EDMONTON - When Premier Alison Redford talks about "a bitumen bubble," she's referring to the record amount of Alberta bitumen for sale, and the low price it's fetching in the U.S. these days.

That is partly because of competition from new supplies of higher quality crude oil from the U.S.

The price of bitumen dropped another $20 this month, so Redford's treasury will be short $6 billion by the end of this fiscal year.

Is this price gap between conventional oil and bitumen normal?

The fact is there has always been a gap between the North American price of conventional oil (West Texas International) and a barrel of sticky, thick bitumen, known as Western Canadian Select. (The world price, known as the Brent price, is another benchmark set by North Sea oil).

WTI is hovering around $95 a barrel, Brent slightly higher around $110 while bitumen, usually about $20 less, dropped to $50 last month.

Bitumen fetches a lower price partly because it needs more upgrading before it can be turned into gasoline, says Michael Moore, energy expert in the University of Calgary school of public policy. That costs money, so refineries won't pay as much for bitumen.

Usually the gap has hovers around 20-25 per cent, and in the last few months it went higher. But the gap has been higher in the past.

The lack of pipeline capacity makes it more difficult to get bitumen to market and using rail is expensive, says Moore.

But there are other challenges, he adds.

The new supplies of lighter, easier-to-use oil from North Dakota are more attractive to refiners.

Then, not all U.S refineries can handle bitumen, says Moore. Alberta bitumen has to get to specially adapted refineries on the U.S. Gulf coast.

But there's competition at those special refineries too — from heavy oil from Venezuela and Mexico which can get there cheaper, says Moore.

"So the refiners call the shots and they establish the discount. Our oil always had to go a long way and takes more processing."

So will more pipelines help?

Yes, the Keystone pipeline to the U.S Gulf coast will be a big help, says Moore — "though we will still be trading in competition with other heavy oil like ours from Mexico. Right now, there's a lot of competition."

Gil McGowan of the Alberta Federation of Labour says there's no doubt Alberta is facing a glut in the oil market and that puts downward pressure on the price of bitumen.

The low price is a sign the market doesn't want to buy more Alberta bitumen, he says.

The better solution is to upgrade the bitumen into synthetic crude in Alberta, "so we can sell a product the market wants."

"For Redford to suggest the only solution is to build more pipelines is not only simplistic, it is misleading. There are many other options," McGowan said.

Synthetic crude (upgraded bitumen), produced by a handful of oilsands companies, can be used in any refinery to make jet fuel or gasoline and it has occasionally fetched higher than the WTI price of oil, he noted.

McGowan also disputed Redford's view that today's deeper discount on bitumen prices is new.

The discount was worse in 2005 at 36 per cent and in 2006 it was 33 per cent — yet in both those years, the province had record surpluses because it had the cushion of high natural gas prices.

"It's true the gap has increased dramatically over the last few months, but if you look at average over last year, it was not out of line at 22 per cent. So the argument that all these budget problems are caused by the differential ring hollow," said McGowan.

U of C economist Ron Kneebone said the government has created its own problems by continuing to rely on volatile oil and gas revenues — despite frequent warnings from economists and its own advisers.

"The bubble is unfortunate, but the government invited disaster into the budget," said Kneebone.

"The bubble means the government won't be collecting as much revenue as it thought but that need not be a problem if they budgeted in sensible ways."

In 2002, the Klein government's Financial Management Commission advised the treasury to use just $3.5 billion in oil and gas royalties and put the rest into savings to build up a fund that would provide stable revenue from investments.

"They did that for one year, then raised the ceiling to $4 billion in royalties and then $4.75 billion. Then they dropped the plan and began to spend all royalties. That's where we are today."

"We need to have an adult conversation about raising taxes or decreasing spending," he added.

The Edmonton Journal, Friday, Jan. 25, 2013Byline: Sheila Spratt

ST. ALBERT - A Canadian subsidiary of Chinese state-owned oil giant Sinopec has been ordered to pay $1.5 million in penalties for failing to ensure the safety of two Chinese workers killed in a 2007 tank collapse at a work site in northern Alberta.

Sinopec Shanghai Engineering Company Canada Ltd. pleaded guilty to three charges under the Occupational Health and Safety Act in September. It was given the maximum $500,000 fine for each charge in a St. Albert courtroom Thursday.

The total penalty is the biggest workplace safety fine in Alberta's history and one of the biggest in Canada.

Two charges were related to the deaths of the two temporary foreign workers and the third was connected to two workers who were seriously injured.

As part of a creative sentencing agreement between Crown prosecutors and SSEC lawyers, $1.3 million of the fine will be used to educate temporary foreign workers on their legal rights.

Workers Ge Genbao, 28, and Lui Hongliang, 33, were killed on April 24, 2007 when the roof structure of a multi-storey metal holding tank collapsed at a work site 70 kilometres north of Fort McMurray. The site was part of the Canadian Natural Resources Ltd. $10.8-billion Horizon project.

Court has heard that SSEC Canada did not get the tank construction plan certified by an engineer. The wires securing the tank were not strong enough to hold up in even moderate winds, according to an agreed statement of facts.

"The accident almost had a sense of inevitability to it," said provincial court Judge John Maher. The judge said he was struck by the extent of the failure to comply by safety standards.

"This is a particularly egregious case," Maher said. "The size of the penalty is directionally proportional to the consequences of the act. It's hard to imagine in this case why it would not be a maximum penalty."

Crown prosecutor Marshall Hopkins said he was confident such a massive penalty would be an effective deterrent for other companies.

Kevin Flaherty, executive director of the Alberta Workers' Health Centre, said the money enables his group to "do some good work with a bad situation."

The $1.3 million will be used in a three-year program to train 45 people to educate temporary foreign workers about their rights and Alberta's workplace health laws. Flaherty said such workers are particularly vulnerable because they fear loss of their work visas if they speak up.

"They can't just walk across the street and get another job," Flaherty said. "We need to be a much better job of treating these workers as people when they arrive."

Flaherty expects the education program will reach 5,500 workers and spread further by word of mouth.

The Alberta Federation of Labour was not impressed by the court decision and called the fine "a slap on the wrist" that will not be a deterrent.

"One-and-a half-million dollars doesn't even amount to a rounding error in the annual budget of a monstrous global corporation like Sinopec," AFL president Gil McGowan said in a prepared statement. "This fine does nothing to dissuade them from playing fast and loose with the safety of their workforce."

SSEC was the direct employer of the workers and contracted by CNRL. SSEC recruited 132 Mandarin-speaking Chinese workers for the tank project.

The original plan was to build the tank walls first, then use them to support the roof while it was under construction. That plan changed when the project fell behind schedule.

CNRL approved the construction change, but SSEC did not prepare any formal written procedures that should have been certified by a professional engineer.

The construction of 13 tanks began on April 2, 2007. The collapse occurred three weeks later.

Hongliang, an electrician, was struck by a steel girder while standing on the partially completed wall. He died at the scene. His son, in China, was only a year old at the time. Genbao, a scaffolder, was on the floor of the tank and was crushed by falling steel. He died on the way to hospital. He is survived by four older sisters in China.

On Thursday afternoon, SSEC Canada issued a statement that expressed regret for the deaths and said it accepted Maher's ruling.

Sinopec had tried to appeal to the Supreme Court of Canada on the grounds that it had no official presence in Canada and was not under the jurisdiction of a provincial justice system. The nation's top court refused to hear that appeal.The Edmonton Journal, Thursday, Jan. 24, 2013Byline: Ryan Cormier

A joint study from the Alberta Federation of Labour and the Parkland Institute of Alberta have released a study arguing the province could lose billions in royalty revenue if the proposed Northern Gateway pipeline is built.

The report's authors defend their claim by examining projected royalty payments between 2011 and 2045, using data collected from the Canadian Energy Research Institute. The report's authors compared those numbers to the royalty system that existed under former premier Peter Lougheed, who held office between 1971 and 1985.

