BUDGET OVERRUNS
Refinery under fire again
An oil refinery under construction in northern Alberta — already dubbed a multibillion-dollar boondoggle by a former Tory minister — is now even more expensive, triggering calls for an investigation by the province’s auditor general.
A recent report by investment bank AltaCorp Capital estimates the Sturgeon plant near Edmonton, Canada’s first refinery in decades, will cost roughly $9.3 billion, up from the previous estimate of $8.5 billion.
The provincial government, which was already on the hook to backstop the project with $26 billion in tolling payments, said it will have to pay more after construction costs increased by $800 million.
Alberta Party Leader Greg Clark on Tuesday asked the auditor general to review the risks that the Sturgeon refinery poses to taxpayers, arguing the risks must be evaluated in the current environment of depressed commodity prices.
“Even though there have been some benefits for job creation, those benefits aren’t justified by the costs,” Clark said in an interview.
At full capacity, North West Refining’s Sturgeon plant would process 78,000 barrels of diluted bitumen into low-sulphur diesel fuel. With an estimated $9.3-billion price tag, the facility will cost $119,200 per barrel.
It will be the first refinery built in Canada in three decades, which means there are few comparisons to evaluate the costs.
Pacific Future Energy has proposed a refinery near Kitimat, B.C., that would process 200,000 barrels of oilsands bitumen per day, more than double the Sturgeon plant’s capacity.
The B.C. project is expected to cost $12 billion to $14 billion, which breaks down to $60,000 to $70,000 per barrel, up to half the cost of the Alberta project.
Still, Pacific Future said the project is still in its infancy, which means the costs will likely change.
“One big difference between us and (Sturgeon) is we’re not looking for government assistance, and (Sturgeon) has lots of it,” said Don MacLachlan, spokesman for Pacific Future.
Ted Morton, a former Tory finance minister, wrote a paper for the University of Calgary’s School of Public Policy in 2015 calling the Sturgeon project a “multibilliondollar boondoggle with high risks for Alberta taxpayers.”
Under a 30-year contract, the Alberta government will supply most of the refinery’s bitumen, which it receives from producers in lieu of royalty payments, while paying a processing fee or toll for refining the product.
When the project was estimated to cost $8.5 billion, the tolls were worth $26 billion over the 30year contract, which Morton said at the time was too high to ensure the province’s investment breaks even, let alone turns a profit.
The NDP government declined to disclose exactly how much more it will have to pay on its tolls until it releases its annual report on Thursday.
It said the previous Tory government committed to backstopping the refinery, noting that walking away would be even more expensive.
Ian MacGregor, chief executive of North West Refining, which owns half of the Sturgeon project along with Canadian Natural Resources, told the Alberta legislature in 2013 the project’s costs would not escalate beyond $5.7 billion.
“We plan to build it for $5.7 billion, and our fee structure runs out at $6.5 billion,” MacGregor said at the time. “I get a lot of questions about, what happens if this costs more than $6.5 billion? My answer is, it’s not going to. We meant $5.7 billion when we said it.”
The costs have spiked by more than 60 per cent in the past four years.
The construction schedule has also been pushed ahead. Two years ago, the refinery was expected to start producing diesel by late fall 2017, but AltaCorp said last week it will be fully operational in the first half of 2018.
North West Refining did not respond to requests for comment.