Alberta backing joint upgrading venture

CALGARY — The Alberta government has whittled down the field of candidates for its bitumen royalty-in-kind program to a single project — a high-tech oilsands refinery proposed by North West Upgrading and its part-owner Canadian Natural Resources Ltd.

CALGARY — The Alberta government has whittled down the field of candidates for its bitumen royalty-in-kind program to a single project — a high-tech oilsands refinery proposed by North West Upgrading and its part-owner Canadian Natural Resources Ltd.

After spending months poring over applications, the province said Tuesday it has picked the 150,000-barrel-per-day North West project to advance to the negotiating stage.

“But it’s not a done deal yet,” said Alberta Energy spokesman Bob McManus.

Talks between the province and the North West partners are expected to last throughout the remainder of the year, with construction beginning on the first 50,000-barrel-per-day phase early next year. Operations would begin around 2013.

Under the bitumen royalty-in-kind program, or BRIK, Alberta is entitled to take its royalty payments from oilsands producers in bitumen, rather than in cash. It can then sell that tar-like heavy oil to select processors in the province.

Energy firms were invited last summer to submit proposals to process oilsands bitumen into higher-value products on behalf of the province.

The North West facility would process some 75,000 barrels per day from the province, with Canadian Natural (TSX:CNQ) also supplying a large chunk of its own production to the plant.

The BRIK program is a means to keep upgrading and refining jobs and investment from flowing south of the border, where the capacity to handle heavy oil continues to grow, particularly in the U.S. Midwest and Gulf of Mexico.

The North West project would require 3,000 construction workers for each of its three phases, said the mayor of Sturgeon County, northeast of Edmonton.

“The Northwest Upgrader/CNRL application is a ’Made in Alberta’ project to process bitumen in the province, and ensure jobs are created and stay in Alberta,” Donald Rigney said.

“Equally important, the project ensures Albertan’s resource is processed and value added in the province, creating new industries, investment and spin off jobs that will benefit future generations of Albertans.”

The North West refinery, half-owned by Canadian Natural, will incorporate technology to capture carbon dioxide emissions and put them to practical use.

North West has an agreement to supply carbon dioxide from the plant to Enhance Energy Inc., which is building a pipeline network to carry the gas across the province.

The pure stream of CO2 would then pumped into mature Alberta oil fields in order to coax more of the resource to the surface in a process called enhanced oil recovery.

“We rehabilitate these old oil fields in Alberta and bring them back to their original productivity and … we reduce significantly the emissions of CO2 from the facility,” said North West chairman Ian MacGregor.

“You just can’t do that anywhere else.”

While a typical oilsands upgrader is designed to process oilsands crude into easier-to-refine light oil, the North West plant will be capable of converting the bitumen straight into diesel and other high-value products, said MacGregor.

“It’s really an integrated program that’s going to make, we think, the cleanest diesel in the world in terms of CO2 emissions,” he said.

The initial phase is expected to cost more than $4 billion and the entire project could wind up costing as much as $18 billion.

Because of the huge costs of building new upgrading capacity in Canada, many oil companies plan to ship bitumen south of the border via pipeline to American facilities that have been retrofitted to handle the heavy feedstock.

“It comes at a good time for Alberta because it’s going to create a lot of construction jobs right here in the province,” said North West’s MacGregor.

“It’s started by Albertans and managed by Albertans and we felt like there was a great opportunity for converting Alberta’s raw resources into stuff that’s needed in the world. So we jumped on it and got it going.”

Canadian Natural has long wanted to see growth in North America’s capacity to process oilsands bitumen, Real Cusson, senior vice-president of marketing, told reporters Tuesday.

“Whether it’s here or Chicago or Houston, we’ll take it,” he said, adding that past discussions with U.S. refiners haven’t panned out.

“(The North West) proposal is a very strong strategic fit for (Canadian Natural) and the fact that the government is involved and has this as one of their priorities is just good news. It’s good news for Alberta. It’s good news for us to be associated with the government,” Cusson said.