CALGARY - A research paper is reinforcing the idea that Canada's resource industry is at risk of being left behind internationally if it doesn't find a way to get oil to receptive markets in the Pacific Rim.
The report from the School of Public Policy at the University of Calgary says demand for heavy oil from Alberta's oilsands lies primarily in southeast Asia, but warns the window of opportunity will begin to close.
Author Michal Moore says Canada needs to find a way to get into those markets in the next two to five years.
"If we can get our products into the market in that stream we're going to be competitive," Moore, a professor of energy economics at the school, said Wednesday when the paper was released.
"The equivalent of being late is you have to take a bigger and bigger discount on your product, or switch and start supplying a more higher valued-added product."
The Alberta government has turned up the volume in recent weeks about the hole the oilsands oil discount is eating in the province's bottom line. Premier Alison Redford has warned of a $6-billion revenue shortfall this year because oilsands crude has been fetching a significantly lower price than the U.S. and global benchmarks.
She's also referred to the buildup of crude in Alberta as customers get a cheaper product elsewhere as a "bitumen bubble."
Moore says competition is an issue for Canada.
"There's a lot of that oil out there in the market. There's plenty of capacity in the Pacific Rim/Asian markets for heavy oil like ours, but it's not infinite and it's certainly competitive."
Maya heavy oil from Mexico and Arab Heavy are very close to Alberta's product in weight and sulphur content, Moore said.
The challenge becomes getting Alberta oil to ports so it can be loaded onto ships and sent to willing customers in China, Japan or Korea. Moore said the most cost-effective way of doing that is through pipelines, but delays in the proposed Northern Gateway project to the West Coast present a problem.
Some Alberta heavy oil is already being processed at refineries in California. Moore also pointed to the possibility of shipping Alberta oil eastward to New Brunswick. And there is talk of a rail link to a port in Alaska.
New Brunswick Premier David Alward was in Alberta this week and said he'd welcome a pipeline carrying oilsands bitumen to the 300,000-barrel-per-day Irving Oil refinery in Saint John - the largest in Canada - with the possibility of exporting some of that crude by tanker.
But the Alberta Federation of Labour says Alberta should require energy companies to upgrade oil in the province before they are allowed to ship it.
Citing an Alberta Energy Department analysis obtained under freedom of information laws, the group argued Wednesday that oilsands mining projects with upgraders will become hugely profitable as the light-heavy oil price differential expands.
Federation president Gil McGowan said the Alberta government continues to approve in situ oilsands projects without requiring associated upgrading, which is flooding the U.S. market and driving down the price.
"These projects become less economically viable as the price difference between bitumen and crude expands," McGowan said in a release.
"And yet these projects have mushroomed throughout the province. We are flooding the market, and these documents show that the government knows it."
Alberta NDP Leader Brian Mason said the government's refusal to increase Alberta's upgrading capacity is part of a "bitumen bungle."
"Here we have a clear message from the market, from industry, from policy analysts and from the government's own research, yet Redford continues to bury her head in the oilsands and stubbornly insist that we can only talk about moving bitumen because that is what is in the ground," Mason said in a release.
Lethbridge Herald, Wednesday, Feb. 06, 3013
Byline: Bill Graveland, The Canadian Press
The Alberta Federation of Labour says documents obtained through Freedom of Information show that the provincial government has been told that upgrading bitumen in Alberta is a better financial option than sending it elswhere.
"The government's own experts, the government's own analysis, is showing clearly that it makes more sense to upgrade our bitumen rather than send it down the pipeline to places like the United States and China," said AFL president Gil McGowan.
However, multi-billion dollar price tags and labour shortages make upgraders challenging to build in Alberta and there are signs the industry doesn't believe they are economically viable.
Suncor has announced that it is reviewing and may consider indefinitely deferring or cancelling the Voyageur upgrader project in northern Alberta.
