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