Unease rises over bitumen exports Page 1 of 2

Unease rises over bitumen exports

It must have surprised the company bosses, but oil giant BP touched a nerve last week when it announced plans for a $3 billion upgrader in Chicago to turn heavy oil into gasoline.

BY THE EDMONTON JOURNAL SEPTEMBER 29, 2006

It must have surprised the company bosses, but oil giant BP touched a nerve last week when it announced plans for a $3 billion upgrader in Chicago to turn Alberta heavy oil into gasoline.

Ed Stelmach was first among the Tory leadership candidates to raise the red flag, and and jumped into the debate this week.

Why isn't that processing plant, with all those valuable manufacturing jobs, being built right here? Are we shipping jobs down the pipeline along with the heavy crude, and missing an opportunity to leverage this boom into a better future than that of hewers of wood?

All three say it's time to look at ways to make sure Alberta's raw product is refined right here so the province can build a more diversified economy.

As Stelmach puts it: "Shipping raw bitumen is like scraping off the topsoil, selling it and then passing the farm onto the next generation. What value does it have?"

This debate is long overdue. Companies with new oilsands projects started making those decisions -- to build an upgrader or not -- five years ago. At the time, Mark Norris, then economic development minister and now a Tory contender, said the province wanted to keep upgrading here, where possible, and a good business climate was the best tool.

Energy Minister Greg Melchin says so far, the record is fine. More than a dozen new upgraders, under construction or proposed (four in the Edmonton area), will handle the bitumen from new oilsands plants until 2015. The Canadian Association of Petroleum Producers agrees.

But the future is murkier. Companies like Encana are looking at upgrading their heavy oil in the U.S. where it is cheaper to add to existing refineries.

Consider also, that Enbridge's proposed transmountain pipeline will take a whopping 400,000 barrels a day of oilsands bitumen to the west coast, much of it headed to China for upgrading.

Stelmach, formerly intergovernmental affairs minister, says if the province doesn't take the right steps now to keep the upgrading here, China will be a competitor, not a market, for oil made from Alberta

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bitumen.

Also, if the province attracts a critical mass of upgraders, it can build a valuable petrochemical industry using the byproducts of upgrading to make plastics, he says.

Dinning suggests that building upgraders here might be a condition of granting a licence for a new oilsands mine. Oberg suggested charging a higher royalty rate on bitumen that's shipped out of the province might be an incentive to oil companies to build here.

Oil industry officials immediately suggested any such measures might produce a challenge under NAFTA. The free trade agreement disallows an export tax and differential treatment of companies.

But how likely is the U.S. government to launch a trade dispute such as softwood lumber when the issue is access to stable Alberta oil supplies? Also, there are ways to use the tax system to help homegrown industry under NAFTA.

There are other issues. Given the current labour shortage, does the province have the capacity to build more upgraders? Or is it a matter of staging the projects to free up the labour force? CAPP says the biggest cost in building an upgrader is the high price of steel, and that's a global problem.

Companies like Encana view Alberta as part of an integrated North American energy market. In that case, how does the province with the raw materials get the most out of its motherlode for its citizens and build for the future?

Here's the worst scenario, says Stelmach. Alberta uses valuable natural gas from the Mackenzie valley to produce low-grade bitumen from the oilsands which is then shipped to the U.S. Canadians buy it back as gasoline or jet fuel and plastic products from U.S. manfacturers. How does that benefit Albertans?

The fact the BP decision drew such fire reflects a growing uneasiness among Albertans about how they will benefit from this boom. The political climate has changed, as has the business climate, with $70 oil and the departure of Premier .

Albertans know what happened to the last boom and are determined this one will turn out differently. The next premier should make decisions today to secure a prosperous future.

© (c) CanWest MediaWorks Publications Inc.

http://www.canada.com/story_print.html?id=89803f57 -30a3 -49bf -b156 -0de43e6acd4e&sp ... 1/11/2012