"If you want a canary in the mine shaft about the market incentives for upgrading, the decision by Suncor regarding Voyageur is that canary in the mine shaft," said University of Alberta business professor Mike Percy.
Percy thinks Suncor may be taking into account the effect of projects like the proposed East-West, Northern Gateway or Keystone XL pipelines.
He said that margins for upgrading may look good now, but he believes the price differential for western Canadian oil will return to historic levels over the next couple of years.
"It would make it very, very unlikely that an upgrader could be profitable," Percy said.
CBC Post, Wednesday, Feb. 6, 2013
EDMONTON - The Alberta Federation of Labour says the discounted price Alberta bitumen is fetching of the world market could provide an opportunity for more upgrading and additional jobs in the province.
About two weeks after Premier Alison Redford warned Albertans of a tough budget March 7, in which resource royalties are expected to plunge by $6-billion in the next fiscal year largely due to the lower price paid for the province's bitumen compared to other benchmark crudes, the AFL said there is a "silver lining" to the dismal fiscal projections.
Federation president Gil McGowan said a 2011 internal government report, obtained through a Freedom of Information request, shows that as the price differential between Alberta heavy oil and the benchmark West Texas Intermediate crude grows, mining projects that both extract and upgrade bitumen become more economically viable. Mines alone become less economically profitable, the data shows.
"The numbers do add up that there is a strong economic case for the type of development that Albertans want, which is upgrading and refining, and that the government knows that the economics are strong but has been telling us something else," McGowan said.
The AFL has long argued for more upgrading capacity in the province, saying it will create more long-term jobs and net better value for Alberta bitumen since the refined product garners a stronger price. However, on the same day as the AFL released its documents, Suncor Energy Inc. announced that a final decision on its planned multibillion dollar Voyageur upgrading project won't be made until the end of March due to a gush of higher quality light oil that has eroded the economic argument for the upgrader.
Alberta Energy Department spokesman Mike Deising said the private sector has the "paramount responsibility" to determine if building upgraders in the province is economically feasible.
"You don't make economic decisions on billion-dollar refineries or upgraders based on a price differential at one point in time," he said. "These are 30-year or longer assets and companies look 30 years out onto the horizon. Just because we're seeing a widening of the differential right now, that's not going to affect the business case that's going to be a 30-year asset, it's just going to be part of the decision-making process."
The differential between the two types of oil has been growing and spiked sharply in December. McGowan said it currently hovers in the range of 30 per cent. He called it an "incredible loss of value, an incredible loss of jobs and an incredible loss of opportunity" if the trend of refining less bitumen in the province continues.
The chairman of North West Upgrading Inc. spoke out this week about the benefits of refining more oil in Alberta.
The company is partnering with Canadian Natural Resources Ltd. to build the $5.7-billion Sturgeon upgrader and refiner through the province's bitumen-royalty-in-kind program. The scheme sends provincially owned bitumen to private sector refineries to be turned into higher-quality products. The Sturgeon facility is the only project that's coming to fruition through the program, which was started in 2010.
It is the first new refinery to be built in Alberta in 30 years.
McGowan said the bitumen royalty-in-kind program needs to be expanded.
Edmonton Journal, Wednesday, Feb. 6, 2013
Byline: Alexandra Zabjek with files from the Calgary Herald
AFL to release Government of Alberta analysis of bitumen economy
Edmonton – Secret government documents that show upgrading is economically viable will be released by the Alberta Federation of Labour at 10 a.m. on Wednesday, Feb. 6.
The documents, which were obtained by the AFL under the Freedom of Information and Privacy Act, include a Department of Energy analysis that deals with the economics of the energy industry. This analysis of taxes, royalties and upgrading policy was deemed 'secret' by the Government of Alberta.
"These documents paint a picture of a Government that knows what needs to be done, but is afraid to act," AFL president Gil McGowan said. "This 'bitumen bubble' has a silver lining, and the province knows it – they wrote the documents to prove it. Now they just need to have the courage to follow through on the evidence of their own research."
