Refinery well worth the risk
Cost overruns for the planned North West Redwater upgrader and refinery have been a source of anxiety since the companies behind the project revealed in December that soaring costs will push its price from $5.7 billion to $8.5 billion.
A nearly 50 per cent increase in the construction budget, combined with a one-year delay in opening, is unhappy news for any company (though not unheard of in the oilsands industry). But in this case, bad news caused ripples in the public sector too.
That’s because this refinery, a business partnership between North West Upgrading and Canadian Natural Resources Ltd., inked a long-term deal in 2011 with the Alberta government, which agreed to supply about three-quarters of the refinery’s feedstock from its Bitumen Royalty in Kind (BRIK) program. BRIK allows oilsands companies to pay their royalties to the province in the form of raw product, which Alberta then resells.
After the news of the Redwater refinery’s cost increase, the Redford government agreed to lend the project $300 million. Cabinet also agreed last week to let the Alberta Petroleum Marketing Commission borrow up to $1 billion for the project, setting off another round of criticism. The Wildrose party said the government committed Albertans to a “potential financial black hole by guaranteeing $1 billion in corporate welfare to finance a risky refinery project.”
Alberta’s frustration with sending unprocessed, and therefore lower-priced, oil out of the province is well-known and well-documented. It is costing Albertans billions of dollars in lost royalties. Pipeline capacity is going to be a problem for Alberta for some time, which makes this first new Canadian refinery since 1984 all the more important.
The North West might not be the perfect model. But it is a pioneering project for Alberta to figure out how to get better value for its resources.
Some may not like the intermingling of private and government money, but those people should remember oilsands extraction also needed a boost from the Lougheed government. In the 1990s, the Klein government gave the oilsands industry tax breaks.
It is a fair critique to say that by investing in one project, the government picks private sector winners and losers. But this kind of deal is about achieving a public policy goal — fair price for Alberta oil and keeping upgrading jobs here.
Speaking of public policy goals, the province’s $2-billion plan for carbon capture and storage similarly picked winners within the private sector. In that case, it is doing so with unproven technologies where there is no guarantee it will meet our environmental objectives.
Upgrading and refining, on the other hand, is a proven technology. Albertans can feel confident that once the refinery is built, it will successfully produce the product it is expected to. This refinery should be able to deliver on its promise of jobs and value-added oil products, instead of shipping bitumen in raw form out of the country and giving others the profit from such upgrading.
This is a good project for the Edmonton region and all Alberta. It means economic investment and jobs and will create needed product such as diesel, which Alberta sometimes has to import. That diesel also will have the lowest carbon footprint of any petroleum-based diesel in the world.
The Alberta government will spend billions of dollars on all kinds of infrastructure across the province. At this point, helping keep this refinery in the Industrial Heartland on track is the right decision.