Alberta Refining Capacity Set to Explode

Hank C

Electoral Member
Jan 4, 2006
Calgary, AB

FORT SASKATCHEWAN, ALTA. - Larry Wall's most important sales meetings in the past six months have been held in his car as it criss-crosses the rural highways east of Edmonton.

The executive director of Alberta's Industrial Heartland, an association of local communities and businesses, has set a frantic pace, conducting tours for dozens of visiting delegations from the United States, Asia and Europe.

Mr. Wall's job is to sell a giant swath of prairie just east of the Alberta capital that over the next half-decade is expected to rival the largest oil-refining hubs along the Gulf Coast of Texas.

So far, four massive new private-sector oil-processing complexes are set to be built in a 330-square-kilometre hub that will serve as a conduit for soaring oilsands production. In addition, a major add-on to an existing refinery-upgrading-petrochemical complex owned xby Shell Canada Ltd. is underway. There are also two other proposals -- one from the Alberta government, the other by Total SA -- that could join the rush.

The four projects plus Shell's will pump $25-billion worth of industrial development into the region during the next five to seven years, while the two other proposals could up the total by $17-billion.

The scale of the plans and aggressive timelines are daunting. Looking only at the required workforce, the number of skilled tradespeople needed when construction peaks after the decade turns is projected to be a staggering 16,000 to 20,000.

Driving the barren backroads on a cold but sunny day late last month, Mr. Wall says the huge patch of what is now largely farmland could surpass Singapore and become the world's fastest-growing industrial zone.

No other part of Canada or the United States has rolled out a welcome mat for the petroleum industry with the enthusiasm that Mr. Wall's Heartland Association has. Nowhere else, according to Mr. Wall, has there been such a cohesive attempt to lure investment.

The Industrial Heartland Association is made up of Lamont, Strathcona and Sturgeon counties, the city of Fort Saskatchewan and 40 corporate giants from the petroleum and petrochemical industries. It was formed in 1999 to market the region internationally and promote growth beyond an existing chemical and refinery row.

Highways, pipelines and railways all converged into the Heartland. Salt caverns located a kilometre beneath the earth added the bonus of 900,000 barrels worth of storage capacity.

Mr. Wall, a former economic development officer with Strathcona County, was assigned the job of selling the region as an easy place for heavy industry to do business and where cost-effective synergies with neighbouring companies could be found (Dow, for example, supplies some of the hydrogen that Shell Canada uses in its process to upgrade heavy oil into more valuable, lighter oil).

But with the unexpected rise in production from Alberta's vast oilsands, companies such as Petro-Canada and Synenco Energy Inc. have opted to locate their refinery projects in the new hub rather than in Alberta's Athabasca region, 300-kilometres north, where the oilsands lie but where labour supplies are tight.

Moving south would give companies access to the larger infrastructure already there and to a much larger labour pool in neighbouring Edmonton, whose population at almost one million is 20 times that of Fort McMurray.

Mr. Wall believes capacity for oil moving into the region and for refined products and petrochemicals moving out will grow to match refining clusters dotting the Texas Gulf Coast.

"This area is all about the manufacturing part of the oil industry, or the need, which the provincial government has pushed hard for many years, to add value to the base product, which is bitumen, before it leaves Alberta," he said.

"The upstream part of the business tends to be about spending money to make money, while the manufacturing part is about cost control. And so you've had companies move where they hope the costs can best be controlled. Here, we've laid the groundwork and we're right beside a huge workforce in a city with a population nearing one-million people."

Even despite the larger labour pool, concerns are surfacing that plans for the Heartland have grown too large.

"There's a shortage of welders in Alberta today and the only mega-project underway is the upgrader at Nexen-Opti's Long Lake oilsands project," said Tom Ebbern, an analyst who tracks the oilsands business at Tristone Capital Corp. in Calgary.

"How are they going to get five or six built, just as mines are being built and while a couple of major natural gas pipelines from the north are also being built?"

The list of companies with projects in the queue for the Heartland is long.

A joint-venture led by Petro-Canada has amassed a huge land position, consisting of 1,800 acres, in Sturgeon County and the company said in January it would build an upgrader on the site.

Days later, Calgary-based North West Upgrading Inc. laid out plans for its $1.6-billion upgrader, a merchant-type operation that would take third-party heavy oil feedstock from producers and turn it into synthetic oil, which sells near or above the price for West Texas Intermediate. North West wants to break ground late next year.

Those two announcements came on the heels of a decision last year by oilsands miner Synenco Energy Inc. to build its processing plant on the seven sections of land it now owns in the Heartland.

BA Energy, another merchant operation, recently broke ground on a first $900-million phase of an upgrader on land where Strathcona County extends into the Heartland. The first phase is scheduled for start-up in early 2008, processing about 77,500 barrels per day of bitumen. Total capacity will be about 250,000 barrels a day once the project is fully expanded.

Rob Pearce, president of Calgary-based North West Upgrading Inc., who had expressed concerns about the level and rate of industrial growth east of Edmonton, now says it's "too soon to tell how the timelines might work" for or against some projects.

Shell Canada wants to almost triple the 155,000 barrels of oil at its Scotford upgrader, the first of its kind built in the Heartland five years ago. The complex is on the opposite side of the North Saskatchewan River from the North West Upgrading and Synenco Energy land, and there is talk as well of building a hydrogen network in the area to eliminate redundancies and for backup supplies.

For Shell's expansion over the next 10 or so years, about 60% of the investment will occur at the Scotford Complex with the rest taking place at the Muskeg River mine north of Fort McMurray, according to Janet Annesley, the company's spokesperson for oilsands. Shell's oilsands operation at both ends will require the hiring of an additional 5,000 full-time operations staff.

"As far as Shell is concerned, the oilsands story and what's happening at the mines has overshadowed the importance of what's happening on the upgrading side," Ms. Annesley said. "But it all has to grow together, so a big component of what's happening here is sheer timing. If we didn't have the oilsands expanding, there wouldn't be a lot of this happening."

There are also two wild cards that could add another $17-billion worth of investment to the Heartland's list.

Paris-based Total SA, among the largest companies in the world, is planning a pair of Canadian oilsands projects and said in December it would build a $9-billion upgrader somewhere in Alberta. The company owns acreage in the Heartland and is trying to acquire more.

Mr. Wall's $25-billion projection for capital spending also does not include an $8-billion upgrading-refining and petrochemical mega-plant that the province of Alberta is pushing hard for one or several industry players to build. It, too, would probably be located in the Heartland hub for the complex, which the province sees as vital if it is to squeeze the most value from the oilsands once production grows toward three million or more barrels a day.

As oilsands producers approach capital payout and royalty breaks end, Alberta's take from the oilsands will skyrocket. The government can choose under its royalty regime to take heavy oil in kind. As a marketer of what could be some 300,000 or more barrels of bitumen a day, the province would benefit from selling a higher-grade product.

Looking over the BA Energy construction site, even Mr. Wall has to catch his breath about how fast things are happening in the Heartland.

"Frankly, the rate of development is rather scary," he said.

© National Post 2006