The real reason upgrading bitumen in Alberta ‘doesn’t make sense’

A bitumen processing plant near Fort McMurray, back in the day. Below: An actual bitumen bubble.

The government of Alberta is “desperate” to get the province’s bitumen resources to market, as its media echo chamber relentlessly informs us.

And it says it’s equally desperate to pop the “Bitumen Bubble,” the alliterative but misleading term Premier Alison Redford has coined to describe the price differential between bitumen from Alberta’s oil sands and easier-to-refine lighter crude from the United States or the North Sea.

But, given that, the Redford Government sure was quick to disavow the conclusions of its own officials when the Alberta Federation of Labour leaked a secret Energy Department study that concluded it makes economic sense to upgrade bitumen right here in Alberta, adding value to the product, creating well-paid jobs for Albertans and contributing additional royalty and tax revenues to the provincial government’s coffers.

Alberta’s Opposition Wildrose Party, which seldom misses an opportunity to slam the government, was also strangely quiet on this topic.

The government couldn’t even be bothered to send out an elected big shot to blow off the discovery unearthed by the AFL’s Freedom of Information request – a report by the Department of Energy that argued that as the price differential between light crude and heavy oil grows, the economics of upgrading bitumen here in Alberta keep making better sense.

Premier Alison Redford and her cabinet colleagues were too busy touting their not-very-meaningful one-year MLA wage freeze yesterday to deal with important questions about the future of the province’s economy, I guess.

Instead, an Energy Department spokesthingy was assigned the task of debunking his own colleagues’ conclusions.

“You don’t make economic decisions on billion-dollar refineries or upgraders based on a price differential at one point in time,” sniffed Mike Deising, according to the account of his remarks in the Edmonton Journal yesterday.

He explained: “These are 30-year or longer assets and companies look 30 years out onto the horizon. Just because we’re seeing a widening of the differential right now, that’s not going to affect the business case that’s going to be a 30-year asset, it’s just going to be part of the decision-making process.”

Such decisions, he also said, properly belong with the private sector. End of story.

But, actually, making multi-billion-dollar decisions that will affect life in Alberta and the rest of Canada far longer than 30 years “based on a price differential at one point in time” is exactly what the Alberta government is doing right now with its panic-stricken budgeting process. Moreover, it’s what the Harper Government in Ottawa has been doing for months with its tireless push for bitumen pipelines hither and yon, the consequences be damned.

Maybe that’s why Ms. Redford and Energy Minister Ken Hughes didn’t bother responding to the AFL’s revelation – they’re just too busy working with Health Minister Fred Horne and whoever the Advanced Education Minister is this week to upend public health care and public education for generations because of a temporary price differential. (See “Disaster Capitalism.”)

For its part, the media trotted out the usual suspects from business school faculties, who were happy to explain that creating Canadian jobs and revenues right here in Alberta doesn’t really make sense when you can use the profit to benefit folks in the United States.

Indeed, almost everyone yesterday was pointing to the fact that Suncor Energy Inc. is getting antsy about its plans to build the Voyageur Upgrader near Fort McMurray – which is why, of course, a country needs to set up a national petroleum company if it’s got an ounce of sense or gumption.

Look, at the risk of sounding rude, none of this is really all that difficult to explain.

Upgrading heavy bitumen in Alberta doesn’t make sense to the energy companies who are getting a free ride mining the stuff because they already have capacity in place elsewhere, specifically the Gulf Coast of Texas.

Why would they spend a lot of money building an upgrader in Alberta when they already have an upgrader operating below capacity in Texas and it costs less to ship the bitumen out – especially if someone else will build the pipeline?

You can hardly blame oil company managers for thinking this way. It’s just their nature. After all, their responsibility is to shareholders.

Alberta? Albertans? The environment? They don’t give a hang and that’s just the way an unregulated, out-of-control market economy is supposed to work.

No, looking after the long-term prospects of the people of Alberta and their economy and environment is supposed to be the job of the government we elect.

So why is our government uninterested in an idea that would have both economic and environmental benefits, in the latter case because it would allow us to ship by pipeline a lighter, easier to cleanup product? (Boy, talk about “ethical oil”!) Bitumen upgraded here in Alberta, moreover, would over time help solve the “Bitumen Bubble” that has driven this deficit-obsessed polity into a swivet.

Unfortunately, the answer is pretty plain on the face of it. Neither the Redford Government nor the federal government of Prime Minister Stephen Harper really feels it answers to the people of Alberta or Canada in this matter.

