Baxyard Banter: Refinery raises reasonable questions

Ex-Northern Sentinel editor weighs in on oil refinery plan in his column Baxyard Banter.

Whatever the flaws in David Black’s plan to build an oil refinery here, I think he has done a service in putting the spotlight on the value-added issue.

It is a reasonable question: why should Canada export crude and settle for those dollars when it can make even more by exporting the finished products?

And creating thousands of long term jobs in doing so.

Over the last several years prior to my retirement I asked those connected to or knowledgeable about the industry why refineries – or at the very least upgraders – were not being built in Alberta to process the oil sands product.

The answer was always, “The economics don’t work.”

Not a particularly informative response, but there you are.

So in the wake of Black’s announcement I contacted a source who is about as knowledgeable as anyone in the oil patch media.

Noting I had read a story the day before about Japan importing crude and making $4-$6 per barrel on the refined product, I asked him, “So what’s wrong with the economics?”

His response: “Simple answer is that the cost of building a brand new upgrader/refinery is much more expensive than expanding an existing one.”

He pointed out that in the middle of the last decade some oil sands producers had bought outright American refineries to process Alberta bitumen or cut deals with US refiners which saw them take a chunk of ownership as part of increasing the capacity of those facilities.

So while there is much wailing and gnashing of teeth that the US is using its advantage of being the only outlet for oil sands crude to get it on the cheap, some companies at least are receiving the benefits of that cheap crude because they are making money at the other end.

In that I found an echo of the never-ending softwood lumber dispute.

B.C. forest companies such as West Fraser got dinged with punitive penalties on its exports to the U.S. for allegedly being “subsidised” through low stumpage rates.

The U.S. then diverted its ill-gotten gains to American sawmills, including some owned by, you guessed it, West Fraser.

So while the company was getting a kicking on its B.C. operations, it was getting a windfall in the States.

The swings and roundabouts of multinationalism.

Another point he made concerned pricing.

Upgrading/refining here is more attractive only when the price of Canadian heavy oil/bitumen is a whole lot lower than West Texas Intermediate, a US benchmark price.

Conversely, the narrower the price range, the less incentive to upgrade in Alberta.

While the differential is wide right now, the industry expects that to narrow in the future.

So, given the volatility of the differential, spending billions on a refinery in Canada makes no sense.

He made one other point that had occurred to me: why would China, which has been buying into the oil sands and backing the Northern Gateway project, want to import higher cost refined products when they could import diluted bitumen and keep the value-added profit for themselves.

My own knee-jerk nationalistic reaction is why not just slap a hefty export tax on oil sands exports to force the building of refineries here?

The realistic side of me, however, recognises that ain’t going to work in this age of free trade agreements, never mind what retaliatory actions the US would undoubtedly take.

I wish it were otherwise.

Malcolm Baxter

Just Posted

B.C. Legions in need of young members to continue aiding veterans into the future

Lest we forget what thousands of men and women did to fight for Canada’s freedoms – but without new membership, many Legion chapters face dwindling numbers

Kitimat commits itself to the global fight against polio

Mayor Phil Germuth signs a proclamation

$2 million landfill capping complete

The purpose is to minimize potential leaching of contaminants from the site.

Pipeline company urges rejection of many seeking intervener status in jurisdictional hearings

Those seeking to participate include District of Kitimat and Haisla Nation

North Coast figure skater to star in Dancing On Ice

Carlotta Edwards learned to skate in Prince Rupert, before becoming a star with millions of viewers

Throw a snowball to help kids at BC Children’s Hospital

Effort will raise money for sick kids over the holidays

128 people died of illicit drug overdoses in B.C. in September

The province is on track to record the same or more overdose deaths this year as last

Canada Post strike having ‘critical’ impact on retailers, eBay tells PM

Canada Post says it is now facing an unprecedented backlog of shipments, largely as a result of strikes

NASA wants Canadian boots on the moon as first step in deep space exploration

The U.S. is seeking broad international support for the next-generation space station to send into orbit a in 2021

B.C. Lions GM Ed Hervey has plan for busy off-season

The Lions’ season ended Sunday with a crushing 48-8 loss to the Hamilton Tiger-Cats in the East Division semifinal

Vancouver Island man survived for ‘days’ trapped in smashed truck

Duncan Moffat, 23, found by hunter by the side of the road near Sayward

Fundraising firefighters complete quest for B.C. Paralympian

The four Penticton residents raising money for Victoria Paralympian complete journey

PHOTOS: Hockey history in B.C. as Team India comes to play

Squad played its very first game in Canada on Tuesday against Surrey Falcons

B.C. man wanted in connection to domestic assault in Edmonton

Sterling Miles Booker has ‘ROCK’ and ‘ROLL’ tattooed on his hands

Most Read