Grappling with value-added energy ventures
As a new poll shows most Albertans want authorities to encourage more oil refining at home, the province’s energy diversification committee is busy preparing its report for the Notley government.
Created last October in the wake of the royalty review, the committee is examining a decades-old conundrum for Alberta: How best to move the province up the value-added energy chain.
Instead of simply shipping oil and natural gas out of the province — being the proverbial hewers of wood and drawers of water — it’s looking for ways to diversify the sector, add jobs and generate more wealth from Alberta’s vast petroleum resources.
But how far will it go, and how much risk will it mean for taxpayers? While the seven-member group is expected to report back to the government this fall, committee co-chair Gil McGowan said discussions are continuing after it met with interested parties and studied the landscape.
He noted there is a strong public appetite “to re-learn the lessons of Lougheed” and, as Alberta’s 10th premier often said, think like an owner seeking to maximize value from their assets.
With a new ThinkHQ poll finding three-quarters of Albertans want the government to take steps to increase the amount of oilsands upgraded and refined in the province, the group has some ammunition to advocate for a more proactive approach.
“I’m not at all surprised there is such overwhelming support for a more robust effort from the provincial government to move our province up the value chain,” said McGowan, who’s also president of the Alberta Federation of Labour.
“One of the reasons I’m excited about the possibilities is because what we’re hearing is not just from a bunch of starry-eyed activists on the left side of the political spectrum. We’re hearing a call for more robust partnerships between the public and private sector from industry itself.”
Organizations such as the Canadian Association of Petroleum Producers and Alberta’s Industrial Heartland Association submitted reports to the group calling for a more aggressive approach than was witnessed in the recent past.
Mark Plamondon, executive director of Alberta’s Industrial Heartland, wants to see the province ensure all energy megaprojects that have been proposed — such as two petrochemical facilities and the next phase of the Sturgeon Refinery expansion — are given immediate priority.
Measures such as providing projects secure feedstocks, royalty tax credits, loan guarantees and corporate tax credits should be considered, the association recommends.
“Governments have a role here to attract the type of investments that really underpin our economy for the long term,” Plamondon said. CAPP is keen on the province taking steps to support gamechanging innovations — such as using solvents and partial upgrading in the oilsands — that would add value to Alberta’s bitumen, but haven’t been fully proven on a commercial basis.
Partially upgrading bitumen would enhance the product’s value and generate less emissions per barrel than full upgrading. It would also free up pipeline space as less diluent would be needed to ship oilsands bitumen, and potentially open more U.S. refiners to become Canadian customers.
“There still needs to be some government support to advance the partial upgrading technology,” said Ben Brunnen, CAPP’s vicepresident of oilsands.
“If we can get government investing in the type of transformational technologies that could change the landscape for the entire industry, that’s the place to be.”
The Energy Diversification Advisory Committee report is being prepared as the province’s oil and gas industry has gone through its own transformation, with lower commodity prices, fewer jobs and shrinking capital investment.
Figures from CAPP also show the amount of oilsands bitumen processed in Alberta has fallen from 62 per cent at the start of this decade to 44 per cent last year. But here’s the rub. Aside from the under-construction Sturgeon Refinery, which the provincial government has been deeply involved in through tolling commitments and loans, no large refineries have been built in the country since 1984.
That indicates private companies haven’t seen a commercial opportunity to pursue such a risky, capital-intensive investment in more than three decades.
This should give the committee pause for thought before it suggests putting taxpayer money at risk.
Critics like Wildrose MLA Drew Barnes insist it is the government’s role to make sure taxation and regulations in Alberta are the most competitive in the world, not to offer corporate welfare.
“I think a government’s job is to keep it simple so you attract business,” he said.
Alberta has several advantages to pursue a careful, value-added energy strategy, however.
With the Montney and Duvernay plays, Alberta has large reserves of low-cost gas and natural gas liquids to supply prospective developments. Demand is increasing globally for petrochemicals.
South of the border, the U.S. is already taking advantage of its cheap gas to build new petrochemical facilities.
But how do we avoid another series of money-losing investments made in the name of diversification, such as Canadian Commercial Bank, MagCan or Gainers?
The key will be in the report’s recommendations, and what the government eventually adopts.
McGowan said the committee frequently heard Alberta must do something to improve on the value-added energy front. It’s not a nice-to-have strategy, but something that must be pursued, he said.
“It’s something we have to do to position our province to deal with an international energy market that is shifting dramatically beneath our feet.”