Under Lougheed, 35% of Alberta's oil revenue was captured by royalties during the 1980s. The study argues if that system was still in place, the Alberta Heritage Fund could be as large as $1 trillion by 2045, not including any income earned through investments.

Under the current royalty model, secretary-treasurer of the Alberta Federation of Labour Nancy Furlong says Alberta will collect an average of 18% from oilsands revenue between 2012 and 2045.

"That's an extra billion missing," she said. "Under the old system, that means total royalty would be worth $2.2 trillion during that period, based on CERI's numbers."

Furlong acknowledges that lower royalty payouts mean the province would still be missing out on royalties that existed in the 1980s, even if Gateway is not approved. However, she argues the province's economy will still suffer if Enbridge's proposed pipeline is built.

"Gateway will ship thousands of upgrading and refining jobs to the Chinese, taking jobs away from Canadians. It will only leave 104 permanent jobs for Canadians, most of them in B.C. Other jobs surrounding construction of the pipeline will be mostly part-time or temporary labour," she said. "We're not opposed to a pipeline, but any discussion surrounding one has to include getting our fair share."

SunMedia.ca, Thurs Aug 9 2012Byline: Vincent McDermott

Hundreds of Fort McMurray workers are expected to rally tonight to send a message to the Conservative government and to Oilsands Companies that the boom in Alberta needs to be shared among all Albertans. The rally coincides with the visit of many Conservative MLAs to tour Fort McMurray.

"Tonight's rally is an event organized by local workers who are frustrated with recent developments in the Oilsands projects," says Alberta Federation of Labour President Gil McGowan. "It is sending a message that Alberta is built by workers, and that workers deserve a fair share of the economic prosperity."

At issue are attempts by oilsands companies to lower wages and working conditions at their mega-projects north of Fort McMurray. Three strategies are being employed: use of employer-friendly unions willing to sign sweetheart deals, use of non-union contractors, and the threat of importing temporary foreign workers.

"At a time of record profits for energy corporations, instead of sharing the growing pie, these companies are trying to trim the edges of the workers' piece," says McGowan. "This is about their greed and the rights of workers to receive a fair share."

"And the government has been actively supporting this effort to bust unions and drive down wages, through the use of rarely used provisions in the Labour Code," adds McGowan.

"In the past, all oilsands construction was built using union labour  not because the employers liked unions, but because unions were able to provide high quality workers who could get the work done," observes McGowan. "The unions are still keeping their end of the bargain, but the employers are breaking it.

"The rally is to let MLAs and the big energy companies know that workers won't take this lying down."

- 30 -

But we can win says economist Robyn Allan. Last in a series on Norway's petro-policies and lesson

[Editor's note: The Tyee sent veteran energy issues journalist Mitchell Anderson to Norway to learn how it amassed a $600 billion oil savings fund for its population of under 5 million, a stark contrast to Canada. To finish the series we invited him to share his views on how those lessons could be applied here. With input from economist Robyn Allan, here they are.]

Why do we tolerate homelessness and poverty in Canada? Underfunding for our schools and health care system? Why is our government eliminating 20,000 public sector jobs in a supposed effort to balance the books?

Imagine instead if Canada was a country capable of developing a national oil strategy similar to what has been achieved in Norway. This tiny nation enjoys full employment and enviable social programs, has no public debt, $600 billion in the bank, and remarkable public buy-in about their petroleum industry. Could we do it here? Do we have the guts to seize our economic destiny?

Such a system might seek to maximize employment, tax revenues and environmental protection -- exactly the opposite motivations of most extractive industries. There is another public policy goal that is of no interest to private companies: the energy security of our nation.

Seen through this lens, how is Canada doing? Abysmally, by four measures:

1. Dependency. Even with our vast oil wealth, Canada currently relies on other countries for about 50 per cent of our supply -- so-called "unethical oil" from the volatile Middle East. Proposals to pipe unrefined bitumen from western Canada to Asia will increase this dangerous dependence since Alberta will have to import vast amounts of condensate from the Middle East to dilute thick bitumen enough for pipeline transport.

2. Staying in the red. Alberta has been unable to balance the books since 2007, burning through $17.7 billion of past oil wealth, with another $3 billion deficit forecast for the coming budget.

3. Draining at full tilt. Labour and production costs are through the roof, at least until the next employment bust. Both the Alberta Federation of Labour and the late premier Peter Lougheed have both called for slower the pace of oil sands growth. Ten proposed upgraders have been cancelled since the 2007 recession, replaced instead with pipeline proposals for unprocessed diluted bitumen. With resource values rising relative to global currencies, what's the rush?

4. Getting global black eye. The oil sands have such a credibility problem the Alberta government spends $25 million a year countering "baseless" criticism from environmental groups.

Robyn Allan's prescriptions

Robyn Allan thinks we can do better. She is a British Columbia economist, former CEO of the provincial insurance corporation and outspoken critic of the Northern Gateway proposal to pipe diluted bitumen to Kitimat. She also believes the recent retreat from value-added processing in Alberta is not only a threat to the B.C. coastline, but to the entire Canadian economy. In an interview for this series she told The Tyee:

"Canada has an energy strategy, but it is being developed in a handful of boardrooms of multinational oil companies and national oil companies of foreign governments. And that strategy seems to be to extract oil sands bitumen as quickly as possible, mix it with distillate imported in increasing amounts from the Middle East, and move it down pipelines to Asia and the U.S. Gulf Coast. And that strategy is going to hollow out Canada's oil sector, move us away from creating jobs and value-added refining, and increase pressures on our exchange rate and the non-oil sectors of our economy. And when the boom becomes a bust, we won't have a strong economic fabric to fall back on."

So why does she feel so many state-owned oil companies now clamouring for a piece of the oil sands?

"More than 80 per cent of global oil reserves are controlled by state own oil companies, and there's good reason for that. Canada is the only major oil-exporting country in the world without a national oil company. Of the remaining global oil resources open for private sector investment, Canada has the majority. That's why national oil companies from China, Korea and Norway, and now maybe Kuwait and India, are coming here to buy up our resources -- it's the last big game in town."

Allan believes our country is becoming dangerously exposed in a world increasingly short of energy, especially as we allow state-owned interests from other nations to snap up our globally-strategic resources.

"Canada is being outplayed. We are losing control of our natural resources. We're losing control of our environmental standards. And we're losing the ability to upgrade and add value in Canada. We're not even beginning to use the leverage in this country that we have to control and manage the pace of our development and ensure that oil resource returns come to the people of Canada."

So what can we do about it? Allan feels one of the key problems is that our petroleum continues to be sold in American, not Canadian currency.

"When the price of oil goes up, the value of our dollar goes up and this creates problems not only for the manufacturing sector but for our oil industry as well. Because we trade our oil in U.S. dollars, any Canadian oil producer finds that their profits fall when they sell their product in U.S. dollars and have to repatriate those revenues into Canadian dollars. The ability of the oil industry to expand and grow is hamstrung by an appreciation of the Canadian dollar. The oil sector itself hurts, it not just manufacturing, tourism, forestry and other sectors."

She also sees a linkage between our inflated currency and the cancelled upgrading facilities in Alberta.

"We need to address the issue that maybe because our currency has appreciated in value, it's not as economic to build upgraders in Canada. We have a natural resource in Canada that's traded in U.S. dollars. Why? When Russia decided to trade their oil with China they elected not to do it in U.S. dollars, but their own currencies. We have to start thinking about what is in the long-term interest of Canada, not what is in the best interests of a handful of oil companies."

Upgrade here first, then ship

By choosing Canada instead of China, Allan believes Albertans would benefit from higher prices and greater economic stability. Nation building through such mutually profitable arrangements might prove far more productive than past interprovincial posturing.

