Sturgeon Refinery northeast of Edmonton makes economic sense, proponent says
David Howell, Edmonton Journal
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Published on: January 5, 2016 | Last Updated: January 5, 2016 4:23 PM MST
The chief executive of North West Upgrading Inc. says the $8.5-billion Sturgeon Refinery still makes economic sense.
A key player in the $8.5-billion Sturgeon Refinery is questioning why Alberta Party Leader Greg Clark wants the province’s auditor general to report on the project’s financial risk to taxpayers.
“The agreements that govern the project have been on the government website for around two years now, so I don’t know how it could possibly be made more transparent than it is,” Ian MacGregor, president, chief executive and board chairman of North West Upgrading Inc., said Tuesday.
Clark wrote a letter Monday asking auditor general Merwan Saher to evaluate “the extent of risk to Alberta taxpayers” from the government’s continued financial involvement in the project. A spokeswoman said Saher will respond to Clark in due course.
MacGregor defended the project as “the one ray of sunshine in a pretty dark room.”
He said its economics continue to make sense for the Alberta government and Canadian Natural Resources Ltd., which will pay to have their diluted bitumen converted into ultra-low-sulphur diesel fuel and other products. “They still make money by doing this, and I don’t think very many people can say that in today’s world,” MacGregor said.
The refinery, taking shape in Sturgeon County, 45 kilometres northeast of Edmonton, will be owned and operated by the North West Redwater Partnership, which is an alliance between North West Upgrading and Canadian Natural Upgrading Ltd., a subsidiary of Canadian Natural Resources.
Beginning in the third quarter of 2017, when the first of three planned phases is complete, the refinery will convert 79,000 barrels of diluted bitumen per day into ultra-low-sulphur diesel and other products including diluent and low-sulphur vacuum oil.
The Alberta government will provide 75 per cent of the diluted bitumen feedstock. Canadian Natural will supply the remaining 25 per cent.
In June 2014, six months after the refinery‘s cost estimate was bumped from $5.7 billion to $8.5 billion, Alberta’s then-Progressive Conservative government revealed processing fees would be an estimated $26 billion over the 30-year agreement, up from the previous estimate of $19 billion.
The NDP government, like the previous Conservative government, says that over the life of the agreement, Alberta can expect to earn a profit of between $200 million and $700 million by selling higher-priced refined products instead of bitumen.
In his letter to Saher, Clark cited a Dec. 18 cabinet order increasing the borrowing limit of the Alberta Petroleum Marketing Commission, the government’s agent in the refinery project, from $300 million to $400 million.
A government spokesman told the Calgary Herald that the commission’s borrowing limit was increased because the amount borrowed for the project had exceeded the $300-million mark by about $24 million. In April 2014, the commission agreed to lend the partnership up to $324 million, and more if required, the government said in its 2013-14 annual report.
Clark also noted that in December, Moody’s Investor Service placed the North West Redwater Partnership’s senior secured credit under review for possible downgrade. Moody’s is also reviewing the long-term debt ratings for Canadian Natural Resources Ltd. It said that as CNRL’s rating changes, “there is a strong likelihood that the rating of NWR would change as well.”
Clark said that in light of these developments, it’s important that Albertans have a clear understanding of the financial risks.
The refinery, the first to be built in Canada in three decades, will have an integrated system to capture carbon dioxide produced during the refining process. Its first phase will capture nearly 4,000 tonnes of CO2 each day, which will be sold to Enhance Energy’s Alberta Carbon Trunk Line for use in enhanced oil recovery from depleted oilfields in central Alberta.
“I’m always harping about CO2 but I think that’s just becoming more and more important in the world, and we have a solution that manages ours,” MacGregor said. “The products that come out of our refinery are lower in their CO2 content than competitive products are, so that’s going to give us an economic advantage in the future.”