Feb. 23, 2011 - Issue #801 : Amy Goodman
Issues
Theory into practice
New upgrader project puts government theory to the test
At a time when governments around the world are trying to reduce their dependence on fossil fuels and seeking to invest in known economic multipliers like infrastructure and public services, the Alberta government has, once again, taken a big step in the opposite direction.
Last week Premier Stelmach publicly announced what he appears to hope will be his legacy project: the Redwater upgrader deal. Northwest Upgrading Inc, a Calgary-based upgrading and refining company, will work with Canadian Natural Resources Ltd to build a new upgrading facility in Redwater, about 45 kilometres outside of Edmonton. The upgrader will mostly refine tarsands bitumen into ultra-low sulphur diesel fuel, but also other refined petroleum products.
What makes this different from some of the other upgraders that are currently being built in Alberta is that the government actually has a significant part in this little arrangement. Most of the bitumen to be processed in the first phase of this project, 37 500 barrels per day, is actually being supplied by the Government of Alberta.
The Bitumen Royalty In-Kind (BRIK) program, introduced as part of the new royalty regime in 2009 gave tarsands operators the option of paying their royalties in bitumen instead of in cash. Many have taken the government up on this, and it is this bitumen that the government will be having refined at the new upgrader.
The upgrader will be designed to capture a significant portion of the carbon dioxide it produces. That carbon dioxide will then be shipped down a 240 kilometre pipeline to existing oilfields around Alberta. That pipeline will be built by Enhance Energy Inc, with financial support from the province's two billion dollar carbon capture and storage fund. The theory is that once it reaches its destination, the carbon dioxide will be injected into old oil fields, keeping it out of the atmosphere, and helping bring previously unreachable oil up to the surface.
It's a significant project, and the general ideas it was founded on seem to make sense. For years groups like Parkland Institute have said that upgrading bitumen here rather than shipping it to the US would benefit our economy, create more long-term jobs and help diversify us away from simply mining. This project is based, at least in theory, on that premise, and the idea that government has a role to play in that process. Of course, the other general idea is the concept that carbon storage can help us reduce our impact on the environment while at the same time helping us get more oil out of the ground—also a noble idea which would seem, at least on the surface, like something of a win-win.
Unfortunately, there is often a significant gap between a good idea in principle and a workable policy in practice. In this case, the level of financial risk being assumed by the government may prove the first barrier. Success depends entirely on the price difference between the refined product and the raw bitumen being high enough that the government will be able to cover the refining and still generate a profit. That's a significant risk given the daily fluctuations in the value of both bitumen and diesel—a risk being assumed entirely by the government in this venture given that it has guaranteed the refining fee it will pay the companies running the upgrader.
The second gap is the fact that the government has committed $495 million to the construction of the carbon dioxide pipeline. The refinery will make money off the carbon dioxide it sells, and the oil companies will make money off the extra oil they are able to extract. Success for the government is premised on the viability of carbon storage itself—an unproven technology at this scale, and one which many scientists and geologists have already warned the government will not work. In other words, this investment will likely turn out to be a straight subsidy to profits by the oil industry, with nothing to show in the areas of public good or environmental benefits.
The government does point to increased future royalties from enhanced oil extraction as a direct benefit of this scheme, but they ignore the reality that a significant portion of those royalties will actually be given right back to the companies as a result of the royalty breaks for conventional oil that have been put in place over the last year. The financial gain for the province will be minimal thanks to the government's incredibly weak royalty regime.
In the end, and despite the fact that the ideas on which this venture is premised make it sound like a win-win-win arrangement, the reality is that the project will end up costing the government at least half-a-billion dollars, create a new level of financial risk for the government, put a new upgrader in an area that's already feeling the environmental impacts of the industry, have no positive environmental impacts, and make the provincial economy and government coffers more dependant than ever on the energy industry. The only sure winners in this thing are the oil companies which, quite frankly, don't need the help.
In a time of continued economic uncertainty, good ideas are not enough. They must be thought through to their logical conclusions, and analyzed within the larger social, economic and environmental contexts. Those contexts dictate that today, instead of giving more money to the oil industry and becoming more fossil-fuel dependant the government should be investing in people and public services, and building workable alternatives to fossil fuels. Once again our provincial government has gotten it wrong, and Albertans will pay the price today and in the future. V
Ricardo Acuña is the executive director of the Parkland Institute, a non-partisan public policy research institute housed at the University of Alberta.
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