"One of reasons that bitumen is not capturing the value that western producers want is that its not good enough quality. So if we upgraded it in Alberta into a product that North America wants, we might solve so many problems. Everybody in Canada could win if less expensive western Canadian crude got to eastern Canada.

"At the recent Northern Gateway Hearings in Edmonton, the Joint Review Panel was told by Enbridge's expert witnesses that right now Eastern Canada is buying imported crude at $20 to $30 more than the price of western Canadian crude. If that's the case, that works out to about 15 cents a litre at the pump. Western producers could get a price premium of five cents a litre over what they are getting now, the refiners in eastern Canada could save five cents a litre on their crude supply and consumers could save five cents a litre when they fill up at the pump.

"So if that happened, producers and refiners would make more money and consumers would spend less money. That's got to have a stimulative effect on our Canadian economy."

Allan points out that shipping upgraded crude rather than bitumen would also require half as much pipeline capacity since we would not need to build supply lines for imported condensate. And most importantly, upgraded Alberta crude should be moving east rather than unrefined bitumen moving west.

"TransCanada Pipelines have said they are looking at converting one of their natural gas pipelines to ship Western Canadian crude to eastern Canada. That could be up to 800,000 barrels a day and would be a tremendous boost to the Canadian economy. We should be focusing everything we can to get that to happen. And the way to get that to happen is to say no to the Northern Gateway pipeline. The best thing that British Columbia could do is restrict bitumen from coming into this province, period. That would essentially be a little bit of tough love to Alberta."

The late premier Peter Lougheed urged Albertans to "think like an owner." That determination to do what's in the interest of Canadians rather than companies is what Allan seems to be championing as well.

"I would hope that the real issue here is what can we do to support and develop the future health and long-term growth of the Canadian economy. We need to stop responding to the preferences of corporations that don't have the Canadian national interest at heart. They don't. They're not meant to.

"Every single time issues are raised such as energy security in Canada, value-added and upgrading, concerns over the appreciation of our dollar -- the oil industry goes crazy. And the reason they do is because these are serious issues that need to be addressed and they could be addressed relatively easily for our long-term benefit. What the oil industry doesn't yet understand is that many of these changes would be for their long-term benefit as well."

A challenging question

The Enbridge and Kinder Morgan pipelines will obviously benefit China and the shareholders of private oil companies, but what is in Canada's interest? Are we even asking that question?

At the end of this series I'm left reflecting on the blunt advice of Norwegian petroleum engineer Rolf Wiborg: "You have to leave the feudal thinking and leave the idea that people coming to exploit you have the right to tell you what to do.... It can be done, but do the Canadian people have the power and the will? Do they have the collectiveness and guts to do it?"

How about it Canada? Do we?

The Tyee, 3 Oct 2012Byline: Mitchell Anderson

March 2013

As elected officials from across the province, you all know that the majority of Albertans want to see more upgrading done within our borders.

You’ve seen the polls. And you’ve heard directly from your constituents.

In their hearts and in their guts, Albertans feel a strong need to move up the value ladder.

Albertans are saying “yes” to adding value and “no” to sending high-quality, high-paying jobs down the pipeline to places like the US Midwest, the US Gulf Coast and, in the future, to China.

The wishes and preferences of Albertans on this issue are clear.

But, we all know that public opinion isn’t enough. In order to become a reality, upgrading also has to pass the economic test.

On that score, the power players in the oil industry are on entirely different page than ordinary Albertans.

They say the numbers don’t add up for Alberta-based upgrading.

They put on their longest faces and sadly report that we have no choice but to get comfortable on the lowest rung of the value ladder.

They say that the case is closed.

But we at the AFL aren’t buying it.

I’m here today to challenge the industry’s conventional wisdom.

I’m here to say that the industry power players are wrong…and that the majority of supposedly ill-informed ordinary Albertans are right.

I’m also here to thank Premier Redford…but also to take her to task.

Albertans should thank her for drawing wide public attention to the whole concept of the differential between the price that’s paid for conventional oil and the price we get for bitumen.

The premier is right when she says that the differential is incredibly important to the future of the Alberta economy.

But she’s dead wrong when she says that a widening differential is a disaster for our province. The truth is that a wider differential dramatically improves the economics of upgrading and presents us with an opportunity to do exactly what they majority of Albertans want us to do – and that is, move up the value ladder.

To put it another way, the so-called bitumen bubble that has been inflated by the widening differential has a very significant silver lining. And if the goal of this committee and this government is to develop effective public policy, it’s a silver lining that cannot be over-looked or ignored.

For those of us in Alberta’s labour movement, the need for our policy makers to see and seize the opportunity presented by the widening differential is great. The need for policy leadership is great because, as a province, we are in the process of tumbling down the value ladder, rather than climbing up it.

This slide shows the reality we’re facing today. Throughout the 80s, 90s and well into this decade, we normally upgraded about two-thirds of our raw bitumen to synthetic crude. Former Premier Stelmach promised that his government would ensure that 70 per cent would be upgraded within the province. That’s why he established the BRIK program. But we’re moving in the wrong direction. Today, we upgrade only 58 per cent and the ERCB projects that by 2017, that figure will drop to 47 per cent.

Even worse, a report prepared last for the government by the consulting firm Wood MacKenzie projects that by 2025 Alberta will be upgrading only 26 per cent of our bitumen.

To be clear, no one is talking about shutting down existing upgrading or refining facilities. They’re all very, very profitable. In fact, there isn’t an upgrader or refinery in the country that isn’t making money hand over fist. Instead, the problem is that – with the notable exemption of the Northwest Upgrader and refinery – no new upgrading capacity is being added in our province. Virtually all of our province’s new oil sands production is going to be shipped out of the province in raw form.

Why is this a problem? It’s a problem because by shipping our bitumen raw, we’re letting literally thousands and thousands of good jobs slip through our fingers.

A single upgrader employs up to 2,000 people in direct operations positions. It also provides millions of man-hours of employment each year for construction workers doing regular maintenance and turnarounds.

 In addition, as the Conference Board of Canada has pointed out, upgraders and refineries have incredibly long supply chains – so the spin-off affects to suppliers and local businesses are huge.

And these are temporary, transitory jobs in construction. These are long-term, stable, family-sustaining, community-building jobs. If you don’t build the upgraders and refineries, you don’t get these jobs – it’s as simple as that.

Our federation, working with the Communications, Energy and Paperworkers Union, has estimated that if the volume of diluted bitumen slated to go down the Keystone XL pipeline were instead upgraded in Alberta before being exported as synthetic crude, it would create as many as 18,000 permanent, direct and indirect jobs.

If the bitumen slated for the Northern Gateway pipeline was upgraded here and shipped as synthetic crude, it would create 26,000 jobs.

Those are numbers provided by economists working for the labour movement. But for our purposes today, I want to draw your attention to work done by other economists…in particular, work done by economists and energy experts working for the Alberta government itself.  

We at the AFL do a lot of FOIP searches…and we recently did a search on reports conducted or commissioned by the government on the subject of upgrading.

The search netted about 8,000 pages of documents. But there were two that really stood out, both of which we have included in your kits.

The first is entitled “Alberta’s Value Added Oil Sands Opportunities and Bitumen Royalty in Kind.”

It includes this slide, which shows that when you export bitumen in raw or diluted form, you capture about 35 per cent of the value chain. But if you upgrade that same bitumen to synthetic crude and export that product, you capture 70 per cent of the value chain. And if you move even higher up the chain, to products like gasoline, diesel, jet fuel and petrochemicals, you can essentially capture 100 per cent of the value chain.

At the same time there is compelling evidence that moving up the value ladder will also generate more revenue for government to help pay for things that Albertans need like health care or education or which can be saved for future generations.

For example, just a few months ago, Ian McGregor from Northwest Upgrading told this committee that if his very small refinery had been in operation last year, it would have generated approximately $500 million more in revenue for the government than they got by allowing the bitumen to be exported raw. And that’s on a volume of 37,500 barrels per day…which is tiny compared to overall production from the oil sands.

