CALGARY — Suncor Energy Inc. (TSX:SU) will likely expand its refining network when it merges with Petro-Canada (TSX:PCA), rather than shut down gasoline-production operations as some have feared, an energy analyst said Tuesday.
Suncor, the oldest and second-largest oilsands producer, will need all of the refining capacity it can get once it takes on Petro-Canada’s future oilsands production, said Roger McKnight, senior petroleum adviser for En-Pro International Inc.
“Instead of refineries getting cut back or closed, they’ll actually expand, because of the increased potential of oilsands production. It’s got to go somewhere and it may as well stay in-house,” McKnight said from Oshawa, Ont.
“I don’t see the refining situation getting worse for the consumer. I see it getting better.”
Liberal MP and gas-price watchdog Dan McTeague raised concern Monday that consumers could be hurt by the merger. If refineries were to be shut down, there would be less gasoline in the market and prices would rise.
Before the merger was announced, Suncor had been looking for refining assets to integrate with its oilsands production, noted Lanny Pendill, an analyst with the Edward Jones brokerage.
“Essentially Petro-Canada’s bringing refineries to the table in this deal. They have kind of filled a gap in that sense, where they really no longer need to be looking at refining assets and they’ll have plenty of capability to process oilsands output,” he said.
There is very little overlap between the refineries of Suncor and Petro-Canada, En-Pro’s McKnight said.
Petro-Canada has refineries in Edmonton and Montreal, both of which are being revamped to handle heavy crude from the oilsands. Suncor has a refinery in Sarnia, Ont., and in Denver, where the company refines gasoline for its 45 corporate-owned Phillips 66 branded stations in the Denver area and has contracts to supply another 145 outlets..
Petro-Canada used to have a refinery in Oakville, Ont., but that was shut down a few years ago. So there is now no redundancy in the highly populated southern Ontario market, and there was never any overlap in Quebec or Western Canada.
“I can only see the Sarnia location being upgraded further,” McKnight said.
Suncor CEO Rick George told reporters Monday that the merged company would have the top three refineries in Canada — and that it had no intention of selling any of those or the one in Denver.
“We’re very happy with having some 430,000 barrels a day of refining capacity and we’ll be working very hard to integrate that directly with our own oilsands production as we go forward in the new company to the extent that we can,” he said.
To some degree, the merger allays fears that refining and upgrading jobs in Alberta’s industrial heartland near Edmonton are flowing south of the border, where it is often cheaper to build a facility.
“It sure makes a lot of sense to keep the upgraders in Alberta or in Canada and shutting down the flow to the United States. I think it’s going to be a huge boom for the Alberta employment picture,” McKnight said.
At the retail level, Petro-Canada has more than 1,300 gasoline stations across Canada, whereas Suncor operates about 300 stations in Southern Ontario under the Sunoco brand.
The Petro-Canada stations will retain their well-recognized brand after the merger.
When doing its review, the Competition Bureau will be likely be looking into whether the merger will mean too much concentration in the southern Ontario market, Petro-Canada CEO Ron Brenneman told Business News Network on Tuesday.
“It would be extremely unusual for the competition bureau to nix a deal like this because of that really small component in the great scheme of things,” he said.
En-Pro’s McKnight said he expects some Sunoco stations to be sold to quell some of the competitive concerns.
“There will be some justification of sites when they’re both on the same corner. Whatever has the biggest volume or best image will stay, the other one will go,” he said.