Who: Alberta Federation of Labour President Gil McGowan
Where: River Valley Room, Lobby Level,
Crowne Plaza Chateau Lacombe Hotel
10111 Bellamy Hill Rd NW, Edmonton
When: Wednesday, Feb. 6, 2013 at 10 a.m.
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email firstname.lastname@example.org.
Wants province to invest in oilsands refining capacity
CALGARY - The Alberta Federation of Labour called Wednesday for the province to burst the so-called "bitumen bubble" by creating a Crown corporation that could partner with industry to invest in oilsands upgrading and refinery capacity.
At a news conference in Calgary, AFL president Gil McGowan suggested the PC government take their cues from former premier Peter Lougheed, who created the Alberta Energy Company Ltd in 1973 to boost investment in the province's oil and gas industry. With the price differential between Alberta bitumen and benchmark West Texas Intermediate crude at historic levels (and expected to take a $6 billion bite out of provincial resource revenues in 2013-14), McGowan said the province needs to develop a "value-added" oilsands strategy that would produce a more marketable commodity.
"In this case, what the provincial government should be doing is taking the advice of former premier Peter Lougheed who said over and over again — in order to get the most for our resources, we have to start thinking like owners. And owners think not only about quick sales and quick production, but about the long-term benefits like best prices and job creation," McGowan said.
McGowan said the benefits of increased refining capacity in Alberta would include better prices for the product, and long-term job creation here in the province rather than down the pipeline in another jurisdiction. Currently, less than half of Alberta's bitumen is being upgraded before it leaves the province.
"Yes, we need pipelines to get our product to market, but the first thing the government should be doing is using whatever power it has at its disposal to make sure we're upgrading here. Then we can talk about how to get the upgraded product to market," he said.
University of Alberta energy expert Richard Dixon said while it's easy to see why the low price of bitumen might lead the AFL to make the argument, there's no guarantee the current price environment will last.
"We don't know what's going to happen," said Dixon, executive director of the U of A's School of Business. "By the time you build this refinery, by the time you build this upgrader, is that (price differential) going to exist still? ... It's a huge gamble."
Dixon pointed out that Suncor Energy Inc. is currently reviewing the cost effectiveness of its proposed Voyageur upgrader. A decision on whether it will go ahead with the project is expected by the end of March. And the North West Upgrading project — which will be the first new refinery to be built in the province in 30 years — is being encouraged along by the government's "Bitumen Royalty in Kind" (BRIK) program, where the province receives oil for its share of the royalty from producers and aims to stimulate value-added activities like refining and upgrading. He said if industry isn't rushing to build refineries right now, it's because it doesn't make economic sense.
Michael Moore, senior fellow with the University of Calgary's school of public policy, agreed.
"Whether it's a crown corporation to build roads or a crown corporation to build rocket ships, you've still got to cover costs. So why would a crown corporation be more efficient at this than Nexen or Shell?" he said.
Moore said Alberta is better off continuing down the path it's on now — working to improve access to markets that are already set up to handle oilsands product.
The AFL proposal was met favourably by Alberta Liberal Leader Raj Sherman, who only last week also proposed the establishment of a Crown corporation aimed at giving Albertans an equity stake in their natural resources. He said again Wednesday that it's time for the province to have that conversation.
"Premier Lougheed did it ... we need to revisit the policies of Premier Lougheed," Sherman said. "Let's have a shared partnership with these (energy) corporations. If they're going to succeed, let's succeed with them and let's let Albertans have a share of the profits."
Mike Deising — spokesperson for Alberta Energy Minister Ken Hughes — said the discussion around value-added activities in the oilsands is nothing new. He said the government has no interest in creating a new Crown corporation, but is very interested in continuing with its BRIK program.
"Minister Hughes has been quite clear in his public comments that if there are companies out there that have economically viable proposals that could be of benefit to the province, he's fully open to sitting down with industry and having conversations on those projects," Deising said.