So that’s what we stand to lose if we don’t find a way to arrest our province’s headlong tumble down the value ladder. Thousands of jobs. Millions, perhaps billions, in public revenue. And the difference between 35 per cent of the value chain and 70 per cent.

Of course, the skeptics will say – and have said – that the numbers just don’t add up.

And for a few years – just a few (between 2009 and 2011) – they didn’t. But they do now.

To illustrate my point, I’d like to draw your attention to the second very important document that we received as a result of our FOIP search.

This one is entitled “Oil Sands Fiscal Regime Competitiveness Review.” It comes to a number of very interesting conclusions about royalties (it shows we are not getting a fair share for the sale of our collectively owned resources) and carbon taxes (it shows that there is little to be feared from a carbon tax and actually something to be gained).

But for our purposes, I want to focus on the report’s findings on upgrading.

Basically, it says that there were two factors undermining the economics of Alberta-based upgrading between 2009-2011. The first was the spike in the cost of the oil sands related construction and the second was the narrowing of the differential between world oil prices and the price for bitumen.

Like many, many other studies I’ve seen this one concluded that the high cost of construction was a direct result of the pace of development. Too many projects, approved and under construction at the same time were undermining productivity and driving up costs.

On the differential side, the study points out that, contrary to the arguments presented and repeated recently by the premier, that a relatively wide differential is nothing new and nothing to be afraid of. In fact, the study shows that the differential has hovered in the 25-30 per cent range for most of the past two decades.

The study also shows that wider spread between conventional and oil prices and bitumen prices is not only good for Alberta-based upgrading, it’s our biggest competitive advantage.

Take a look at this slide. What it shows are the break even points for SAGD, mining and integrated projects at different differential and price levels. Look closely. What it shows is that projects with upgraders are very economic unless the differential gets narrower than 15 per cent. On the other hand, the viability of SAGD operations without upgraders plummets as the differential gets wider.

The picture is similar in the next slide, also from the same report. What this one shows is that upgraders are entirely viable in the current price and differential climate.

Here’s the report’s conclusion:

“Despite the fact that adding upgrading capacity makes less economic sense in today’s market (2011, when the differential was 15 percent), our sensitivity analysis suggests an integrated upgrader serves as a hedge against volatility of the light-heavy differential.”

Did you hear that? Upgraders profitable when the differential is above 25 per cent AND they are a responsible hedge against volatility in the light-heavy differential. They’re profitable over a greater range of market scenarios than extraction-only projects.

All this talk about differentials and sensitivity analysis sound confusing. But it’s actually really simple. Low bitumen prices are actually good for us because they allow our upgrader to buy their feedstock low and sell their refined products high. In fact SCO often trades at a premium to WTI priced conventional oil.

So that’s our question for the government as the steward of our collectively-owned resources: why shouldn’t we buy low and sell high? Why sell the world products that fetch a higher price and keep the jobs for ourselves?

That leads me to our recommendations:

First, we need to see the widening differential not as a threat, but as an opportunity.

Second, we need to stop chasing the mirage of price parity between bitumen and conventional oil. The differential is not the result of lack of market access. It the natural result of bitumen’s lower quality.

Do you remember the old Russian Ladas? The fact that they couldn’t get the same price for one of those hunks of junk as GM could get for a Cadillac was because they lacked market access. It was because their product was junk. We face a similar problem with bitumen. It may not be junk, but it’s not conventional oil. So instead of chasing the impossible dream of getting world price for our sub-par product, let’s upgrade and sell that higher-value product. The only way to get Cadillac prices is to sell a Cadillac product.

Third, we need to set a more reasonable pace for development in the oil sands. Unrestrained pace is driving up costs and higher costs are one of the factors leading companies to opt for the cheaper, extraction-only projects. But failing to set a more reasonable pace of development, as Peter Lougheed suggested, we’re pricing ourselves out of the market for the kind of value-added projects that Albertans want and which would be better for our economy over the long term.

Fourth, we need to make upgrading a condition of development, not an option. By leaving these important decisions entirely in the hands of largely foreign-based multi-national energy corporations, we’re ignoring Lougheed’s advice to act like owners. Even now that the numbers do add up for Alberta-based upgrading, these companies are not investing in value-added projects because have their own, existing refining plants in the US or in China. They see the money that can be made by buying our bitumen low and shelling the refined product high. But it’s our resource and it is we, the citizens of Alberta, who should be seizing the value opportunity, not some foreign based energy giant. It may make all sorts of sense from a private-profit point-of-view for Exxon and Sinopec to rip and ship our raw resources. But just because it makes sense for them, doesn’t mean it makes sense for Albertans, who own the resource.

Fifth, we need to expand the Bitumen Royalty In Kind program. It’s a good program, but we can’t build our provinces energy program with just one BRIK.

Finally, we need to be bold and build on Peter Lougheed’s legacy. Energy companies like Exxon and Sinopec cannot be counted on to make development decisions that are in the best interests of Albertans who own our resources. The approach that Lougheed took to build our petrochemical industry is actually the one we should take today with bitumen. He set a clear goal of building a value-added industry. He understood that the government, as the steward of the resources, had to be a participant in the market, not just a spectator. He introduced regulations about what could be exported and couldn’t be. He used public money to build critical infrastructure like straddle plans to support a value-added industry. And he created a public energy corporation to enter into joint-venture projects with reluctant private-sector investors. And it worked.

In the end, all we’re asking the government to do is to see and seize the opportunity that’s in front of us.

And we’re not asking you to do anything that previous Progressive Conservative governments haven’t already done. We are asking you to lead like Lougheed.

Standing Committee on Alberta’s Economic Future review of the BRIK (Bitumen Royalty-in-Kind) ProgramCommittee Room A4th Floor – Legislature Annex BuildingEdmonton, ABTuesday, February 26, 2013

If this isn't a political slap up the side of the head I don't know what is.

But will Ed Stelmach and the Alberta Tories get the message?

Calgary pollster Bruce Cameron released his latest survey this week. Complete with a headline that screamed "Stelmach stumbles in big cities."

He talked about how the premier's disapproval rating in Edmonton and Calgary has jumped from 15% to 29% since the Steady Eddy days in January when Stelmach was still enjoying his political honeymoon.

After the Cowtown figures are broken out, the picture goes from bad to worse. Cameron noted a "significant and growing discontent" in Alberta's second city where the premier's disapproval rating now stands at 39%.

In Redmonton - where Stelmach's Ukrainian roots were supposed to win back the PC's popularity - the thumbs-down factor doubled from 13% to 29%.

And when Albertans were asked if the Stelmach government was "leading Alberta in the wrong direction," 30% agreed. The same question was put to them in January and only 10% answered "wrong."

In Calgary, 41% said Ed is leading us down the garden path.

This is troubling for the Tories for sure - especially now that the byelection in Ralph Klein's old Calgary Elbow riding appears to be turning into an Ed-a-rendum.

This is not the end of the Tories as we know them. When Cameron asked the crucial "if an election were held tomorrow" question, the PCs still got 47% support province-wide, but were down nine points in Edmonton and a disturbing 19 points in Calgary.

Sadly, Cameron doesn't put a finger on what's bugging Albertans.

But you can bet the Stelmach PCs' growth management blunders rank right up there.

And there was more where that came from yesterday after Enbridge CEO Pat Daniel filed his provocative plan to build the Alberta Clipper big inch oil pipeline from Hardisty to the U.S. Midwest.

This project could hit 800,000 barrels a day if proposed future expansions are built.

Daniel called the application "timely," mainly because of the "growing supplies of crude oil from Alberta's oilsands."

Which sounds like more bitumen and jobs down the pipeline to the States.

It's the thing Ed Stelmach compared to stripping the "topsoil" from a farm when he was on his game during the PC leadership race. But since winning the job, he's done diddly squat about it.

