Po­lit­i­cal Risk

Alberta Oil - - FOCUS ON REFINING -

Build­ing a coker unit is not just a ques­tion of eco­nom­ics. It’s also a po­lit­i­cal ques­tion. There’s geopo­lit­i­cal risk as­so­ci­ated with im­port­ing for­eign oils. In Africa and the Mid­dle East, armed in­sur­gents rou­tinely at­tack and seize en­ergy in­fra­struc­ture and desta­bi­lize na­tional gov­ern­ments. The Amer­i­cas don’t guar­an­tee the se­cu­rity of as­sets ei­ther: Venezuela is on the edge of a full so­cial melt­down and its crude ex­ports are tank­ing ac­cord­ingly. Mex­i­can na­tion­al­ism kept for­eign in­vest­ment and tech­nol­ogy out of that coun­try for so long that its oil and gas pro­duc­tion has failed to reach the po­ten­tial of a mod­ern in­dus­try. Even Un­cle Sam has bouts of re­source na­tion­al­ism, ban­ning oil ex­ports in the past and elect­ing a new pres­i­dent who sees trade with his neigh­bors as an eco­nomic threat. In con­trast, Cana­dian pipe­line op­er­a­tors can lock in long-term con­tracts with re­li­able Cana­dian sup­pli­ers.

Build­ing a bi­tu­men coker unit in Mon­treal or Saint John largely as­sumes that Tran­sCanada’s 1.1 mil­lion b/d pipe­line will get built. That may never hap­pen. Fur­ther­more, for Tran­sCanada to ac­tu­ally build the pipe­line means it has to be cer­tain that there is a fi­nal mar­ket for bi­tu­men—and a sin­gle 30,000 b/d coker doesn’t de­liver that guar­an­tee. If only one Eastern Cana­dian re­fin­ery is up­graded to han­dle western crude, then Tran­sCanada needs to sell bi­tu­men into the At­lantic mar­ket, where the near­est oil im­port ter­mi­nals are on the U.S. Gulf Coast. That’s the same mar­ket that al­most all Western Cana­dian oil pro­duc­tion al­ready sup­plies via pipe­lines. Both Ot­tawa and Washington are fickle pipe­line pro­po­nents—de­pend­ing on who says what when in op­po­si­tion and what they ac­tu­ally do when in power. Tak­ing a fi­nal in­vest­ment de­ci­sion on a multibillion-dol­lar project that will last decades, while politi­cians re­main sub­ject to four-year elec­tion cy­cles, re­quires skill­ful po­lit­i­cal risk as­sess­ment.

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