CALGARY - The inability to get western Canadian crude to the right markets is costing the country's economy dearly, according to a new report paid for by the Saskatchewan government.
Each stalled pipeline project means a loss to the Canadian economy of between $30 million and $70 million every day, said the report penned by the Canada West Foundation, a Calgary-based think-tank.
"The economic impact is just devastating," foundation CEO Dylan Jones said in an interview Thursday.
The Saskatchewan government paid $50,000 to commission the report.
Premier Brad Wall has been an outspoken supporter of new pipeline projects, most recently signing a letter, along with 10 U.S. governors, urging U.S. President Barack Obama to approve the Keystone XL pipeline.
Alberta's oilsands, the third-largest reserves on the planet, get most of the attention when it comes to the pipeline debate.
But Saskatchewan, which has considerable oil resources of its own, is affected by the pipeline pinch as well, Wall said in Regina.
"We hope that this helps get the message out, even to a greater degree than it is now, that we have a pipeline capacity issue in western North America and that's costing Saskatchewan people a lot of money," he said.
"Because of the pipeline capacity issue, we're losing up to 19 to 20 per cent return on the taxpayer's resource."
In recent months, oilsands crude has been trading at a painfully steep discount to both U.S. and global light crude benchmarks. It's a trend that has both eroded oilpatch profits and caused the Alberta government to warn of a $6 billion revenue shortfall this year.
At the heart of the problem is a lack of adequate pipeline capacity to get that crude to the markets that want it most. Proposals of eastbound, westbound and southbound pipelines are in varying stages of development, but environmental opposition and political wrangling makes their fates uncertain.
Most pipeline capacity out of Western Canada heads to the U.S. Midwest, which Jones calls "the worst place in the world to be selling oil" as booming production from areas like North Dakota floods the market.
The Canada West Foundation says new pipelines need to be built in the right directions.
A massive expansion to Trans Mountain and Enbridge's Northern Gateway proposal would enable crude to be transported to Asia via tankers from the West Coast, but they face stiff opposition within B.C. on environmental grounds.
TransCanada Corp. is awaiting final U.S. government approval for the northern leg of its Keystone XL pipeline, which would allow Canadian crude to flow to refineries on the Gulf Coast that are thirsty for heavy oil. Construction on the southern leg between Oklahoma and the Gulf is underway.
Refineries in eastern Canada and the U.S. Eastern Seaboard rely on pricey imported crude from overseas, which is hurting their economics. Both TransCanada and Enbridge have projects in the works to send western crude eastward through reconfigured pipes that are already in the ground. It's possible those lines could extend all the way to New Brunswick, home to Canada's largest refinery.
"If pipeline project proposals such as Trans Mountain, Keystone XL and Northern Gateway don't move forward, Canada will be foregoing $1.3 trillion in economic output, 7.4 million person-years of employment and $281 billion in tax revenue between now and 2035," said Michael Holden, the foundation's senior economist and author of the report.
While most of the benefits would accrue to Alberta, Holden said those three projects would add a combined $84 billion to economies elsewhere in Canada.
The report calls on provinces to work together to tackle the problem, the way Alberta Premier Alison Redford and New Brunswick Premier David Alward did earlier this week in touting an eastbound oil pipeline.
Keith Stewart, climate and energy campaign co-ordinator at Greenpeace, says the Canada West Foundation report "misses the point."
"If we want to avoid climate chaos, we have to stop building fossil fuel infrastructure like new tar sands pipelines," he said.
"Canada can, and should be a winner by building the climate-safe, green energy economy that our kids need and deserve."
The Alberta Federation of Labour also has a different view of the issue.
The group said in a report earlier this week that Alberta should require energy companies to upgrade oil in the province before they are allowed to ship it.
Federation president Gil McGowan said the Alberta government continues to approve in situ oilsands projects without requiring associated upgrading, which converts bitumen from the oilsands into light oil refineries can use. That's flooding the U.S. market and driving down the price.
Environmental opposition has been particularly strong to pipelines that would ship oilsands bitumen, the thick, tarry stuff that needs to be diluted in order to flow.
And that alone might force governments to take a hard look at upgrading and refining opportunities at home, said Wall.
