November 2013

Against the current

Ambitious Albertan crude oil upgrading project hopes local refining will prove attractive

By Andrew Livingstone

Before North West Redwater Partnership announced in November 2012 its plan to move forward with Phase 1 of its Sturgeon refinery, expected to cost nearly $15 billion, experts in the oil and energy industry said building refineries in Alberta was not economically viable. But the naysayers may have to eat their words as the project – set to become the first oil refinery built in North America in nearly three decades – begins construction.

North West Upgrading Inc. will partner with Canadian Natural Resources Ltd. on the refinery, which will be built in three phases. The $5.7-billion first stage, which officially broke ground in September and is scheduled to be completed by late-2016, would see the refinery convert 50,000 barrels of bitumen per day into low-sulphur diesel. This diesel would help feed Alberta’s need for diesel and it would also allow customers to send the upgraded product off to international markets. By its third stage, the refinery will have the capacity to convert 150,000 barrels of bitumen per day.

“The long-term factors were in favour of doing it here [rather] than doing it on the Gulf Coast,” said Ian MacGregor, chairman of North West Upgrading, adding it will take about a decade to complete all three stages of the refinery. “Once people see it done, they’re going to wonder ‘Why aren’t we doing this?’” The diesel produced at the refinery, located north of Edmonton, will be a mere 12 days from Asian markets that rely heavily on imported fuels. India’s liquid fuel consumption, for instance, was 42 per cent diesel in 2012.

Steve Laut, president of Canadian Natural Resources, which will provide bitumen to the refinery, said the project gives the company the opportunity to increase the conversion capacity of its product. “The structure allows for participation without any reduction in our ability to stay focused on developing our vast resource potential,” he said.

The Alberta government, which receives bitumen from oil sands operations as royalties, will also play a major part in the project. The government would provide at least 40,000 barrels of bitumen per day for the next 30 years to be upgraded. Estimates are the government will bring in around $500 million annually on top of what it currently makes in royalties (the province raked in $4.5 billion in royalties in 2011-12) over the next three decades.

Alberta Energy Minister Ken Hughes notes the government has “a very real interest in seeing as much value added to our natural resources as we can.” Getting into the refining business “is a chance to create more value for Alberta and Canada than if we just shipped the raw bitumen out of the country.”

Hughes cited NOVA Chemicals’ Joffre, Alberta facility, which processes natural gas from the province, as an example of maximizing opportunities in Alberta. It is now one of the largest ethylene and polyethylene production plants in the world.

The Sturgeon refinery is more than just an opportunity to supply fuel to the market, according to MacGregor. “It’s a chance to bring good-paying jobs to thousands of people,” he said. Currently, around 1,000 workers are on site and, at the peak of construction, nearly 8,000 workers are expected to be employed.

MacGregor added that Sturgeon has also taken the environment into consideration with its design: “This is the first refinery in the world that incorporates CO2 capture into the initial design. The facility will capture 1.2 million tonnes of CO2 per year per phase, which will be sold for use in enhanced oil recovery before being sequestered.”

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