Wildrose Leader Danielle Smith said the creation of a new crown corporation would be a "horrendous" idea.
NDP Leader Brian Mason said his party is open to multiple ideas on ways to enhance value-added aspects of Alberta's energy industry, but is not currently advocating the creation of a Crown corporation.
The Calgary Herald, Thursday, Jan. 31, 2013
Byline: Amanda Stephenson
with files files from James Wood, Calgary Herald
The time is right for Alberta to profit from bitumen's low price by processing more of it at home, say the province's unionists.
The so-called bitumen bubble makes it economically feasible for more local processing, which would create tens of thousands of jobs rather than piping them — and oilsands product — to the U.S. And China, Alberta Federation of Labour President Gil McGowan said in Calgary Wednesday.
"We should be taking advantage of this moment in time instead of wringing our hands over the price differential," McGowan said in the lobby of the Palliser Hotel, normally the domain of kibbitzing energy sector brass.
He said the energy industry itself has long embraced the theory and with the price differential only widening recently, it makes even more sense to add value to taxpayer-owned resources.
"Why would we accept 30 percent of the the value when we could get 70 percent?" said McGowan.
"We have to starting acting like the owners of our resources."
He also said the province needs to emulate the Lougheed Tory government of the 1970s by creating a publicly-owned company to encourage such activity.
"Alberta is the only major oil producing jurisdiction that doesn't have its own champion in the industry," said McGowan, adding former Newfoundland Premier Danny Williams has followed Lougheed's example.
The province's attempts to realize a world market price for bitumen have failed miserably, he said, and will continue to.
"We'll never get a world price because bitumen is not oil...we should start using policy levers to make sure we're upgrading here," he said.
McGowan noted that about 50% of the province's extracted bitumen is processed in Alberta — a number, he said, that's expected to drop.
While it's true the price differential makes refining more feasible, the increasing production of the rival light crude in the U.S. undermines that argument, said energy analyst Jackie Forrest.
"It has merits in the short term but now we have a domestic oil boom in the U.S. and that means Canadian light crude is going to need new markets," said Forrest, a director with energy consultant IHS CERA.
That means more pipeline capacity would be needed to reach those new markets, she said — west coast routes facing increasing resistance in Canada.
As for government involvement in refining, the weak economic merits would demand considerable taxpayer investment at a time of squeezed budgets, said Forrest.
"Because it's pretty challenging for the economics, upgraders in Alberta would take a lot of government support," she said.
Labour to build the refineries would divert already scarce workers from other royalty-generating sectors of the industry, she said.
"You could argue that's not the case with job creation, given the labour constraints in the province," said Forrest.
Calgary Sun, Wednesday, Jan. 30, 2013
Byline: Bill Kaufman
Alberta Federation of Labour says it's time for a new bitumen upgrader
The Alberta Federation of Labour says with the current sagging oil prices, this is the time for the province to invest in a new upgrader for oil sands bitumen.
"We should see it for what it is — an opportunity," says AFL President Gil McGowan. "Give the world what it wants, which is fuel in their tank and keep the jobs for us here in Alberta."
The provincial government expects a $6 billion shortfall this year because of the lower than expected oil revenues.
Gerry Angevine, an energy expert with the Frasier Institute, is not convinced building a new upgrader is a good idea.
"It's really something the government should stay clear of," Angevine. said.
She says if buidling a new upgrader was a good idea, private industry would do it and government subsidies are not a good idea either.
"If they were to default for one reason or another, at some point the taxpayers could be on the hook for some substantial amount of funds," said Angevine. "There isn't a single refiner in this country, which isn't making money hand over fist," said AFL President Gil McGowan who maintains it would create thousands of jobs.
CBC News, Wednesday, Jan. 30, 2013
The premier's claim that Alberta's financial woes are because of a bitumen bubble is being challenged by a provincial labour group.
The bitumen bubble refers to the growing gap between the price Alberta gets for its oil and the North American benchmark, West Texas Intermediate Crude.
