The case for refining bitumen in Canada
by Robert Hage
July 13, 2016
If you were the head of Enbridge, TransCanada or Kinder Morgan and you saw environmentalists and First Nations making common cause against the pipelines you need to transport your bitumen crude to tidewater, and heard the president of the United States calling your oil the “dirtiest in the world,” wouldn’t you examine every option to overcome that opposition?
What if the Green Party of Canada said it would not support new pipelines — but could do so if the crude was refined first? What if the chief of the Haisla Nation in Kitimat, B.C., where Enbridge proposes to locate its pipeline terminal, said he is opposed to shipping bitumen — but would consider a proposal to refine bitumen in Kitimat before shipment?
The question of whether to refine oilsands crude in Canada has been hanging over the energy industry for more than a decade. It once seemed to be no more than a pet project of the NDP and the labour unions to create more jobs in Canada. But now Alberta Premier Rachel Notley is saying she wants to put refineries “at the heart of our future growth and prosperity.”
To date, the industry’s response has been largely to argue that refining oil in Alberta or B.C. would not make economic sense — that it’s much cheaper to refine the bitumen in existing Texas or Asian refineries or, in the case of Energy East, in Saint John, N.B. In a 2013 Macdonald-Laurier Institute paper, Philip Cross asked and answered the question: “Why does Canada export more crude oil than refined petroleum products?” He said refiners’ valued-added is dwarfed by the revenue oil companies obtain from extracting and transporting crude oil. “Crude,” he said, “is where the most value lies.”
But how valuable is landlocked Alberta’s crude if it remains in the ground?
In its 2013 final report on Enbridge’s Northern Gateway proposal, the National Energy Board referred to the question of refining crude. The energy workers’ union told the NEB that refining the bitumen before shipping it overseas could create an estimated 26,000 jobs in Canada. The Alberta Federation of Labour called Northern Gateway’s proposed 26 permanent Alberta jobs “paltry, insignificant and unacceptable” compared to the thousands of jobs that would be created in Canada if the bitumen were upgraded here.
Northern Gateway showed little interest in refining, pointing out that it’s a pipeline company. The then Progressive Conservative government of Alberta joined Enbridge and others in stating that industry would build more upgrading capacity in Canada “if it were economic to do so.” The NEB decided that the matter of refining or upgrading crude was outside of its mandate, but added that “issues of importance to Canadians … should be discussed in forums and processes under their respective jurisdictions.”
Two entrepreneurs are advancing billion-dollar refining proposals for Alberta’s crude at either Kitimat or Prince Rupert. David Black, the B.C. entrepreneur behind the Kitimat proposal, says he is putting his proposal forward to reduce the environmental risk. He maintains, with scientific support, that spilled refined products “float and evaporate if spilled at sea.”
Many might think the Green Party opposes pipelines completely. Actually, the party’s literature and public statements by its leader, Elizabeth May, reference their opposition to “pipelines of unprocessed product to either coastline.” The critical issue for the Greens is the nature of the oilsands bitumen and diluents in pipelines (diluents are chemicals added to allow the bitumen to flow). The Greens’ solution is to set a level of managed growth for oilsands production and build upgraders and refineries near the Alberta resource; shipping a finished product, they say, involves a far lower risk of environmental impacts in the event of spills.
In a recent letter to B.C. Premier Christy Clark, Chief Ellis Ross of the Haisla Nation said his people have “had a first taste of independence through resource revenues and employment.” Since 2004, the Haisla have supported liquefied natural gas (LNG) production and shipment and are eager to lease their Kitimat land for an LNG tanker terminal, and the jobs and revenue that would come with it.
At the same time, the Haisla Nation has opposed Northern Gateway’s proposal to ship diluted bitumen by tanker to Asian markets. Ross maintains the risks of spills in West Coast waters outweigh any potential benefits. Refined products, he told journalists, would be much easier to clean up.
With Premiers Clark and Notley finally talking to each other about their shared energy interests, the time has come for industry to consider refining as a means of getting its oil to markets.
Chief Ross has it right when he sees resource development as a “taste of independence” for First Nations. Alberta’s oilsands projects are the largest employers of native people in Canada. If they need inspiration, they can look to Alaska. After several decades of petroleum development there, native Alaskans now control that state’s largest Alaskan-owned company, with more than 10,000 employees worldwide. Another Alaskan native-owned company provides maintenance services for the trans-Alaskan pipeline.
If Canada’s Greens and indigenous peoples get on board with Canadian oilsands projects, Alaska might have some competition.