Upgrader dropped

Another major oilsands player has decided it makes little sense to build a brand new multibillion-dollar upgrader to process the molasses-thick bitumen it scoops out of the ground.

CALGARY — Another major oilsands player has decided it makes little sense to build a brand new multibillion-dollar upgrader to process the molasses-thick bitumen it scoops out of the ground.

Rather, Canadian Oil Sands Trust (TSX:COS.UN), the controlling partner in the massive Syncrude Canada Ltd. operation, sees selling the raw product on the open market as a better option, based on the current outlook.

It used to be that bitumen sold for far less than the higher-quality type of oil that upgraders churn out. But recently, the so-called “light-heavy differential” has been narrowing as U.S. refiners struggle to offset declining heavy crude volumes from Mexico and Venezuela.

“We’re not ruling out doing an upgrader in the future, but the economics have to make sense,” Siren Fisekci, vice-president of investor and corporate relations for Canadian Oil Sands Trust, said Thursday.

“Given the differentials between bitumen and upgraded synthetic crude oil, it doesn’t justify making that investment.”

Other major players in the oilsands have come to a similar conclusion. Imperial Oil Ltd. (TSX:IMO) and its U.S. parent, ExxonMobil Corp. (NYSE:XOM), have no plans to build an upgrader for the first phase of their Kearl Lake oilsands mine northeast of Fort McMurray.

Suncor Energy Inc. (TSX:SU) has said it plans to produce more bitumen than it upgrades for the time being rather than revive plans to build its Voyageur upgrader, which was shelved in late 2008 when the economic downturn hit.

Imperial and Suncor are also both partners in Syncrude, with 25 per cent and 12 per cent stakes respectively.

Syncrude, north of Fort McMurray, Alta., is the largest oilsands operation in the world, with the ability to produce roughly 350,000 barrels of synthetic crude oil per day.

Canadian Oil Sands Trust has the biggest stake in Syncrude with 37 per cent. Other partners include ConocoPhillips (NYSE:COP) with nine per cent, Nexen Inc. (TSX:NXY) with seven per cent, and Mocal Energy Ltd. and Murphy Oil Co. each with five per cent.

Suncor and Syncrude, the two oldest oilsands operators, have a decades-long history of upgrading their bitumen within Alberta, so the fact that both have been rethinking their strategies is especially troubling, said Gil McGowan, president of the Alberta Federation of Labour.

“Alarm bells should be going off at the legislature when . . . even stalwart companies like these start making plans to export significant quantities of bitumen in its rawest form,” he said.

McGowan said his group would like to see restrictions on the export of raw bitumen to ensure jobs and investment stay in the province.

“The implications could be serious for Albertans. We’ll essentially be shipping thousands of high-paying jobs down the pipeline,” he said.

“We simply can’t allow this kind of trend to persist.”

The Alberta government has introduced a new program which would see the province take its royalty payments from oilsands producers in bitumen, rather than in cash. The government would then sell that feedstock to upgraders within the province.

The province is currently looking at a number of proposals from producers and expects to respond to them by the end of May, said Alberta Energy Minister Ron Liepert.

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