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Why Aren’t We Constructing Refineries In Canada

Ian MacGregor stands at the centre of the rising disconnect between Canada’s booming oil production and its lack of refineries and upgraders.

As chairman of Calgary-based mostly North West Upgrading (NWU), he’s overseeing building of a $5-billion oil sands upgrader outdoors of Edmonton that can course of fifty five,000 barrels of bitumen per day in partnership with Canadian Natural Assets (CNR) and the Alberta government, 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 grow to 8,000 at the peak of building — which, as MacGregor sees it, is proof that more Canadian oil can and should be processed here.

“Our kids need to work in excessive-tech industries. They don’t need to work with their fingers,” MacGregor said. “They wish to have educationally and intellectually primarily based jobs, and that’s what we produce after we refine these things.”

Getting into the petroleum processing enterprise would appear a no-brainer considering Canadian crude oil production is expected to almost 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 overseas refiners at a discount, and eastern provinces are importing costlier Atlantic basin oil.

But as Canada’s oil manufacturing takes off, the refining trade has flatlined and initiatives like MacGregor’s are a rarity, which prompts one very vexing question: As Canada produces more oil than ever before, why aren’t we constructing more refineries and upgraders right here

Images: 10 Essential Facts ABOUT CANADA’S OIL Trade
Some say the reason is primarily financial. To others, it’s a matter of politics. But either manner, it’s clear that Canada hasn’t been a critical participant within the refining game for some time. And due to the rising complexity of the forces shaping the global oil trade — and a scarcity of will on the a part of government and business to take action — it has solely develop into extra difficult to enter that area.

Over the past few decades, the refining trade has undergone a major restructuring in North America, with business increasingly concentrated within the hands of main oil companies, primarily south of the border.

Since the 1970s, the number of refineries in Canada has plummeted from forty to 19, taking a giant bite out of the direct refinery labour power, which dropped from 27,400 to 17,500 between 1989 and 2009. There hasn’t been a new refinery in-built Canada since 1984, or in the U.S. since 1976. (The NWU mission is just not technically classed as a refinery because it’s upgrading bitumen on to diesel as opposed to producing light crude, however MacGregor and others consider it to be the primary main floor-up refining challenge undertaken in Canada in 25 years.)

While expansions to current services have enabled Canada’s total refining capacity to increase, a latest Convention Board of Canada report noticed that annual development output has declined for the final 5 of six years. In the mean time, extra oil is refined here than is consumed. But whereas Canada at present imports 0.7 million barrels of crude oil per day, we only refine about 25 per cent of the oil produced here.

Photos: THE OIL SANDS AND CANADA’S Environment
Meanwhile, in Alberta, the Energy Resources and Conservation Board estimates that the percentage of bitumen that might be upgraded to gentle oil in the province will drop to 47 per cent in 2020, down from 58 per cent in 2010. (In contrast to more typical “sweet crude,” which is not as simple to search out as it was once, oil sands crude have to be upgraded and then additional refined before going to market.)

In line with most analysts, the financials have been — and continue to be — the most vital barrier to considerably expanding Canada’s refining capacity. Petroleum Heat Exchanger Series Though the precise price of a brand new facility is troublesome to pinpoint, some put the preliminary capital outlay at greater than $10 billion.

The refining enterprise is also thought of to be extra dangerous than upstream oil manufacturing, because profitability is straight impacted by swings in international oil prices and demand for refined products similar to gasoline. In recent times, toughening environmental standards and the rising availability of oil sands bitumen (versus sweet crude, which is now not as simple to come by), has offered an added challenge, as processing heavier oil is costlier.

However that hasn’t stopped firms south of the border, where amenities in a number of dedicated refining areas have undergone main infrastructure upgrades, a process that remains to be underway, with multi-billion-dollar tasks at the moment within the works in Michigan and Illinois.

In accordance with Michal Moore, a professor on the University of Calgary’s Institute for Sustainable Power, Setting and Economic system, these upgrades have armed U.S. services with the mandatory processing and pipeline infrastructure to primarily nook the market in North America.

