CALGARY — If anyone wants to see Alberta’s oilsands upgrading industry get a boost from the government as quickly as possible, it’s businesses in Alberta’s industrial heartland, just outside Edmonton.
But the executive director of Alberta’s Industrial Heartland Association said Tuesday there are good reasons for the province to start up its bitumen royalty-in-kind initiative two years later than originally planned.
“Obviously we’d like to see construction sooner than later, but we also want to make sure it’s the right project, and the best project for the region,” Neil Shelly said Tuesday.
Under the bitumen royalty-in-kind program, the province will take its royalty payments from producers in bitumen, the thick, heavy oil squeezed out of the oilsands, rather than in cash. The province would then supply up to 75,000 barrels per day of that raw product to an Alberta-based project, which would process it into value-added products like gasoline.
It’s seen as a way to ensure oilsands-processing jobs and investment stay in the province, rather than flow south of the border, where many refineries have been retrofitted to handle the heavy crude from northern Alberta’s vast oilsands operations.
When the initiative was first announced in July, any upgraders taking part in the program were required to be up and running by 2016. But on Monday, the Alberta government said it had decided give participants until 2018.
It takes about two years for a new project to go through the regulatory process in Alberta. And if it’s a large development, construction could take three or four years.
“The initial time lines they initially had on this one were a little more constrictive on that, and it kind of eliminated a whole group of potential new players that couldn’t invest in the region,” Shelly said.
“It would have made it more difficult if not impossible for these new entrants to apply to the program.”
That’s not to say there won’t be downsides that come from the delay.
Shell Canada Ltd. is currently the only company building a major project in the region. Once the expansion to its Scotford upgrader wraps up some time next year, there may not be any reason for skilled labourers, who were so scarce during the boom, to stay in the area.
“We spent a long time building up that skills base,” Shelly said.
“If there’s no projects on the go in the area after next year, we potentially could lose that skills base and it we’ll be back at square one again when the projects are ready to go in 2016 or 2018.”
Potential participants in the program have until Jan. 27, 2010 to file their applications, and a decision on which projects will be approved would likely be made toward the middle of the year, Alberta Energy spokesman Jerry Bellikka said.
“If you want to get to full capacity and use 75,000 barrels per day, it’s going to take some time, longer than first estimated, in order to bring those projects in,” he said.
“It’s the realities of the market place … You can’t force companies to build things faster than they’re able to build them.”
The royalty-in-kind program fell short even before the province announced the delay, said the president of the Alberta Federation of Labour.
“The fact that they’re pushing it back another two years, frankly, doesn’t surprise us,” said Gil McGowan.
“And given the paltry effort that the program provides, it’s really not going to change the big picture.”
TransCanada Corp. (TSX:TRP) and Enbridge Inc. (TSX:ENB) are both working on major crude pipelines that stretch from Alberta to various markets in the United States.
Together, those two projects will see more than one million barrels of oil leaving the province daily, McGowan said.
And major oilsands players like Imperial Oil Ltd. (TSX:IMO) and Suncor Energy Inc. (TSX:SU) have talked about making their new projects bitumen-only, and foregoing building multibillion-dollar upgraders in Alberta.
“For those who are not familiar with the oilsands industry, 75,000 barrels per day may sound like a lot. But it’s really little more than a drop in the bucket,” he said.
“Based on this government’s hands-off approach to the oilsands for them to point to this BRIK program as some kind of silver bullet, it’s almost laughable.”
The AFL wants the Alberta government to take bolder steps, like restricting exports of raw bitumen, granting leases to producers on the condition they process their bitumen in Alberta and creating a Crown energy corporation.
“Two years ago it was easier for the provincial government to shrug off the need to create more jobs in the value-added oilsands sector because we had such a booming labour market,” McGowan said.
“Now that our unemployment rate has shot up so dramatically over the last year, it’s hard to be so cavalier.”