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, 2013
Byline: Alexandra Zabjek with files from the Calgary Herald