“The time to make the choice [to construct up Canada’s refining industry] was probably 20 years ago, maybe somewhat earlier than that,” he mentioned. “When you didn’t make that call, you misplaced your skill to compete in that market. You couldn’t catch up.”

Moore and others say that the way in which the North American refinery market has evolved makes sense, as a result of the home marketplace for refined petroleum merchandise is far bigger within the U.S. than in Canada.

“Widespread larger quality refining capability in Canada — except in very particular cases — will not be likely to be very profitable,” he mentioned. “We simply don’t have the distribution community to support it.”

But to others, whether or not or not it’s worth constructing refineries in Canada is a matter of perspective. In interviews with The Huffington Post, several observers noted that these upgrades and expansions have tended to happen at refineries owned by the identical U.S. firms which can be developing Canada’s oil patch.

“Most of our oil industry is American-owned, and they determine to build our refining capacity elsewhere, moderately than in Canada,” mentioned Fred Wilson, assistant to the president at the Communication, Energy and Paperworkers Union of Canada (CEP).

“When they talk about what’s price-effective and so on, they’re talking from the angle of their company, and never Canada or Canadians or Albertans,” he said.

One frustration with the best way the North American refining infrastructure has evolved is the imbalance that has formed between jap and western Canada.

As a result of there is no value-effective means to move the oil produced in the oil patch throughout the nation, there is excess capability within the refineries in japanese Canada, where dearer Atlantic basin crude is imported, whereas oil sands producers are pressured to offload their crude at a discount.

It’s a pricey imbalance. Earlier this month, the distinction between Western Canadian Choose and the Brent crude oil that is imported into eastern Canada reached $30.50 — a hole that is costing the jm petroleum machinery trading pte yum Canadian economic system an estimated $19-billion annually, Bloomberg Information experiences.

Meanwhile, east coast refineries proceed to struggle. On Could 17, Imperial Oil introduced it is going to be putting its ninety five-year-previous refinery in Dartmouth, N.S. on the chopping block, citing “global competition” and “declining demand […] for refined products” as main factors behind the choice.

As Oil Price Info Service (OPIS) famous, the transfer displays a development that has seen a few dozen refineries in Europe, the Caribbean and along the U.S. east coast idled lately as a consequence of sharp upticks in the cost of Atlantic Basin crudes and declining demand for fuel.

As Canadian Association of Petroleum Producers spokesman Travis Davies sees it, the surplus capacity in east coast refineries and the relatively skinny home marketplace for oil suggests there is no economic case for more refineries to be constructed.

“We refine greater than we use in Canada, so that’s not the issue,” he mentioned. “If we were going to refine more we would be refining it for different markets, offshore markets, U.S. markets.”

In that situation, he says profitability would depend on the ability to produce a product that might be competitive with what is popping out of the brand new super refineries in Asia, the place labour and infrastructure costs are much lower.

But NDP energy critic Peter Julian has a distinct take. He says Canada’s failure to compete within the refining business has been as a lot a result of jm petroleum machinery trading pte yum government coverage as economics.

“Can we build refineries Can we construct upgraders Yes we are able to. We want a dedication from the federal government to have a look at insurance policies that favour that sort of development, and that sort of worth-added production,” he informed The Huffington Publish. “What we have now proper now is a authorities that favours the alternative: exporting of uncooked bitumen.”

The NDP maintains that the decline of refinery capability in Canada because the 1980s has led to an erosion excessive-paying jobs and spin-off advantages.

Citing data from the CEP, an NDP report estimated that 18,000 Canadian jobs are lost for every 400,000 barrels of uncooked bitumen which might be exported, and recommends that government discourage this practice.

“[The] Conservative government has chosen to focus almost entirely on non-renewable vitality export, with little if any consideration given to domestic provide of power-related renewable or non-renewable assets,” the report argues, adding that the Conservative approach “is driven by the company interests of main energy corporations.”

However as the worldwide oil trade has advanced, the economics of building a brand new refinery in Canada have only change into tougher — and the political will to take action even less obvious.

