Why Aren’t We Building Refineries In Canada
Ian MacGregor stands at the centre of the rising disconnect between Canada’s booming oil manufacturing and its lack of refineries and upgraders.
As chairman of Calgary-primarily based North West Upgrading (NWU), he’s overseeing building of a $5-billion oil sands upgrader outside of Edmonton that will process fifty five,000 barrels of bitumen per day in partnership with Canadian Natural Sources (CNR) and the Alberta authorities, converting heavy crude into diesel gas for the Canadian market.
Slated to return online in 2015, the project already employs 1,000, a quantity that is set to develop to 8,000 on the peak of construction — which, as MacGregor sees it, is proof that more Canadian oil can and ought to be processed here.
“Our youngsters want to work in excessive-tech industries. They don’t want to work with their palms,” MacGregor stated. “They need to have educationally and intellectually based jobs, oil numbers explained and that’s what we produce when we refine these things.”
Stepping into the petroleum processing enterprise would seem a no-brainer contemplating Canadian crude oil production is anticipated to practically double to as a lot as four.7 million barrels per day by 2025. Furthermore, TransCanada’s proposed Keystone XL pipeline from the oil sands to U.S. Gulf Coast refineries remains to be mired in controversy, oil sands producers offload Canadian crude to international refiners at a low cost, and eastern provinces are importing more expensive Atlantic basin oil.
Yet as Canada’s oil production takes off, the refining industry has flatlined and initiatives like MacGregor’s are a rarity, which prompts one very vexing query: As Canada produces extra oil than ever before, why aren’t we constructing extra refineries and upgraders here
Pictures: 10 Vital Info ABOUT CANADA’S OIL Trade
Some say the reason is primarily financial. To others, it’s a matter of politics. However both way, it’s clear that Canada hasn’t been a severe player within the refining recreation for some time. And due to the increasing complexity of the forces shaping the worldwide oil industry — and an absence of will on the part of government and business to do so — it has only develop into extra challenging to enter that domain.
Over the previous few decades, the refining industry has undergone a major restructuring in North America, with enterprise increasingly concentrated in the fingers of main oil companies, primarily south of the border.
For the reason that 1970s, the variety of refineries in Canada has plummeted from 40 to 19, taking an enormous chew out of the direct refinery labour power, which dropped from 27,four hundred to 17,500 between 1989 and 2009. There hasn’t been a new refinery built in Canada since 1984, or in the U.S. since 1976. (The NWU challenge is just not technically classed as a refinery because it’s upgrading bitumen on to diesel as opposed to producing mild crude, however MacGregor and others consider it to be the primary major floor-up refining mission undertaken in Canada in 25 years.)
While expansions to existing services have enabled Canada’s total refining capability to increase, a latest Conference Board of Canada report observed that annual growth output has declined for the last 5 of six years. For the time being, extra oil is refined here than is consumed. But whereas Canada currently imports 0.7 million barrels of crude oil per day, we solely refine about 25 per cent of the oil produced right here.
Images: THE OIL SANDS AND CANADA’S Surroundings
Meanwhile, in Alberta, the Power Resources and Conservation Board estimates that the share of bitumen that will probably be upgraded to mild oil in the province will drop to 47 per cent in 2020, down from 58 per cent in 2010. (Not like extra conventional “sweet crude,” which is not as straightforward to seek out because it used to be, oil sands crude must be upgraded after which additional refined before going to market.)
According to most analysts, the financials have been — and continue to be — the most vital barrier to significantly increasing Canada’s oil numbers explained refining capacity. Although the precise price of a new facility is troublesome to pinpoint, some put the preliminary capital outlay at greater than $10 billion.
The refining business can be considered to be more dangerous than upstream oil production, as a result of profitability is instantly impacted by swings in world oil costs and demand for refined merchandise similar to gasoline. In recent times, toughening environmental standards and the rising availability of oil sands bitumen (as opposed to candy crude, which is no longer as simple to come by), has presented an added challenge, as processing heavier oil is more expensive.
However that hasn’t stopped firms south of the border, the place facilities in several devoted refining areas have undergone main infrastructure upgrades, a course of that is still underway, with multi-billion-dollar tasks at present in the works in Michigan and Illinois.
In line with Michal Moore, a professor at the College of Calgary’s Institute for Sustainable Vitality, Atmosphere and Economic system, these upgrades have armed U.S. services with the mandatory processing and pipeline infrastructure to basically corner the market in North America.
