Sinopec refinery proposal stirs optimism about Alberta’s oilpatch
Chinese and First Nations partners explore venture for potential big market
A new Chinese proposal to build a 167,000-barrel-per-day refinery in Alberta suggests Beijing continues to seek strategic opportunities in Canada’s oil and gas sector.
The China Petroleum & Chemical Corp. (Sinopec), China Construction Industrial & Energy Engineering Co. Ltd. and a consortium of Alberta First Nations said earlier this month they have hired Edmonton-based Stantec Inc. to help guide the company through the regulatory process for a 167,000-barrels-per-day refinery project in Alberta.
“I hope they can do it. I think it’s a good idea. There’s a third of the world’s oil up in the oilsands and that’s no secret to the Chinese,” said Ian MacGregor, chairman of the rival North West Refining project. “They haven’t been able to get that oil to China and so maybe they see this as a way, if they make refined products, then they can get them anywhere.”
Upcoming changes to the International Maritime Organization’s fuel standards also “require a doubling of the world’s heavy oil refining capacity,” MacGregor said, so there could be a big market need for the new refinery.
Sinopec has previously made large investments in the Canadian energy sector, including its $2.2-billion purchase of Calgarybased Daylight Energy in 2011 and $4.65-billion for a nine-per-cent stake in the Syncrude oilsands venture in 2010. It also owned a 10-per-cent stake in the now cancelled Pacific NorthWest LNG project proposed by Malaysia’s Petronas Bhd.
“There are a lot of constraints and discounting (of Canadian oil prices) and I think they view this project as a way to get a value proposition for their assets,” said Ken Horn, an Edmonton-based entrepreneur, who is heading the new joint venture called SinoCan Global. The project is still in the early stages and has yet to appoint a board of directors.
The new venture marks Horn’s second attempt to build a refinery project in Alberta. He helped organize the Aboriginal-owned Alberta First Nations Energy Centre, a $6.6-billion refinery proposal, which was cancelled in 2012 when the provincial government refused to provide it with barrels of oil from its royalty-inkind program.
“After we took that pretty big blow, one of my thoughts to myself was that we can’t have any government contingencies to make this thing a viable project,” Horn said. “I wanted to make it commercial independent of any provincial or federal support.”
With partners in Sinopec and China Construction, as well as multiple First Nations as partners, Horn believes he has eliminated the need to lean on the province for support.
Beijing-based Sinopec did not respond to a request for comment but delegates from the company were in the province this month touring the site north of Edmonton.
If built, the 167,000-bpd refinery would become the second largest refinery in Alberta after Imperial Oil’s Strathcona refinery, and the fourth largest in Canada.
In addition to being an investor, Sinopec would also serve as the engineering, procurement and construction contractor on the project, with Stantec overseeing the regulatory process.
“This is a sign that there is still global investment coming to Alberta,” said Keith Shillington, Stantec senior vice-president of Canada’s Prairies and territories.
The project would also see a fundamental alignment with the provincial government’s desire to encourage more downstream investment within Alberta.
“Building a new greenfield refinery and petrochemical facility is an ambitious undertaking and if they can develop a solid business case for exporting refined petroleum products and make a substantial investment, that is good for jobs and for our economy,” said Mike McKinnon, a spokesperson for Alberta Energy Minister Marg McCuaig-Boyd. “We also see the involvement of First Nations in projects .., as a very positive trend ...”
Victor Buffalo, a longtime chief of the Samson Cree Nation, which is eyeing an investment in the project, said he’s optimistic about its viability given the provincial government’s desire to encourage more downstream investment.
“We’re looking at about 10 per cent of the equity,” said Buffalo, who helped create Peace Hills Trust, the first Aboriginal-owned financial institution in Canada that has been recognized for its development work on reserves.
First Nations would be able to invest in the project, either by borrowing funds or tapping into funds available through the First Nations development funds.
The project’s preliminary $8.5-billion budget would require First Nations to raise $850 million to buy a 10-per-cent equity stake in the project — a figure that could rise due to cost inflation.
“That is a thoughtful budget number that can be achieved,” Horn said of the $8.5-billion figure, adding that Sinopec has experience building refineries around the world and could use its past expertise and proprietary technology in Canada to reduce costs.