Indeed, it sounds very much as if they are working for the petroleum companies.

Perhaps this is why the Wildrose Party – usually eager to jump on any opportunity to assail the Redford Government – is so quiet about this question as well. You’d almost think they were playing for the same team!

And maybe, if you dig a little deeper, this explains why the Harper Government and successive Alberta governments have tried to make it hard for unions to operate in their jurisdictions.

After all, given its constituency, labour may be the only economic player prepared to pull back the curtain on questions our governments would really prefer the rest of us to forget about.

These facts may also provide a partial answer to why Albertans keep electing conservative governments that consistently and obviously don’t look out for their interests.

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5 Comments on "The real reason upgrading bitumen in Alberta ‘doesn’t make sense’"

  1. irene jacobson says:

    It doesn’t make sense, because the Koch Bro. already have the right kind of refineries in Texas, that will accommodate crude oil. Texas oil, is too smooth for them. The Koch Bro. , right now have been buying their crude oil from Venezuela, but Chavez charges high prices! Harper will sell Alberta crude for $35. less a barrel——think of the billions the Brothers will make. What do they care what it does to the environment. Both Harper and christy BC Lieberals bus, is being driven by the Bro’s! The Bro donate huge money to Fraser Institute, own XL pipelines, destroy labour—imports, destroy Unions, upped the retirement age, there fingers are in every pie imaginable! The Bro’s are the perverbial poster children, for the one per cent! Check it out, their reputation is cut throut, and they don’t care about anybody but themselves.

  2. Sam Gunsch says:

    …maybe if we gave Oil/Tar/Gas industry more tax breaks…

    such as in related news today:

    “Industry seeks tax break to foster liquefied natural gas projects

    Edm Jnl, Gordon Hamilton, Postmedia News, Feb 8, 2013

    The Canadian oil and gas industry is asking Ottawa for subsidies that could be worth billions of dollars in tax savings to encourage the development of liquefied natural gas plants in British Columbia.”

    Industry to gov’t/taxpayers: We’d like to talk about taxpayer’s supporting us some more, with tax breaks that “encourage” us.

    but AB Gov’t who in theory were elected to serve the citizenry/common good: “we can’t tell industry how to develop Albertan’s assets.” We’re the owners, the corporate renters call the shots.

    and AB Gov’t… “we can’t raise royalities on the oil/tar/gas industry.”

    yeah, remember, Stelmach, he sleeps wit da fishes.
    (But, Lougheed did? Our Lougheed? really? yeah.)

    Sam Gunsch

  3. rangerkim says:

    Was it only 2 or 3 years ago that we had 12 upgraders projects all clammoring for approvals and labour and equipment. How is it now, that we have a momentary lull in the price, that these same projects are uneconomical over the 30 year horizen?
    We have a Beverly Hillbillies economy here. Jed was not wealthy because he was smart or hard working, in fact he was even a lousy shot; he missed the rabbit he was aiming at for dinner and ” … up from the ground came the bubbling crude …”. Much the same can be said about the general level of competance and intelligence here in the oil patch.
    I agree with you David; it is really very simple and very easy to understand if you think about it just a little bit. But that is not what we do around here.

  4. ronmac says:

    I get really nervous when they start throwing the word “bubble” around like a dirty sock. Like in “bitumen bubble”

    Bubbles are very specific instruments designed much like a low-pressure weather system which sucks in surrounding air. When they burst, the early risers are long gone, having cashed in and moved on to the next bubble.

    Most of these bubbles are relatively harmless. The exception is the recent US “housing bubble” collapse which sucked in billions from US savings accounts (thanks to banking deregulation).

    Getting back to bitumen, part of this Keystone pipeline thingy are plans by Valero Energy to do some refining on the Isle of Mann (for extra tax break)s before turning up in Europe as diesel. The last thing they want to hear is crazy talk like refining bitumen Alberta

    Obama must be getting five wazzup calls a day from the boys at Valero. I wouldn’t want to be in his shoes for all the whiskey in China.

  5. Filostrato says:

    Completely off-topic but topical -

    Jeffrey Delisle, a non-violent, underpaid “spy” for the Russians, whose prosecutors admit that they don’t even know what, if any, important secrets he carried out on a floppy disk(?) and sold gets twenty years in prison.

    Patrick Brazeau, if he is convicted of the assault and sexual assault with which he is charged, will face a maximum sentence of eighteen months, not even enough to have his position and privileges as a Canadian senator permanently revoked. That would require a sentence of two years.

    I think we’ve got our values and priorities a little skewed.


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