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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-based mostly North West Upgrading (NWU), he’s overseeing development of a $5-billion oil sands upgrader outdoors of Edmonton that may course of fifty five,000 barrels of bitumen per day in partnership with Canadian Natural Assets (CNR) and the Alberta authorities, converting heavy crude into diesel gasoline for the Canadian market.

Slated to come online in 2015, the mission already employs 1,000, a quantity that is set to grow to 8,000 at the peak of construction — which, as MacGregor sees it, is proof that extra Canadian oil can and ought to be processed here.

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

Getting into the petroleum processing enterprise would seem a no-brainer contemplating Canadian crude oil production is anticipated to practically double to as much as 4.7 million barrels per day by 2025. Moreover, 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 foreign refiners at a low cost, and eastern provinces are importing costlier Atlantic basin oil.

Yet as Canada’s oil production takes off, the refining industry has flatlined and projects like MacGregor’s are a rarity, which prompts one very vexing question: As Canada produces extra oil than ever before, why aren’t we building more refineries and upgraders right here

Pictures: 10 Important Details ABOUT CANADA’S OIL Industry
Some say the reason is primarily economic. To others, it’s a matter of politics. However both way, it’s clear that Canada hasn’t been a serious player within the refining recreation for some time. And due to the increasing 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 change into extra difficult to enter that area.

Over the previous few many years, the refining industry has undergone a major restructuring in North America, with enterprise increasingly concentrated in the hands of major oil companies, primarily south of the border.

For the reason that 1970s, the variety of refineries in Canada has plummeted from forty to 19, taking a giant chew out of the direct refinery labour force, 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 undertaking shouldn’t be technically classed as a refinery as a result of it is upgrading petroleum refinerympanies in india bitumen on to diesel versus producing mild crude, but MacGregor and others consider it to be the first main ground-up refining undertaking undertaken in Canada in 25 years.)

Whereas expansions to existing amenities have enabled Canada’s total refining capacity to increase, a current Conference Board of Canada report observed that annual growth output has declined for the last 5 of six years. At the moment, extra oil is refined here than is consumed. But whereas Canada at the moment imports zero.7 million barrels of crude oil per day, we solely refine about 25 per cent of the oil produced here.

Photographs: THE OIL SANDS AND CANADA’S Surroundings
In the meantime, in Alberta, the Vitality Assets and Conservation Board estimates that the percentage of bitumen that will be upgraded to mild oil within the province will drop to 47 per cent in 2020, down from 58 per cent in 2010. by product in petroleum refining (In contrast to extra conventional “sweet crude,” which is not as straightforward to seek out because it was once, oil sands crude have to be upgraded after which additional refined earlier than going to market.)

According to most analysts, the financials have been — and continue to be — the most important barrier to significantly expanding Canada’s refining capability. 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 business can also be thought of to be more dangerous than upstream oil manufacturing, as petroleum refinerympanies in india a result of profitability is instantly impacted by swings in international oil costs and demand for refined products corresponding to gasoline. Lately, toughening environmental standards and the growing availability of oil sands bitumen (as opposed to candy crude, which is now not as straightforward to come by), has presented an added problem, as processing heavier oil is costlier.

But that hasn’t stopped firms south of the border, where services in a number of devoted refining areas have undergone main infrastructure upgrades, a course of that is still underway, with multi-billion-dollar projects currently within the works in Michigan and Illinois.

In line with Michal Moore, a professor at the University of Calgary’s Institute for Sustainable Power, Setting and Economy, these upgrades have armed U.S. facilities with the mandatory processing and pipeline infrastructure to primarily nook the market in North petroleum refinerympanies in india America.

“The time to make the decision [to construct up Canada’s refining trade] was probably 20 years in the past, maybe a little bit earlier than that,” he mentioned. “When you didn’t make that decision, you misplaced your ability 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 advanced is smart, as a result of the domestic marketplace for refined petroleum products is far bigger within the U.S. than in Canada.

“Widespread increased high quality refining capability in Canada — except in very particular situations — isn’t prone to be very successful,” he mentioned. “We simply don’t have the distribution network to assist it.”

But to others, whether or not it’s value constructing refineries in Canada is a matter of perspective. In interviews with The Huffington Publish, a number of observers famous that these upgrades and expansions have tended to occur at refineries owned by the same U.S. firms which are developing Canada’s oil patch.

“Most of our oil trade is American-owned, and so they resolve to construct our refining capability elsewhere, somewhat than in Canada,” stated Fred Wilson, assistant to the president on the Communication, Power and Paperworkers Union of Canada (CEP).

“When they speak about what’s price-efficient and so forth, they’re speaking from the perspective of their firm, and not Canada or Canadians or Albertans,” he mentioned.

One frustration with the way the North American refining infrastructure has developed is the imbalance that has formed between japanese and western Canada.

Because there isn’t a value-efficient means to maneuver the oil produced in the oil patch throughout the country, there is excess capability in the refineries in japanese Canada, where costlier Atlantic basin crude is imported, whereas oil sands producers are pressured to offload their crude at a discount.

It’s a costly 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 yearly, Bloomberg Information studies.

In the meantime, east coast refineries proceed to battle. On Could 17, Imperial Oil introduced it is going to 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 factors behind the decision.