On Monday, crucial hearings begin before the National Energy Board on another job-stealing raw bitumen line to the U.S.

The Alberta Federation of Labour has already branded TransCanada's Keystone pipeline a "devil's bargain."

"Why, we ask," AFL president Gil McGowan blasted in his submission, "should Canadians settle for 17 jobs when they could have 18,000?

"Labour's interest is in keeping industry and good jobs in Canada," McGowan boomed.

Shouldn't that be the government's job, too?

And what applies to Keystone clearly applies to the Alberta Clipper, too.

Meanwhile, the Alberta Tories plan on sending one lowly market analyst to monitor the Keystone hearings.

Another Stelmach government boondoggle blew up right on schedule yesterday when the Fraser Institute released its "business case" for the carbon dioxide "backbone" pipeline from the tarsands to a bunch of old Alberta oilfields like Pembina and Swan Hills/Judy Creek.

This is the magic wand technology first dreamed up by Ottawa Liberal Leader Stephane Dion - but later endorsed by the Stelmach government - to pump oil-sands plant emissions down oilwells to hopefully enhance recovery, and solve global warming, all at the same time.

The price tag going in is $1.5 billion with none of the engineering actually done. So you can bet your mortgage that it will be at least triple that amount.

The right-wing think-tank determined that "current demand is very small."

And no wonder, considering these target oilfields are up to 50 years old, and there will be more than enough COC generated from Edmonton-area upgraders to satisfy that market.

Which led study authors Gerry Angevine and Dara Hrytzak-Lieffers to conclude that building the pipeline "does not make sense from a business perspective," and "cannot be justified on the basis of the economics." But more to the point: "public support for a backbone project does not appear to be justified."

Except that's clearly the direction the Stelmach government appears to be headed and in all likelihood the Backbone Pipeline will end up joining the wrecks from the bad old Peter Lougheed/Don Getty days like NovAtel and the Canadian Commercial Bank.

Which is what the Cameron Strategy poll seems to be already signalling.

Edmonton Sun, Fri June 1 2007, Page 54Byline: Neil Waugh

EDMONTON - A labour group on Tuesday urged a government committee to support construction of new upgraders to stop oil conglomerates who want to "rip and ship" Alberta's resources.

The Standing Committee on Alberta's Economic Future also heard from an industry group that said market forces alone should decide whether a new upgrader is necessary, and from a project proponent who would benefit from provincial support.

The committee is trying to decide whether the province should renew its commitment to the Bitumen Royalty in Kind Program, or BRIK, in which the province forgoes royalties in favour of bitumen and then uses that bitumen to feed upgraders.

Alberta Federation of Labour president Gil McGowan told the committee that upgrading bitumen in Alberta should be a condition of resource development, not an option, because it creates jobs and adds value in Alberta.

"It is our resource and it is we, the citizens of Alberta, who should be seizing the value opportunity, not some foreign-based energy giant," McGowan said. "It may make all sorts of sense ... for Exxon and Sinopec to rip and ship our raw resources, but just because it makes sense for them, it doesn't mean it makes sense for Albertans."

McGowan said Alberta has traditionally upgraded roughly two-thirds of its bitumen, a figure that will drop to 47 per cent by 2017, according to the Energy Resources Conservation Board. He said an independent consultant's report prepared for the province estimated that by 2025, Alberta would be upgrading just 26 per cent of its own bitumen.

Government reports obtained through freedom of information requests show exporting raw bitumen captures 35 per cent of the value, McGowan said, while upgrading to synthetic crude captures 70 per cent of the value and refining to diesel and jet fuel nets 100 per cent of the value.

"At the same time, there is compelling evidence that moving up the value ladder will also generate more revenue for government to help pay for things that Albertans need, like health care or education," McGowan said.

The BRIK program was developed in 2007, one year after former Premier Ed Stelmach famously said "shipping raw bitumen is like scraping off the topsoil, selling it and then passing the farm on to the next generation."

Stelmach pledged Alberta would upgrade 72 per cent of its bitumen by 2016. In May 2010, the province announced the first BRIK-backed upgrader would be built by North West Upgrading northeast of Edmonton.

The province initially backed a $6.6-billion refinery proposed by Alberta First Nations Energy Centre, but pulled support in February 2012. Teedrum president Ken Horn said the BRIK program could help make the First Nations refinery a reality.

"What is being considered in this room today is whether to introduce a second round of brick barrels under a request for proposals," Horn said, highlighting the economic benefits of the projects. "(The province is) facing a lot of challenges. ... These particular projects could yield a tremendous amount of money for the Alberta government."

Neil Shelly, executive director of Alberta's Industrial Heartland, said "overall, we think (BRIK) is a great long-term strategy for Alberta.

"It helps diversify our markets, it provides long-term stability in the future and it's definitely the role of government. When industry acts, they're acting on behalf of an individual company," Shelly said. "What may not make sense to an individual company may make sense to the province as a whole."

Emilson Silva of the University of Alberta School of Business said he believes the North West Upgrader should go ahead but doesn't think the market will support a second BRIK-backed upgrader.

Martyn Griggs of the Canadian Association of Oilsands Producers said the organization thinks BRIK is a good program but won't comment on whether implementing it is the right political choice for Alberta.

Patricia Nelson, vice-chair of the In Situ Oilsands Alliance, said if building an upgrader makes economic sense, the industry will do it.

"If it doesn't make sense, they will not. And I think you need to have some faith. We've had some pretty good ... trends with industry players here in Alberta making this a world-class place for energy development," Nelson said.

"So keep the faith."

The committee is expected to table its findings on April 30.

The Edmonton Journal, Tuesday, Feb. 26, 2013Byline: Karen Kleiss

AFL Final Written Argument Northern Gateway Pipeline

The Alberta Federation of Labour (AFL) has added its voice to those worried about the ramifications of Canada's role in China's energy plans.

Following Prime Minister Stephen Harper's approval of state-run China National Offshore Oil Corporation's (CNOOC) takeover of Nexen, the AFL released China's Gas Tank, a report outlining how it believes China is moving to control all stages of its Alberta oil operations.

The report says three state-owned Chinese oil companies, CNOOC, PetroChina and Sinopec, have major investments in the oilsands. It points out these companies' U.S. tax filings admit the three companies are affiliated and sell oil to one another. Chinese state and private investment in the oilsands is unclear, but significant. For example, Chinese-owned Sunshine Oilsands "holds seven per cent of the total oilsands leases in the Athabasca region, or 1.15 million acres of oilsands leases," according to the report.

The report also points to the proposed Northern Gateway pipeline that would run from Alberta to the British Columbia coastline and is ostensibly intended to ease shipment of oil and natural gas to Asian markets. Sinopec is one of the 11 companies investing in that pipeline. Four remain unidentified.

Finally, the AFL asserts the Canadian federal government did a poor job negotiating the Foreign Investment Protection Agreement (FIPA) with China, and should renegotiate before it is officially passed.

"From our perspective the big problem is that the Chinese have interests that run counter to the interests of the Canadian public," says AFL president Gil McGowan. "It's clear that the Chinese are assembling the pieces necessary for what we would describe as a low price strategy for Canadian bitumen.

"What I've been told by people in government and in industry is that we can't be picky about what we send to those markets... we basically have to give them whatever they want.... Frankly I don't buy that argument because they need us more than we need them. But it's not challenged," he says.

Gordon Holden, director of the University of Alberta's China Institute, echoes McGowan's observations. He says China is not happy buying oil from Iran, Saudi Arabia and Sudan, and is looking for more stable sources.

"Alberta is rock solid in terms of the manner of doing business — relatively transparent, but also just without the complications," says Holden.

McGowan says the AFL, which represents 27 labour unions in Alberta, is not alone in its alarm over Canada's hasty business dealings with China. Even internationally, the public is asking Canada to slow down. U.K.-based Avaaz.org is an online campaign network with 17 million members that develops petitions and protest campaigns on social and environmental issues it believes are important to its members.

