Varcoe: Why is Notley pushing refineries when industry experts say they’re not needed?


Rachel Notley has been busy battling over pipelines, federal energy legislation and curtailing crude output to deal with a tangle of oil and gas troubles in Alberta.

All of this makes sense.

But it feels like the government finally jumped the shark this week as it expanded its energy fight to two new fronts: building more oil refineries and promoting liquefied natural gas developments in Canada.

These two government proposals, released in consecutive days, come with broad goals and tight timelines. It has the feel of someone racing to catch a train as it pulls away from the platform — in this case, a looming spring election that’s about to take off.

The province announced Monday it was “fighting for full value for Alberta’s natural gas” by creating an LNG investment team with two well-regarded experts.

Coming on the heels of the LNG Canada consortium moving ahead with its megaproject on the B.C. coast, Alberta’s new team is expected to meet one-on-one with other LNG proponents. It pledges to work with industry on “reducing barriers for securing final investment decisions on export projects.”

The two-member group will report back to Energy Minister Marg McCuaig-Boyd in early 2019.

“We are serious about getting some of these projects across the line,” the minister said this week.

“We need to be strategic and we need to move forward quickly.”

Indeed, Alberta must find new markets for its natural gas.

But this isn’t a new problem. Pressure has been mounting on Alberta producers for years as U.S. gas output increases, pushing Canada out of its traditional export market.

Companies such as ExxonMobil, Chevron, Steelhead LNG, Pieridae Energy and Woodfibre are all examining various proposed LNG projects for the Atlantic and Pacific coasts.

McCuaig-Boyd said it would be jumping the gun to talk about Alberta making a direct investment into any development.

A newly released report from Alberta’s Natural Gas Advisory Panel recommends the province consider direct government participation “as a long-term shipper or credit provider.”

With only a few weeks before it reports back on potential action Alberta should take, the investment team will have to move at lightning speed.

It may all come together, but the timing is hurried.

On the positive side, new LNG development in Canada holds obvious advantages for Alberta’s energy sector.

The idea of building more refineries in Alberta is not so clear.

On Tuesday, Notley announced her government is seeking expressions of interests for more private-sector refining in the province.

Submissions are due by Feb. 8, giving proponents less than 60 days to throw their hat into the ring. Few other details were released.

“We know companies are interested, we have heard it first hand,” the premier said.

The only refinery built in the province in more than three decades is the North West Sturgeon facility, which required extensive government involvement.

The price tag on that project soared from $5.7 billion to $9.7 billion, while estimated tolls the provincial government will pay over 30 years to have its own bitumen processed at the facility have climbed from $19 billion to $26 billion since 2013.

The NWR Sturgeon Refinery under construction in 2016.

Meanwhile, a number of experts said this week they see no need for the province to boost refining capacity in Alberta.

A large-scale refinery would be expensive to build — likely in excess of $10 billion — and would require additional pipeline capacity to get product to export markets.

Industry expert Michael Ervin, a senior vice-president at the Kent Group, believes the level of interest will be “about zero,” with interested players only investing “on the basis of the government assuming all the risk.”

“I just scratch my head when I heard this is actually a prospect being floated by the government. It just makes no sense whatsoever, so I therefore question what the motives would be for doing it,” he said.

The concept isn’t necessarily a non-starter — depending on how it’s structured and, more importantly, if public money is put at risk — but there are so many hurdles to clear.

The North American market is already well supplied with gasoline and other refined products — Canada is a net exporter — and any new facilities would have to access China and India, where demand is rising, analysts say.

With the ongoing development of hybrid and electric vehicles, and more fuel-efficient cars being sold, demand growth for gasoline is expected to remain relatively flat in the coming decades in North America.

“In Alberta and Western Canada generally, there is too much product floating around already. If you add another refinery, that supply would need to go somewhere,” said Zachary Rogers, a refining analyst with consultancy Wood Mackenzie.

“The economics are certainly not in favour of a new refinery.”

And who would be interested?

The government will likely be approached about the second phase of the Sturgeon refinery, but the first phase is just getting going.

Canadian Fuels Association vice-president Brian Ahearn said the industry group — representing companies involved in refining and marketing petroleum products — is neutral about the province’s announcement.

But he believes interest in building new refineries is “pretty low.”

In addition, well-documented challenges to build large-scale energy developments in Canada, including regulatory obstacles, place the country at a competitive disadvantage for attracting new investment.

Ahearn noted Alberta’s Energy Diversification Advisory Committee report was issued earlier this year, yet the comprehensive study didn’t recommend developing more refining in the province.

Add it all up and there are way more questions than answers.

But the government is in a rush. It has some tight deadlines to meet in the coming weeks.

And the bigger battles ahead — getting new pipelines built and improving federal energy laws — have yet to be resolved.

Chris Varcoe is a Calgary Herald columnist.


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