In its latest report on the problem, Parliament’s standing committee on natural sources concluded that due to the excess refining capability in Canada and declining demand for fuel in developed countries, there “is at present no economic basis for constructing new refineries in Canada,” recommending as a substitute that the focus be placed on the pipeline system. This includes a extremely publicized proposal by Enbridge to begin planning on a $one hundred million reversal of an present pipeline to ship western Canadian crude to refineries in Ontario and Quebec.

In the meantime, in Alberta, despite a public opinion poll that suggests that the overwhelming majority assist government taking steps to increase the quantity of oil sands crude that is processed in the province, the transfer doesn’t seem possible.

Premier Alison Redford made clear earlier this 12 months 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 authorities.”

Beneath that settlement, North West Upgrading will receive 25 per cent of its bitumen from Canadian Natural Assets, and the remainder from the supply that the Alberta government receives via royalties from oil producers. The province will even provide 75 per cent of operating costs, on prime of agreeing to a debt-financing deal.

In keeping with Andrew Leach, an affiliate professor at College of Alberta Faculty of Enterprise, the diploma of government involvement within the NWU challenge means it should not be seen as evidence of the viability of latest refineries and upgraders.

“What this exhibits is that with the type of contracts the federal government is providing, you may get a non-public firm to construct a refinery,” he mentioned, “but the primary part of that sentence is de facto crucial, because it doesn’t tell you that private corporations can become profitable on refining.”

However NWU’s MacGregor has a distinct outlook.
Though he concedes that his challenge could be tough without government involvement, he says the $seven-hundred million in fairness NWU and CNR have spent so far is a testament to the truth that investors consider in the economics of the enterprise.

“We believe we could make a lot of money doing this, and plenty of other folks do too, because they have supported us all alongside,” he stated.

In the case of additional expansions to Alberta’s refining industry, he tends to dismiss naysayers, sustaining that simply as oil sands producers will discover safer, greener ways to extract bitumen, others will work out how to course of it domestically.

“Everybody is going to say all of the explanation why you can’t do something, but Canadians don’t have a history of paying any attention to that stuff,” he said. “Our historical past is we go and do stuff.”

10 Necessary Information ABOUT CANADA’S OIL Trade
10 Information About Canada’s Oil Business

10 Details About Canada’s Oil Business
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10 Essential Details About Canada’s Oil Business (text-solely version)
10. Oil And Gas Accounts For 4.8 Per Cent Of GDP

The oil and as industries accounted for round $65 billion of economic exercise in Canada annually in recent times, 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 quantity had grown to 112,000 cubic metres each day

8. Refining Didn’t Develop At all As Exports Boomed
Canada refined 300,000 cubic metres daily in 1980; in 2010, that number was barely down, to 291,000, though exports of oil had grown tenfold in that point.

7. 97 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 still go to the United States — ninety seven per cent as of 2009.

6. Canada Has World’s 2nd-Largest Confirmed Oil Reserves
Canada’s proven reserves of 175 billion barrels of oil — the vast majority of it trapped within the oil sands — is the second-largest oil stash on this planet, 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 in the country, and is refined into gasoline, heating oil and diesel.

Four. Alberta Is 2-Thirds Of The Industry
Despite its repute because the undisputed centre of Canada’s oil trade, Alberta accounts for under two-thirds of energy manufacturing. British Columbia and Saskatchewan are the second and third-largest producers.

Three. Alberta Will Reap $1.2 Trillion From Oil Sands
Alberta’ authorities will reap $1.2 trillion in royalties from the oil sands over the following 35 years, in accordance with the Canadian Power Research Institute.

2. Canadian Oil Consumption Has Stayed Flat
Because of improvements in energy efficiency, and a weakening of the country’s manufacturing base, oil consumption in Canada has had nearly no internet change in 30 years. Consumption went from 287,000 cubic metres day by day in 1980 to 260,000 cubic metres day by day in 2010.

1. 250,000 Jobs.. Plus Many More
The National Vitality Board says oil and gas employs 257,000 individuals in Canada, not together with gas station staff. And the Canadian Affiliation 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.