Avaaz is currently campaigning against the present form of the Canada-China FIPA. Nearly 38,000 people have pledged support to the campaign.

"As the owners of the resource, I think Albertans deserve to know what's going on and what's being lost, but they don't," says McGowan.Fast Forward Weekly, Thursday, Dec. 27, 2012Byline: Susy Thompson for News

 Edmonton – The Alberta Federation of Labour applauds the Obama administration’s decision to delay the Keystone XL pipeline, saying it will give the Redford government an opportunity to pursue value-added opportunities here at home, rather than shipping unprocessed bitumen south for upgrading.

“There’s been a parade of Alberta government ministers travelling to the States to sell unprocessed bitumen. Now perhaps those same ministers can stay in Alberta and consider our needs and our future ahead of those of our neighbours south of the border,” says Gil McGowan, president of the Alberta Federation of Labour (AFL), which represents 145,000 workers.

“Upgrading more bitumen in Alberta will help our province in many ways. Increasing value-added industries will provide quality, long-term jobs for Albertans and Canadians. While good relationships with our neighbours are important, the government of Alberta must promote the long-term health of our province first. Increasing value-added energy industries in Alberta will increase revenues from royalties and taxes,” he says.

“As bitumen is upgraded and moved up the value chain, more funds will flow into the Treasury through higher royalties on finished products. This is money that can be used to pay for important public services like health care and education,” says McGowan.

McGowan took particular exception to the Wildrose Party’s reaction to the delay of the Keystone XL pipeline.

“The Wildrose Party was playing fast and loose with the facts in their media release today. They should avoid fear mongering. The truth is that this pipeline is bad news for quality jobs and bad news for royalties,” says McGowan.

“Danielle Smith is trying to convince us that we’ll lose billions in royalties if the Keystone XL pipeline isn’t approved, but the opposite is true. If we export unprocessed bitumen, we ruin a great competitive advantage,” says McGowan

“The National Energy Board notes that, ‘wide differentials provide refiners with an economic incentive to build heavy oil conversion capacity.’ If we get rid of the prices differential between our bitumen and global crude, we destroy future opportunities to boost our value-added industries,” he says.

“In this context, Albertans should see the Obama administration’s decision as an opportunity, not a disappointment. It is an opportunity for us to move up the value chain and create a more prosperous and stable economic future for Albertans.”

-30-

Media Contact:

Gil McGowan, President, Alberta Federation of Labour @ 780-218-9888 (cell)

CALGARY - The Alberta Federation of Labour called Wednesday for the province to burst the so-called "bitumen bubble" by creating a Crown corporation that could partner with industry to invest in oilsands upgrading and refinery capacity.

At a news conference in Calgary, AFL president Gil McGowan suggested the PC government take their cues from former premier Peter Lougheed, who created the Alberta Energy Company Ltd in 1973 to boost investment in the province's oil and gas industry. With the price differential between Alberta bitumen and benchmark West Texas Intermediate crude at historic levels (and expected to take a $6 billion bite out of provincial resource revenues in 2013-14), McGowan said the province needs to develop a "value-added" oilsands strategy that would produce a more marketable commodity.

"In this case, what the provincial government should be doing is taking the advice of former premier Peter Lougheed who said over and over again — in order to get the most for our resources, we have to start thinking like owners. And owners think not only about quick sales and quick production, but about the long-term benefits like best prices and job creation," McGowan said.

McGowan said the benefits of increased refining capacity in Alberta would include better prices for the product, and long-term job creation here in the province rather than down the pipeline in another jurisdiction. Currently, less than half of Alberta's bitumen is being upgraded before it leaves the province.

"Yes, we need pipelines to get our product to market, but the first thing the government should be doing is using whatever power it has at its disposal to make sure we're upgrading here. Then we can talk about how to get the upgraded product to market," he said.

University of Alberta energy expert Richard Dixon said while it's easy to see why the low price of bitumen might lead the AFL to make the argument, there's no guarantee the current price environment will last.

"We don't know what's going to happen," said Dixon, executive director of the U of A's School of Business. "By the time you build this refinery, by the time you build this upgrader, is that (price differential) going to exist still? ... It's a huge gamble."

Dixon pointed out that Suncor Energy Inc. is currently reviewing the cost effectiveness of its proposed Voyageur upgrader. A decision on whether it will go ahead with the project is expected by the end of March. And the North West Upgrading project — which will be the first new refinery to be built in the province in 30 years — is being encouraged along by the government's "Bitumen Royalty in Kind" (BRIK) program, where the province receives oil for its share of the royalty from producers and aims to stimulate value-added activities like refining and upgrading. He said if industry isn't rushing to build refineries right now, it's because it doesn't make economic sense.

Michael Moore, senior fellow with the University of Calgary's school of public policy, agreed.

"Whether it's a crown corporation to build roads or a crown corporation to build rocket ships, you've still got to cover costs. So why would a crown corporation be more efficient at this than Nexen or Shell?" he said.

Moore said Alberta is better off continuing down the path it's on now — working to improve access to markets that are already set up to handle oilsands product.

The AFL proposal was met favourably by Alberta Liberal Leader Raj Sherman, who only last week also proposed the establishment of a Crown corporation aimed at giving Albertans an equity stake in their natural resources. He said again Wednesday that it's time for the province to have that conversation.

"Premier Lougheed did it ... we need to revisit the policies of Premier Lougheed," Sherman said. "Let's have a shared partnership with these (energy) corporations. If they're going to succeed, let's succeed with them and let's let Albertans have a share of the profits."

Mike Deising — spokesperson for Alberta Energy Minister Ken Hughes — said the discussion around value-added activities in the oilsands is nothing new. He said the government has no interest in creating a new Crown corporation, but is very interested in continuing with its BRIK program.

"Minister Hughes has been quite clear in his public comments that if there are companies out there that have economically viable proposals that could be of benefit to the province, he's fully open to sitting down with industry and having conversations on those projects," Deising said.

Wildrose Leader Danielle Smith said the creation of a new crown corporation would be a "horrendous" idea.

NDP Leader Brian Mason said his party is open to multiple ideas on ways to enhance value-added aspects of Alberta's energy industry, but is not currently advocating the creation of a Crown corporation.The Calgary Herald, Thursday, Jan. 31, 2013Byline: Amanda Stephensonwith files files from James Wood, Calgary Herald

EDMONTON - The Alberta Federation of Labour says the discounted price Alberta bitumen is fetching of the world market could provide an opportunity for more upgrading and additional jobs in the province.

About two weeks after Premier Alison Redford warned Albertans of a tough budget March 7, in which resource royalties are expected to plunge by $6-billion in the next fiscal year largely due to the lower price paid for the province's bitumen compared to other benchmark crudes, the AFL said there is a "silver lining" to the dismal fiscal projections.

Federation president Gil McGowan said a 2011 internal government report, obtained through a Freedom of Information request, shows that as the price differential between Alberta heavy oil and the benchmark West Texas Intermediate crude grows, mining projects that both extract and upgrade bitumen become more economically viable. Mines alone become less economically profitable, the data shows.

"The numbers do add up that there is a strong economic case for the type of development that Albertans want, which is upgrading and refining, and that the government knows that the economics are strong but has been telling us something else," McGowan said.

The AFL has long argued for more upgrading capacity in the province, saying it will create more long-term jobs and net better value for Alberta bitumen since the refined product garners a stronger price. However, on the same day as the AFL released its documents, Suncor Energy Inc. announced that a final decision on its planned multibillion dollar Voyageur upgrading project won't be made until the end of March due to a gush of higher quality light oil that has eroded the economic argument for the upgrader.

Alberta Energy Department spokesman Mike Deising said the private sector has the "paramount responsibility" to determine if building upgraders in the province is economically feasible.

"You don't make economic decisions on billion-dollar refineries or upgraders based on a price differential at one point in time," he said. "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."

