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Varcoe: Three new reasons for optimism for oilsands

Varcoe: Three new reasons for optimism for oilsands
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Ken Horn, president of Teedrum Inc., said the proposed SinoCan Global refinery project would process 167,000 barrels of bitumen per day into refined products. A final decision is expected in the next 24 months. Greg Southam Greg Southam / Greg Southam/

If you want to fall into a funk about the future of Alberta’s oilsands sector, think about the ugly price discount battering Western Canadian heavy crude.

Without enough pipeline capacity in the transportation network, the so-called price differential for Western Canadian Select crude stood at an eye-popping $US35.89 a barrel on Monday, before narrowing to close at $32.20 on Tuesday.

It’s downright depressing.

To focus solely on this problem, however, would miss some hopeful signs that have popped up in recent days: a moribund refinery project revived with powerful foreign backers; a promising agreement between a First Nation and developers of a proposed oilsands mine; and reductions in greenhouse gas emissions — and the potential for more progress.

It’s not a panacea to pipelines or poor prices.

But it’s also not the end of an industry that has been knocked down more times than Rocky Balboa.

“I always say the oilsands was never easy and never will be. But it has been a story about ingenuity, creativity and perseverance and that’s what all this points to,” said Kevin Birn, IHS Markit’s director of Canadian oilsands.

Take, for example, last week’s announcement in Edmonton to reanimate a once-dead refinery proposal for Alberta’s Industrial Heartland.

The Alberta First Nations Energy Centre (AFNEC) struck an agreement with China’s state-owned Sinopec and China State Construction Engineering Corp. to examine building a large oil refinery.

Stantec Consulting Services will conduct regulatory and permitting work for the development, which would be built in Lamont County east of Edmonton. Teedrum Inc. will lead the project.

The SinoCan Global project would process 167,000 barrels of bitumen per day into refined products such as gasoline, diesel and jet fuel.

The price tag is still being developed, but would likely be in the $8.5 billion to $10 billion range, said Ken Horn, president of SinoCan Global and Teedrum, which is the managing partner for the First Nations group.

Horn said a final decision is expected in the next 24 months once the necessary studies, permits and economic evaluation are complete.

“It really comes down to … can you build it for $50,000 to $65,000 per flowing barrel and will bitumen continue to be discounted,” he said Tuesday.

“It is economic now.”

The First Nations consortium and Teedrum had a similar refinery project before the province in 2012, but it was derailed after the Redford government withdrew its backing.

Horn said the consortium isn’t looking for government assistance and believes they have a commercial venture.

SinoCan Global does have a big ace in their pocket: Sinopec, which has the financial might and ability to move it along.

If this goes ahead, the refinery would be a huge win for the province, creating jobs, providing a market for Alberta bitumen and creating economic opportunity for Alberta First Nations, which would own a chunk of the megaproject.

“They want a piece of the action, not crumbs,” said Horn. “If they are participating in a meaningful way and have equity participation … it’s going to be better for everybody.”

The Trudeau government’s failure to properly consult with B.C. First Nations on the Trans Mountain pipeline expansion clearly illustrates the need to work collaboratively with Indigenous communities on resource development.

That’s why equity ownership is so critical.

More evidence of this evolution in attitude came as Teck Resources Ltd. signed a “participation agreement” with the Athabasca Chipewyan First Nation (ACFN) over the Vancouver-based company’s proposed $20-billion Frontier oilsands mining development.

Chief Allan Adam, a critic of oilsands development in the past, said Tuesday the agreement ensures the nation is involved in environmental management and project monitoring, and that its treaty rights are respected.

It also means the First Nation will have opportunities for employment and financial participation.

“It’s a tough process,” he said.

“I know people think I fought with industry and everything and all of a sudden, here I am making deals … ACFN has to do what ACFN has to do for its members and that’s what we’re doing.”

If approved, the truck-and-shovel oilsands project, located about 110 kilometres north of Fort McMurray, would produce 260,000 barrels per day of bitumen.

The development will head before public hearings later this month as part of a joint provincial-federal regulatory review process.

Like SinoCan, it could be years before Frontier proceeds, if at all. But it must get through the regulatory process. Having the support of the First Nation most directly impacted by the development is critical to its success.

Finally, a comprehensive study by IHS Markit released last week found the emissions intensity of the oilsands is dropping and will continue to fall over the next dozen years.

In the past decade, upstream oilsands emissions per barrel fell by 21 per cent, the report found. If the current trend continues, it could decline by another 16 to 23 per cent by 2030, according to the energy consultancy.

Technology designed to use less steam in underground oilsands projects, and the development of less energy-intensive mining operations, have led to recent reductions.

Birn noted some of the most efficient oilsands projects are seeing their emissions per barrel nearing average U.S. levels, although there is a wide range between projects.

“In the oilsands over the last four or five years, the costs have come down a lot. I think the implication is the oilsands can be competitive on cost and carbon in the future,” added Birn.

“It’s good news, but … there is a lot of stuff in there that points to the industry needing to do better, too.”
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