“The time to make the choice [to build up Canada’s refining industry] was most likely 20 years ago, perhaps a little earlier than that,” he stated. “When you didn’t make that call, you misplaced your ability to compete in that market. You couldn’t catch up.”
Moore and others say that the way the North American refinery market has developed is sensible, because the home market for refined petroleum products is far larger in the U.S. than in Canada.
“Widespread increased quality refining capacity in Canada — except in very particular instances — shouldn’t be likely to be very successful,” he stated. “We just don’t have the distribution network to assist it.”
But to others, whether or not or not it’s price constructing refineries in Canada is a matter of perspective. In interviews with The Huffington Publish, several observers famous that these upgrades and expansions have tended to occur at refineries owned by the same U.S. firms which are creating Canada’s oil patch.
“Most of our oil trade is American-owned, they usually determine to build our refining capability elsewhere, reasonably than in Canada,” mentioned Fred Wilson, assistant to the president at the Communication, Vitality and Paperworkers Union of Canada (CEP).
“When they discuss what’s value-effective and so forth, they’re talking from the perspective of their company, and never Canada or Canadians or Albertans,” he stated.
One frustration with the way the North American refining infrastructure has evolved is the imbalance that has formed between jap and western Canada.
As a result of there isn’t a price-efficient approach to maneuver the oil produced within the oil patch throughout the country, there may be excess capacity within the refineries in jap Canada, where dearer Atlantic basin crude is imported, while oil sands producers are compelled to offload their crude at a low cost.
It’s a expensive imbalance. Earlier this month, the difference between Western Canadian Select and the Brent crude oil that’s imported into jap Canada reached $30.50 — a hole that is costing the Canadian financial system an estimated $19-billion annually, Bloomberg News reviews.
In the meantime, east coast refineries continue to battle. On May 17, Imperial Oil announced it will likely be putting its ninety five-yr-outdated refinery in Dartmouth, N.S. on the chopping block, citing “global competition” and “declining demand […] for refined products” as major components behind the choice.
As Oil Value Information Service (OPIS) famous, the move displays a trend that has seen about a dozen refineries in Europe, the Caribbean and alongside the U.S. east coast idled lately because of sharp upticks in the cost of Atlantic Basin crudes and declining demand for gas.
As Canadian Association of Petroleum Producers spokesman Travis Davies sees it, the excess capability in east coast refineries and the relatively skinny home market for oil suggests there is no financial case for more refineries to be built.
“We refine more than we use in Canada, so that’s not the issue,” he mentioned. “If we were going to refine extra we can be refining it for other markets, offshore markets, U.S. markets.”
In that state of affairs, he says profitability would depend upon the flexibility to produce a product that could possibly be competitive with what’s coming out of the brand new super refineries in Asia, where labour and infrastructure costs are a lot decrease.
But NDP vitality critic Peter Julian has a unique take. He says Canada’s failure to compete within the refining business has been as much a result of authorities policy as economics.
“Can we build refineries Can we build upgraders Sure we will. We’d like a commitment from the federal government to take a look at insurance policies that favour that kind of development, and that type of worth-added manufacturing,” he advised The Huffington Publish. “What now we have proper now’s a authorities that favours the alternative: exporting of uncooked bitumen.”
The NDP maintains that the decline of refinery capacity in Canada since the 1980s has led to an erosion high-paying jobs and spin-off benefits.
Citing knowledge from the CEP, an NDP report estimated that 18,000 Canadian jobs are lost for each four hundred,000 barrels of uncooked bitumen that are exported, and recommends that authorities discourage this observe.
“[The] Conservative government has chosen to focus almost fully on non-renewable vitality export, with little if any consideration given to home provide of energy-associated renewable or non-renewable sources,” the report argues, including that the Conservative approach “is pushed by the corporate pursuits of major power companies.”
However as the worldwide oil business has evolved, the economics of building a brand new refinery in Canada have solely become harder — and the political will to take action even much less obvious.
In its current report on the difficulty, Parliament’s standing committee on pure resources concluded that due to the excess refining capacity in Canada and declining demand for gas in developed countries, there “is at present no financial basis for building new refineries in Canada,” recommending as an alternative that the focus be positioned on the pipeline system. This features a highly publicized proposal by Enbridge to begin planning on a $100 million reversal of an current pipeline to deliver western Canadian crude to refineries in Ontario and Quebec.