As Oil Value Data Service (OPIS) famous, the move reflects a trend that has seen about a dozen refineries in Europe, the Caribbean and along the U.S. east coast idled in recent years as a consequence of sharp upticks in the price of Atlantic Basin crudes and declining demand for gasoline.

As Canadian Affiliation of Petroleum Producers spokesman Travis Davies sees it, the excess capacity in east coast refineries and the relatively thin home market for oil suggests there isn’t any financial case for more refineries to be built.

“We refine more than we use in Canada, so that’s not the problem,” he said. “If we were going to refine extra we could be refining it for other markets, offshore markets, U.S. markets.”

In that state of affairs, he says profitability would rely upon the flexibility to supply a product that could be aggressive with what’s coming out of the brand new super refineries in Asia, the place labour and infrastructure costs are a lot lower.

But NDP energy critic Peter Julian has a unique take. He says Canada’s failure to compete in the refining industry has been as a lot a results of authorities policy as economics.

“Can we build refineries Can we build upgraders Sure we are able to. We need a commitment from the federal government to look at insurance policies that favour that form of development, and that kind of worth-added manufacturing,” he told The Huffington Publish. “What we’ve right now is a authorities that favours the alternative: exporting of raw 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 misplaced for every four hundred,000 barrels of uncooked bitumen which are exported, and recommends that authorities discourage this follow.

“[The] Conservative government has chosen to focus virtually solely on non-renewable power export, with little if any consideration given to home supply of energy-related renewable or non-renewable resources,” the report argues, including that the Conservative approach “is driven by the corporate pursuits of major vitality companies.”

But as the global oil trade has evolved, the economics of building a brand new refinery in Canada have solely turn out to be harder — and the political will to take action even less obvious.

In its current report on the issue, Parliament’s standing committee on pure resources concluded that because of the excess refining capacity in Canada and declining demand for gas in developed countries, there “is presently no economic foundation for constructing new refineries in Canada,” recommending as an alternative that the main focus be positioned on the pipeline system. This features a highly publicized proposal by Enbridge to start planning on a $one hundred million reversal of an existing pipeline to deliver western Canadian crude to refineries in Ontario and Quebec.

Meanwhile, in Alberta, despite a public opinion poll that suggests that the overwhelming majority support authorities taking steps to extend the quantity of oil sands crude that’s processed within the province, the move doesn’t seem probably.

Premier Alison Redford made clear earlier this year that she intends to let market forces dictate future bitumen upgrading tasks, calling the deal the province struck with North West Upgrading “a commitment made by the previous government.”

Under that settlement, North West Upgrading will obtain 25 per cent of its bitumen from Canadian Pure Assets, and the remainder from the availability that the Alberta government receives by means of royalties from oil producers. The province can even present seventy five per cent of operating prices, on high of agreeing to a debt-financing deal.

In response to Andrew Leach, an associate professor at College of Alberta School of Business, the diploma of authorities involvement in the NWU venture means it should not be seen as evidence of the viability of new refineries and upgraders.

“What this shows is that with the kind of contracts the government is offering, you will get a private company to construct a refinery,” he stated, “however the first part of that sentence is really essential, as a result of it doesn’t tell you that non-public companies can make cash on refining.”

However NWU’s MacGregor has a unique outlook.
Though he concedes that his undertaking would be difficult without government involvement, he says the $seven hundred million in fairness NWU and CNR have spent to date is a testament to the truth that traders believe within the economics of the venture.

“We consider we could make a lot of money doing this, and many different people do too, as a result of they have supported us all alongside,” he stated.

In terms of additional expansions to Alberta’s refining business, he tends to dismiss naysayers, sustaining that just as oil sands producers will discover safer, greener methods to extract bitumen, others will figure out how to course of it regionally.

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

10 Important Details ABOUT CANADA’S OIL Trade
10 Information About Canada’s Oil Industry

10 Details About Canada’s Oil Business
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10 Important Details About Canada’s Oil Business (text-solely version)

10. Oil And Fuel Accounts For 4.8 Per Cent Of GDP
The oil and as industries accounted for around $sixty five billion of economic exercise in Canada annually in recent times, or barely lower 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 each day

eight. Refining Didn’t Grow At all As Exports Boomed
Canada refined 300,000 cubic metres every day in 1980; in 2010, that number was slightly down, to 291,000, although exports of oil had grown tenfold in that time.

7. Ninety seven Per Cent Of Oil Exports Go To The U.S.
Regardless of speak by the federal government that it needs to open Asian markets to Canadian oil, the vast 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 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.

Four. Alberta Is 2-Thirds Of The Business
Despite its reputation because the undisputed centre of Canada’s oil trade, Alberta accounts for only two-thirds of power production. 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 next 35 years, according to the Canadian Energy Research Institute.

2. Canadian Oil Consumption Has Stayed Flat
Due to improvements in vitality efficiency, and a weakening of the nation’s manufacturing base, oil consumption in Canada has had virtually no net change in 30 years. Consumption went from 287,000 cubic metres each day in 1980 to 260,000 cubic metres every day in 2010.

1. 250,000 Jobs.. Plus Many More
The Nationwide Vitality Board says oil and fuel employs 257,000 people in Canada, not together with gas station staff. And the Canadian Association of Petroleum Producers says the oil sands alone will develop from seventy five,000 jobs to 905,000 jobs by 2035 — assuming, in fact, the worth of oil holds up.