Last week, the premier said the bubble will cost Alberta $6 billion in resource revenue in the coming fiscal year.
The Alberta Federation of Labour disagrees with Alison Redford's comments saying it believes the real causes of the budget crisis are royalty giveaways, tax cuts for the weather and a lack of provincial upgrading strategies.
"They've been using the differential as an excuse to explain why the province is running a deficit when the real problem is frankly that we have a broken system for taxes and royalties," said Gil McGowan, President, Alberta Federation of Labour.
McGowan says the AFL would like to see the government take advantage of the bubble to create opportunities for Albertans.
"The differential, far from being a disaster for Alberta, actually represents a unique and important opportunity for us to build the kind of energy future that most Albertans support and that's a future that's characterized by more Alberta-based upgrading which would create more jobs here in Alberta as opposed to sending down the pipeline to places like the United States and increasingly China," said McGowan.
The AFL says it believes 12,000 stable jobs could be created in Alberta if the province commits to upgrading our oil at home rather than sending it abroad.
CTV News, Wednesday, Jan. 30, 2013
When Premier Alison Redford talks about "a bitumen bubble," she's referring to the record amount of Alberta bitumen for sale, and the low price it's fetching in the U.S. these days.
That is partly because of competition from new supplies of higher quality crude oil from the U.S.
The price of bitumen dropped another $20 a barrel this month, so Redford's treasury will be short $6 billion by the end of next fiscal year.
Is this price gap between conventional oil and bitumen normal?
The fact is there has always been a gap between the North American price of conventional oil (West Texas International) and a barrel of sticky, thick bitumen, known as Western Canadian Select. (The world price, known as the Brent price, is another benchmark set by North Sea oil).
WTI is hovering around $95 a barrel, Brent slightly higher around $110, while bitumen, usually about $20-a-barrel less, dropped to $50 last month.
Bitumen fetches a lower price partly because it needs more upgrading before it can be turned into gasoline, says Michael Moore, energy expert in the University of Calgary's School of Public Policy. That costs money, so refineries won't pay as much for bitumen.
Usually the gap has hovers around 20-25 per cent, and in the last few months it went higher. But the gap has been higher in the past.
The lack of pipeline capacity makes it more difficult to get bitumen to market and using rail is expensive, says Moore. But there are other challenges, he adds.
The new supplies of lighter, easier-to-use oil from North Dakota are more attractive to refiners.
Then, not all U.S. refineries can handle bitumen, says Moore. Alberta bitumen has to get to specially adapted refineries on the U.S. Gulf coast.
But there's competition at those special refineries too - from heavy oil from Venezuela and Mexico which can get there cheaper, says Moore.
"So the refiners call the shots and they establish the discount. Our oil always had to go a long way and takes more processing."
So will more pipelines help?
Yes, the Keystone pipeline to the U.S. Gulf coast will be a big help, says Moore - "though we will still be trading in competition with other heavy oil like ours from Mexico. Right now, there's a lot of competition."
Gil McGowan of the Alberta Federation of Labour says there's no doubt Alberta is facing a glut in the oil market and that puts downward pressure on the price of bitumen.
The low price is a sign the market doesn't want to buy more Alberta bitumen, he says. The better solution is to upgrade the bitumen into synthetic crude in Alberta, "so we can sell a product the market wants."
"For Redford to suggest the only solution is to build more pipelines is not only simplistic, it is misleading. There are many other options," McGowan said.
Synthetic crude (upgraded bitumen), produced by a handful of oilsands companies, can be used in any refinery to make jet fuel or gasoline and it has occasionally fetched higher than the WTI price of oil, he noted.
U of C economist Ron Kneebone said the government has created its own problems by continuing to rely on volatile oil and gas revenues - despite frequent warnings from economists and its own advisers.
Calgary Herald, Wednesday, Jan. 30, 2013
Byline: Sheila Pratt, Edmonton Journal