"There's all manner of politics, some of it based on reality, some of it not," said Wall.
"If we can't get pipelines built because of it, we just have to start not moving bitumen, but moving a refined product."
Times Colonist, Thursday, Feb. 7, 2013
Byline: Lauren Krugel, The Canadian Press with files from Jennifer Graham in Regina
Alberta's current financial woes may offer a silver lining, says the Alberta Federation of Labour. Two weeks after Premier Alison Redford warned the province that resource royalties were expected to drop by $6 billion in the next fiscal year, AFL President Gil McGowan says Alberta's "bitumen bubble" could provide an opportunity for increased upgrading and refining jobs in Canada.
"The price of bitumen is low right now because we're flooding the market with bitumen," says McGowan.
"The solution they're proposing is building more pipelines to flood the market even further. That's just not how markets work," he said. "We need to refine the bitumen here, so that we're selling what the international markets want: synthetic crude."
McGowan justifies his arguments with a 2011 internal government report the labour group obtained through a Freedom of Information request. The report shows that the price difference between Alberta's heavy oil and the benchmark West Texas Intermediate grows, resource projects that both mine and upgrade bitumen locally become economically viable, while only mining becomes less economically beneficial.
"These documents paint a picture of a government that knows what needs to be done, but is afraid to act," said McGowan. "This 'bitumen bubble' has a silver lining, and the province knows it. They wrote the documents to prove it."
There are currently seven pipelines that carry oilsands crude to markets outside Alberta, with the majority heading to the U.S. Midwest.
The AFL, and several other Canadian labour groups, have argued against the proposed Keystone XL and Northern Gateway pipelines, instead favouring more domestic refining and upgrading operations. The AFL argues that building more refineries in Alberta, instead of relying on refineries in the U.S. and Asia, will create more long-term jobs and net better value for the oilsands, since the refined product garners a stronger price.
However, the day before the AFL released their documents, Suncor Energy announced its planned Voyageur upgrading project might not happen due to decreased demand for Canadian crude. A decision regarding the project will not be made until the end of March.
At the same time, North West Upgrading Inc. has partnered with Canadian Natural Resources Ltd. to build the $5.7-billion Sturgeon upgrader and refiner. The plan will provincially-owned bitumen to privately-owned refineries. The Sturgeon project will be the first refinery to be built in Alberta in approximately 30 years.
"By not requiring upgrading in Alberta, we're pumping out more of the wrong thing," McGowan said. "We're shipping good oilsands jobs elsewhere, when the economics of upgrading make a lot more sense."
Fort McMurray Today, Thursday, Feb. 7, 2013
Byline: Vincent McDermott
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
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
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 [email protected]
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
Creating upgrading jobs in Alberta has never been more viable
CALGARY – The so-called "bitumen bubble" is actually an opportunity for the province to add value and create jobs, says the Alberta Federation of Labour. R
In a new report, the AFL shows that the difference in price between bitumen and crude makes it economically viable to invest in the infrastructure needed to upgrade Alberta’s oil resources here.
“The price of bitumen is low right now because we’re flooding the market with bitumen,” Alberta Federation of Labour president Gil McGowan said. “And the solution they’re proposing is building more pipelines to flood the market even further. That’s just not how markets work. We need to refine the bitumen here, so that we’re selling what the international markets want: synthetic crude.”
Using the government’s own estimates, the report shows that Alberta can build on the Lougheed legacy and create more than 12,000 long-term stable jobs through upgrading.
“The Conservatives have promised to make sure that 65 per cent of Alberta’s bitumen is upgraded here, but have repeatedly broken that promise because they say that the price of bitumen is too high,” McGowan said. “The price isn’t high anymore, but they’re still not listening to the markets. The differential should be seen as an opportunity, not a threat."
In light of Alberta’s projected $3-billion deficit, getting a fair value for the province’s natural resources is of paramount importance. According to the report, if Alberta were selling synthetic crude oil instead of raw bitumen, producers would be earning $38 more per barrel.
“By not requiring upgrading in Alberta, we’re pumping out more of the wrong thing,” McGowan said. “We’re shipping good oil sands jobs elsewhere, when the economics of upgrading make a lot more sense.”
AFL report: Bitumen glut has silver lining
Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].
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