In the meantime, in Alberta, regardless of a public opinion poll that suggests that the overwhelming majority support authorities taking steps to increase the quantity of oil sands crude that’s processed in the province, the transfer does not seem seemingly.
Premier Alison Redford made clear earlier this year that she intends to let market forces dictate future bitumen upgrading projects, calling the deal the province struck with North West Upgrading “a commitment made by the earlier government.”
Underneath that settlement, North West oil numbers explained Upgrading will obtain 25 per cent of its bitumen from Canadian Natural Assets, and the remainder from the availability that the Alberta government receives by way of royalties from oil producers. The province may also present seventy five per cent of operating prices, on top of agreeing to a debt-financing deal.
In accordance with Andrew Leach, an affiliate professor at College of Alberta School of Enterprise, the diploma of authorities involvement within the NWU challenge means it shouldn’t be seen as proof of the viability of recent refineries and upgraders.
“What this shows is that with the type of contracts the federal government is providing, you may get a private company to build a refinery,” he said, “however the first a part of that sentence is actually essential, because it doesn’t let you know that personal corporations can become profitable on refining.”
But NWU’s MacGregor has a unique outlook.
Though he concedes that his project could be difficult without government involvement, he says the $seven hundred million in fairness NWU and CNR have spent to date is a testomony to the fact that traders consider in the economics of the venture.
“We consider we can make a lot of money doing this, and lots of other folks do too, because they’ve supported us all alongside,” he said.
With regards to further expansions to Alberta’s refining business, he tends to dismiss naysayers, sustaining that simply as oil sands producers will discover safer, greener methods to extract bitumen, others will work out how you can course of it locally.
“Everybody is going to say all of the explanation why you can’t do something, however Canadians don’t have a historical past of paying any consideration to that stuff,” he stated. “Our history is we go and do stuff.”
10 Vital Info ABOUT CANADA’S OIL Trade
10 Info About Canada’s Oil Trade
10 Info About Canada’s Oil Trade
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10 Vital Info About Canada’s Oil Trade (textual content-only version)
10. Oil And Gas Accounts For four.8 Per Cent Of GDP
The oil and as industries accounted for round $sixty five billion of financial activity in Canada yearly in recent years, or barely less than 5 per cent of GDP.
9. Oil Exports Have Grown Tenfold Since 1980
Canada exported some 12,000 cubic metres of oil per day in 1980. By 2010, that number had grown to 112,000 cubic metres day by day
8. Refining Did not Grow At all As Exports Boomed
Canada refined 300,000 cubic metres day by day in 1980; in 2010, that quantity was barely down, to 291,000, despite the fact that exports of oil had grown tenfold in that point.
7. Ninety seven Per Cent Of Oil Exports Go To The U.S.
Despite discuss by the federal government that it wants to open Asian markets to Canadian oil, the overwhelming majority of exports nonetheless go to the United States — ninety seven per cent as of 2009.
6. Canada Has World’s 2nd-Largest Confirmed Oil Reserves
Canada’s confirmed reserves of 175 billion barrels of oil — the vast majority of it trapped within the oil sands — is the second-largest oil stash in the world, after Saudi Arabia’s 267 billion.
5. Two-Thirds Of Oil Sands Bitumen Goes To U.S.
One-third of Canada’s oil sands bitumen stays within the country, and is refined into gasoline, heating oil and diesel.
4. Alberta Is 2-Thirds Of The Industry
Despite its popularity because the undisputed centre of Canada’s oil trade, Alberta accounts for under two-thirds of vitality production. British Columbia and Saskatchewan are the second and third-largest producers.
3. Alberta Will Reap $1.2 Trillion From Oil Sands
Alberta’ government will reap $1.2 trillion in royalties from the oil sands over the next 35 years, based on the Canadian Power Analysis Institute.
2. Canadian Oil Consumption Has Stayed Flat
Due to enhancements in energy efficiency, and a weakening of the nation’s manufacturing base, oil consumption in Canada has had virtually no web change in 30 years. Consumption went from 287,000 cubic metres each day in 1980 to 260,000 cubic metres daily in 2010.
1. 250,000 Jobs.. Plus Many More
The Nationwide Energy Board says oil and gas employs 257,000 folks in Canada, not including gasoline station staff. And the Canadian Association of Petroleum Producers says the oil sands alone will grow from seventy five,000 jobs to 905,000 jobs by 2035 — assuming, of course, the worth of oil holds up.