Sinopec re­fin­ery pro­posal stirs op­ti­mism about Al­berta’s oil­patch

Chi­nese and First Na­tions part­ners ex­plore ven­ture for po­ten­tial big mar­ket

Calgary Herald - - FP CALGARY - GE­OF­FREY MORGAN Fi­nan­cial Post gmor­[email protected]­tion­al­post.com

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.

NEL­SON CHING/BLOOMBERG FILES

Sinopec, China Con­struc­tion In­dus­trial & En­ergy En­gi­neer­ing Co. Ltd. and a con­sor­tium of Al­berta First Na­tions are propos­ing a 167,000-bar­rels-per­day re­fin­ery project in Al­berta. If built, the re­fin­ery would be­come the sec­ond largest re­fin­ery in Al­berta af­ter Im­pe­rial Oil’s Strath­cona re­fin­ery, and the fourth largest in Canada.

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