PROVINCIAL GOVERNMENT IN TOUGH SPOT OVER DECISION ON STURGEON REFINERY
Albertans may be asked to put more money into project behind schedule and overbudget
The Alberta government is now examining a proposal it received last month for the next expansion phase of the overbudget and behind-schedule Sturgeon Refinery project.
Given the problems that have dogged the development — like the fact it’s 65 per cent over the initial budget — it will be a hard sell for the Notley government to put more taxpayer money at risk.
“I don’t think we have enough information on Phase 1 and exactly what the costing will be . . . and what their plan is before we would ever consider or look at Phase 2,” said Cheryl Oates, spokeswoman for Premier Rachel Notley.
A technical analysis on the confidential proposal from proponent North West Refining is underway inside government. Any decision on Phase 2 involvement would have to be made by cabinet.
But make no mistake, the drums will be beating for the Alberta government to get involved.
As the first refinery built in the country since 1984, the Sturgeon facility near Edmonton will soon have the capacity to process 79,000 barrels per day of diluted bitumen into higher-value diesel.
Seventy-five per cent of the bitumen supply will come from the provincial government, with the remainder from Canadian Natural Resources Ltd.
Calgary-based North West Refining owns 50 per cent of the project, while Canadian Natural Resources owns the rest of the North West Redwater Partnership, which is building the project.
While the development is now 96 per cent complete, it also has regulatory approval for two other phases that would boost its capacity to about 240,000 barrels per day.
The megaproject has a long backstory that crosses the complicated divide between politics, economics and the quest for more value-added jobs in Alberta.
Under the Bitumen Royalty InKind (BRIK) program developed by the former PC government, Alberta will supply the refinery with 37,500 barrels of raw bitumen per day, which it collects from producers in lieu of receiving royalty payments.
In the Energy Department’s latest annual report, it pegs total costs for the refinery at $9.4 billion, up sharply from the initial $5.7-billion projection made five years ago, and the $8.5-billion estimate released in 2013.
Unquestionably, the project has already created thousands of construction jobs, with the workforce peaking at 7,500 on site.
And the province still expects the development to have a net positive return for government, according to the Energy Department report.
But there are also risks for the province and taxpayers.
The province has committed to paying about $26 billion in tolling payments over 30 years to process its bitumen, up $1.2 billion from last year’s estimates due to higher-than-expected capital costs.
The government also lent $324 million to the North West Redwater Partnership for the Sturgeon Refinery.
North West Refining would not comment on the issue this week.
In a statement late last month, North West Refining said costs have increased since 2013 due to changing U.S.-Canada exchange rates, minor changes in the project’s scope and productivity challenges.
Its merits, however, haven’t diminished, it stressed.
“Alberta can no longer afford to be dependent on simply selling unrefined bitumen to a single market at a discount,” it stated.
North West said the full refinery is expected to be commissioned in the second quarter of 2018, behind earlier estimates.
There are many questions to ask about the latest developments, but the possibility of an expansion that might require government support is also drawing scrutiny.
Wildrose MLA Drew Barnes said the government must look for a private sector solution and not get more financially involved in the second or third phases.
Ted Morton, a former PC energy minister who previously called the project a “boondoggle,” insists no new taxpayer money should be put at risk until Alberta’s auditor general looks into the recent developments.
“A stand-pat position is the right one to take,” he said. “If the answers are what I think they are, the case for (the government) not doing Phase 2 and 3 is pretty strong.”
But what do Albertans want to see when it comes to promoting domestic oilsands upgrading and refining? More, apparently.
A new ThinkHQ poll conducted between June 22 and 28 — before the latest price increase was disclosed — found 86 per cent think upgrading and refining facilities in Alberta to process oilsands bitumen are important.
The online survey of 1,142 Albertans suggests threequarters think the government should be taking steps to increase domestic oilsands upgrading and refining.
According to the survey, 73 per cent endorse the idea of using the government’s royalty bitumen to increase upgrading and refining in Alberta, while only 10 per cent oppose the BRIK program.
More interventionist measures received less support, but still majority backing: two-thirds favour tax incentives to promote new private-sector investment, while half approve using loan guarantees to build new facilities.
However, the idea of providing operating subsidies — or directly investing taxpayer money — to help build private-sector projects faced more opposition than support.
“Most Albertans think there is a role the provincial government could be playing, providing a catalyst for more refining and upgrading in the province,” said pollster Marc Henry with ThinkHQ.
“The one tool most Albertans don’t support is . . . the old grant model, where the government would just write a cheque to a private sector company to build a refinery.”
Where does this leave the NDP government, which inherited the original Sturgeon deal? The public wants more refining, although the question is at what cost.
And who’s going to pay for it, if the private sector won’t?
It’s easy for governments of all stripes to get caught up in noble plans for job creation and flashy diversification initiatives.
But nothing is assured — certainly not budgets, nor timelines — when it comes to pulling off complicated multibillion-dollar energy projects.