won't do anything to move the province toward the more ambitious goal of refining a greater proportion of Alberta oil into more valuable products like gasoline, diesel and jet fuel. He said the program sets its sights too low both in terms of volume and in terms of how high the government wants to climb the value ladder. He is still calling for more aggressive policies are needed, policies such as export restrictions, conditional lease agreements for companies working in the oilsands and even the creation of a Crown energy corporation to spearhead the construction and operation of Alberta-based upgraders and refineries.

With two-thirds of oilsands bitumen already being upgraded in Alberta, CAPP oilsands and markets vice-president Greg Stringham said the plans are to continue on as a number of operators plan to have upgraders included in expansion plans.

Meanwhile, Alberta's $13.3 billion a year petro-chemical sector is looking to bitumen upgrading as a opportunity to provide valuable feedstock for existing chemical facilities plus potential new investments.

"We recognize the challenges of implementing this vision," said Richard Paton, CCPA president, in a statement. "But a firm commitment to upgrading bitumen here in Canada is a step towards what we hope will be a sufficient series of projects that in the aggregate will represent world scale feedstock opportunities for the petrochemical industry."

Fort McMurray Today, Thurs July 23 2009
Byline: Carol Christian

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