The differential between the two types of oil has been growing and spiked sharply in December. McGowan said it currently hovers in the range of 30 per cent. He called it an "incredible loss of value, an incredible loss of jobs and an incredible loss of opportunity" if the trend of refining less bitumen in the province continues.

The chairman of North West Upgrading Inc. spoke out this week about the benefits of refining more oil in Alberta.

The company is partnering with Canadian Natural Resources Ltd. to build the $5.7-billion Sturgeon upgrader and refiner through the province's bitumen-royalty-in-kind program. The scheme sends provincially owned bitumen to private sector refineries to be turned into higher-quality products. The Sturgeon facility is the only project that's coming to fruition through the program, which was started in 2010.

It is the first new refinery to be built in Alberta in 30 years.

McGowan said the bitumen royalty-in-kind program needs to be expanded.

Edmonton Journal, Wednesday, Feb. 6, 2013Byline: Alexandra Zabjek with files from the Calgary Herald

The Alberta Federation of Labour gave its final arguments against the proposed Northern Gateway pipeline on Monday, begging the joint review panel to reject the project.

At a hearing in Terrace, B.C., AFL president Gil McGowan argued Gateway will hurt Canada's economy, creating few jobs locally and more jobs in Chinese refineries.

"The proponents of this project have compared the pipeline to the (Canadian Pacific Railway) and called it an important piece of Canadian infrastructure. But the Northern Gateway pipeline is a piece of Chinese infrastructure, not Canadian infrastructure," said McGowan.

"The ownership structure of the pipeline shows that the project will benefit China's state-owned oil companies, shipping good-paying oilsands jobs to Asia."

McGowan states the pipeline will create only 228 permanent jobs and 1,500 temporary construction jobs during a three year period. He also argues that the pipeline will drive up operating costs for Canadian refineries by more than $800 million.

The AFL is not opposed to selling oilsands product to lucrative Asian markets, says McGowan. Instead, McGowan favours refining bitumen in Alberta before selling it to foreign markets. The labour orgainization estimates that at least 26,000 Canadian jobs would be created if bitumen sold to China was refined in Alberta.

"If we want Cadillac prices for our resources, then we have to sell a Cadillac product," said McGowan.

"That means selling upgraded bitumen, called synthethic crude, rather than raw bitumen. Some country is going to capture the value and create the jobs. We think that country should be Canada, not China."

The AFL represents 160,000 Alberta workers, including 25,000 in energy and energy-related construction.

The Monday hearings were the final arguments to either supporting or denouncing the $6.5 billion pipeline that, if approved, will link the oilsands to the B.C. coast. From a port in Kitimat, bitumen will be loaded onto tankers heading to California and Asia, on the B.C. coast.

The largest hurdle is a coalition of aboriginal groups who argue they were poorly consulted by Enbridge, and that the pipeline will run through territory seen as culturally vital.

Enbridge and company supporters have spent approximately $500 million on environmental and engineering studies, as well as public and aboriginal consultations for the project. Enbridge also argues B.C.'s oil and gas industry could gain more than $18 billion in additional investments if the project is approved.

The joint review panel is expected to finish the hearings within two weeks and make a recommendation on the project's future to the federal government by Dec. 31.

An Alberta judge has ordered the Canadian arm of a Chinese state-owned oil company to pay the biggest workplace safety fine in the province's history after the death of two foreign workers at a massive construction project about five years ago.

"The fine is good, but no amount of money can make up for what they did wrong in the first place," said Wayne Prins, Alberta director of the Christian Labour Association of Canada (CLAC).

"In our view, the fine sends the right message to contractors and people in the industry that you must follow the procedures and rules in place."

Alberta Provincial Judge John Maher ordered Sinopec Shanghai Engineering Company (SSEC) to pay a $1.5 million fine in a St. Albert court room on Jan. 24.

The fine is related to the deaths of a welder named Ge Genbao, 27, and an electrical engineer named Lui Hongliang, 33, at the Canadian Natural Resources Ltd. (CNRL) Horizon oilsands project.

They were killed on April 27, 2007 at the facility located north of Fort McMurray.

The Chinese temporary foreign workers were welding the wall structure inside a massive storage tank when the roof support structure collapsed onto them.

Two other foreign workers were seriously injured.

Under Alberta's Occupational Health and Safety Act, 53 charges were laid against three companies in the deaths of Genbao and Hongliang and the injuries of the other workers.

CNRL, who was in charge of the construction site at the Horizon oilsands project, hired SSEC to build the storage tanks.

SSEC is the Canadian subsidiary of Chinese state –owned oil company Sinopec.

Sinopec hired more than 100 temporary foreign workers in China and began work on the construction of two oil storage tanks in late 2006.

SSEC pled guilty to three charges in September 2012 of failing to ensure the health and safety of workers.

The company was given the maximum $500,000 fine for each charge. Despite this fact, some people believe the fine will do nothing to deter them from practices that endanger workers.

"Sinopec didn't just import workers from the third world, they also imported third-world health and safety standards," said Alberta Federation of Labour President Gil McGowan.

"Alberta missed its chance to send a message that Chinese companies working in the oilsands need to play by Canadian rules."

McGowan argued that the fines are too small to make a difference to the massive corporation.

"One and a half million dollars doesn't even amount to a rounding error in the annual budget of a monstrous global corporation like Sinopec," he said.

"This fine does nothing to dissuade them from playing fast and loose with the safety of their workforce."

The original plan was to build the tank walls first, then use them to support the roof while it was under construction.

That plan changed when the project fell behind schedule.

CNRL approved the construction change, but SSEC did not prepare any formal written procedures that should have been certified by a professional engineer.

As a result, other charges in this case include failing to ensure that a professional engineer prepared and certified drawings and procedures; failing to ensure the roof support structure inside the tank was stable during assembly; failing to ensure that U-bolt type clips used for fastening rope wire were installed properly; and failing to ensure that wire rope being used was safe.

"We shouldn't forget the circumstances that led to the deaths of Genbao and Hongliang," McGowan added.

"The company did not get the construction plans certified by an engineer. The wires weren't strong enough to hold up against the wind. It was a complete abdication of responsibility on the part of the employer."

Crown prosecutors and SSEC lawyers came up with an agreement, which allocates $1.3 million of the fine to create an education program to train temporary foreign workers about their legal rights, as well as workplace health and safety.

The program aims to hire 45 instructors to train about 5,500 workers in a three year period.Journal of Commerce, Wednesday, Jan. 30, 2013Byline: Richard Gilbert

CALGARY — The boom in U.S. shale oil and natural gas production threatens to cut off a key supply of skilled temporary foreign workers for Alberta companies, as more tradespeople opt to work on large infrastructure projects in the United States despite the lure of dramatically higher wages in Western Canada.

"There's going to be a battle between what goes up north versus what comes down south," said Mike Bergen, executive vice-president of Sugar Land, Tex.-based market research firm Industrial Info Resources.

Advances in drilling technology have unlocked new supplies of crude oil and natural gas from hard-to-reach reservoirs across much of the U.S. By 2025, shale gas alone could add more than one million workers to the U.S. manufacturing industry, according to a fall report published by PricewaterhouseCoopers, reducing costs for raw materials and energy by as much as US$11.6-billion annually.

"You get a big [liquefied natural gas] project that takes place and then you get several of these big refinery projects and then here comes a new ethylene plant," Mr. Bergen said. "That's going to draw a lot of labour."

Alberta's perennially tight labour market means average wages for electricians, boilermakers, plumbers and pipefitters, carpenters and structural steelworkers are anywhere from 70% to 136% higher than median U.S. wages, depending on the trade, according to a five-year outlook published Monday by Industrial Info.

The high wages contribute to an operating environment already seen as one of the most expensive regions in the world from which to extract oil, at a time Alberta's heavy blend of crude, Western Canada Select, is subject to steep price discounts in the U.S.

