Refine economic prospects

Critics who say Alberta needs fewer new pipelines and more new refineries have a couple of rather impressive bottom lines to bolster their arguments: the quarterly profit reports of Imperial Oil Ltd. and of Husky Energy Inc.

Critics who say Alberta needs fewer new pipelines and more new refineries have a couple of rather impressive bottom lines to bolster their arguments: the quarterly profit reports of Imperial Oil Ltd. and of Husky Energy Inc.

Both giant energy corporations not only produce crude in Alberta, but they also refine it.

And their refinery operations hit, if not a perfect storm of cost/price convergence, at least a very welcome shower of cash. Whichever, rain is rain, and both companies did very well refining deeply-discounted Western crude into highly-priced fuels for consumers. Imperial, long used to a strong bottom line, posted record profits last week.

The economic policies of both Alberta and Canada have created a gold-rush mentality in developing our energy resources, the oilsands in particular. With tax incentives for capital investment and a one per cent royalty holiday until all capital costs are recovered, it’s no wonder investors are falling over themselves to develop as fast as possible.

Their profits are all but guaranteed for a competently-managed company, and even the international market for oil seems to work in consort with breakneck development — most of all for those companies that own refineries. And if you don’t own a refinery, the deeper the discount for Western bitumen below world prices, the greater incentive to produce it prodigiously, to make up the difference.

Since boom-time development has created an artificial shortage of skilled labour to build these new plants, the federal government is only too happy to speed up the import foreign workers — at a 15 per cent wage discount, driving down the potential wages of Canadian workers.

Going slower, going saner, doesn’t seem to be on the radar.

During the recent election campaign, Premier Alison Redford addressed the cost of our lack of pipeline capacity to carry the growing volumes of crude out of the province. Lack of carrying capacity has led to a growing stockpile of crude in Cushing, Okla., that can’t get to refiners fast enough. The delayed Keystone pipeline project was designed to address that problem (and benefit the owners of the refineries on the Gulf coast).

That stockpile reduces the already-discounted price of Alberta crude. Albertans already know the West Texas price for crude — just over $100 a barrel — is less than the world standard of around $120 a barrel.

In March, Western Canada Select crude — the bitumen made thin enough to flow through a pipe — went as low as $35 a barrel below the Texas price.

Alberta is taking royalties on crude being discounted twice. When Redford visited the Advocate editorial board during the campaign, she mentioned those discounts cost the province hundreds of millions of dollars a month. It seemed too large a figure to be believed, so her aides promised to verify that before we quoted her. Sure enough, Redford was correct.

So the next question begs an answer: what’s in it for Albertans to pipe out millions of barrels more per day of new oilsands crude at a one per cent royalty, when a new Alberta refiner could profit on the discounted price and pay for a refinery in record time?

We’re here, buying gasoline based on prices derived from $120-a-barrel North Sea oil when, for a few weeks anyway, refiners were buying their feedstock at half that.

And for companies that both produce and refine crude, it’s virtually royalty-free.

Do you wonder why there’s a gold rush on Alberta oilsands? Do you wonder why they are so intent on getting Keystone built to the refineries they own on the coast of the Gulf of Mexico?

Do you wonder if anyone is trying to get full value for all Albertans from a resource we all collectively own?

The numbers seem to say: worry more about getting another refinery built here than about getting higher volumes of discount crude piped out of the province.

Greg Neiman is an Advocate editor.