Larry Matychuk, business manager for the Edmonton-based Local 488 branch of the United Association of Plumbers and Pipefitters, said the base wage rate for members is $43.77 per hour plus benefits.

He said the union regularly turns to its U.S. affiliates for additional tradespeople during "shut down season," a four-month annual stretch when refineries and bitumen upgrading plants shut down for maintenance, exacerbating worker shortages.

"We've had 200 to 300 of them up here at a time," he said of the U.S. tradespeople. "We expect that that's going to increase. We offer jobs to Canadians first. However, there is work picking up across Canada now. There's work in Saskatchewan; there's work in Newfoundland. Work is starting to pick up in Ontario and B.C. We don't have access to as many of the Canadians as we used to have."

ExxonMobil Corp. said last week it was moving ahead with its US$14-billion Hebron development offshore Newfoundland and Labrador.

The project, designed to recover more than 700 million barrels of oil from the Jeanne d'Arc basin roughly 350 kilometres southeast of St. John's, will employ up to 3,500 people during construction, the Irving, Tex.-based energy giant said.

That could spell trouble for Alberta oil producers. The latest figures compiled by the Petroleum Human Resources Council of Canada suggest at least 9,500 jobs could go unfilled in the country's oil and gas industry by 2015.

Oil sands production is poised to increase 44% by then from today's levels, to 2.48 million barrels per day, according to the Canadian Association of Petroleum Producers.

An influx of U.S. tradespeople could help with facility expansions needed to boost production, Mr. Matychuk said, "if the Americans are available at the time when we need them."

Gil McGowan, president of the Alberta Federation of Labour, expressed concern about Americans filling Canadian jobs in the oil sands.

"We're not talking about sharing a cup of sugar with them," he said in an interview. "We're talking about jobs that pay in excess of $100,000 a year. We should not be allowing these jobs to go to people outside of Canada without first doing everything we can to provide opportunities to Canadians."

The point may be moot, as workers in the U.S. help rejig facilities to meet new sulphur specifications in gasoline plus accommodate soaring production of U.S. shale oil fields.

Refiners are "engaging in some pretty big projects" on the Texas Gulf Coast, Mr. Bergen at Industrial Info noted. "We're anticipating some pretty decent expansion work on distillate and crude conversions for taking the shale crude," he said.Financial Post, Monday, Jan. 7, 2013Byline: Jeff Lewis

A $2.4 billion drop in resource revenue has put Alberta on pace for a deficit of between $3.5- and $4 billion — one of the highest deficits in history, Finance Minister Doug Horner revealed Tuesday in the province's third quarter fiscal update.

The sea of red ink will be four times deeper than was forecast in the budget last February. The province initially predicted an $886 million deficit, but by the second quarter had increased its deficit forecast to $2.3 to $3 billion.

Now it's forecast to be $1 billion more, which will rival the $4 billion deficit the Don Getty government posted in 1986-87.

Horner blamed the ballooning deficit on the discounted price Alberta companies are getting for the heavy oil or bitumen from the oilsands, which has had a dramatic impact on royalties and taxes.

"We're seeing declining resource revenues in Alberta and that's, for the most part, a result of Alberta's market access problem," Horner told reporters at Calgary's McDougall Centre, "I know you have heard me talk a lot about the bitumen bubble. ... It is a bubble that is not going to pop any time soon and it is costing us a lot of money."

But he noted it is not just the differential between the price of Alberta heavy oil and West Texas Intermediate that is hurting the treasury, but also the higher exchange rate and lower land lease sales.

"It doesn't paint a pretty picture for the third quarter, and to be honest, it's not getting all that prettier," Horner said.

The new deficit projection doesn't include $1.1 billion the province is borrowing for the twinning of Highway 63 to Fort McMurray or the $4.1 billion already borrowed for various financial corporations and for lending to municipalities.

The sustainability fund which has covered four previous deficits has been reduced to $3.4 billion from a one-time high of $17 billion.

The flood of red ink prompted the government to simultaneously announce a three-year management salary freeze that it says will save taxpayers $54 million. Horner also announced plans to cut public sector managers by 10 per cent over the same three-year period.

While he said he didn't want to interfere in the ongoing collective bargaining, unions should take the management wage freeze as a sign of the times.

"We've been fairly consistent in saying that there is no new money," he said. "They should take that as a strong signal of what we have in mind."

The province froze MLA wages earlier this month, rejecting a one per cent cost of living increase to their $156,311 salaries.

Horner said his Conservative government has also found $600 million of in-year savings across all ministries.

Guy Smith, president of the Alberta Union of Provincial Employees, said he doesn't think the government should be blaming a $3.5 plus billion deficit on the discounted price of bitumen, which accounts for less than $1 billion of the shortfall.

"It seems rather strange that the minister of finance would tell Albertans that this is a long-term situation because it's probably not going to be," he said. "It seems to be very much a knee-jerk reaction to a situation that won't last."

Smith said Horner is obviously interfering in the collective bargaining process before it even begins and that rather than slash management jobs, he should be redeploying managers to the front lines to meet the province's rapidly growing population and its demand for more public services.

Alberta Federation of Labour President Gil McGowan said the finance minister appears to be more intent on finding scapegoats than solutions.

"It's clear they are desperate to blame anyone but themselves," he said. "It's time for the government to stop playing the blame game."

McGowan said the question Albertans should be asking is not where to cut, but why does the province have a deficit in a booming economy.

"The real cause of the problem has to do with years and years of cuts to taxes for high income earners and corporations, and years and years of royalty giveaways," he said. "It has nothing to do with how much we pay our public sector workers."

Wildrose Leader Danielle Smith said the fiscal update shows Premier Alison Redford's provincial budget is unravelling.

"We're seeing the budget was an absolute farce," she said.

She dismissed as "window-dressing" the government's plans to cut management by 10 per cent and to freeze their salaries.

Liberal critic Kent Hehr said it was folly to blame slumping oil and gas revenues for the financial problems, saying the government needs to budget more conservatively and change the tax structure.

"Everyone knows our revenue structure is broken," he said.

NDP critic David Eggen said Albertans are angry over the Tory government's bungling of the province's finances.

"They know our economy is growing," he said. "What's wrong with this government? Why did they miss the boat that's been sailing along in Alberta?"

The Calgary Herald, Tuesday, Feb. 19, 2013Byline: Darcy Henton and Chris Varcoe

The Alberta Federation of Labour and the Parkland Institute have released a study that says Albertans could lose billions of dollars in royalties if the Northern Gateway pipeline goes ahead.

The study bases that claim by adding up what the province would collect under the current royalty regime by 2045 as compared to the royalty regime under former premier Peter Lougheed.

Alberta collected 35 per cent of oil revenue as royalties during the 1980s.

According to the study, if that percentage was still in place, the Alberta Heritage Fund would be worth $1 trillion dollars by 2045.

The study quotes figures from the Canadian Energy Research Institute which show Alberta will collect an average of 18 per cent of oilsands revenue under the current royalty regime.

The Parkland Institute is a left-leaning think-tank based in Edmonton.

'Fair share' for Albertans

Nancy Furlong is the Secretary-Treasurer of the Alberta Federation of Labour.

"This study shows Albertans are being fleeced on our fair share of royalties," said Furlong on Thursday.

She says in the Lougheed era, the Heritage Fund was used for loans to other provinces.

"There is no reason why, if we collected anything approaching appropriate royalty rates, Alberta could not lead the country toward a greener economy."

Stelmach royalty review

The province last reviewed the royalty regime in 2007 when it released the report titled Our Fair Share.

Ed Stelmach, who was premier at the time, then announced the government would increase royalties to collect an extra $1.4 billion a year.

The announcement created a backlash in the energy industry and was blamed for a downturn in natural gas production in Alberta.

The province eventually backed away from any major royalty changes.

CBC News, August 9, 2012