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New upgrading a decade away: Syncrude

The two biggest partners in the gargantuan Syncrude Canada Ltd. oil sands project say it will be several years before it makes sense to invest billions in new upgraders, which process raw bitumen into higher quality oil that refineries can use.


September 14, 2011
by CANADIAN PRESS

CALGARY: The two biggest partners in the gargantuan Syncrude Canada Ltd. oil sands project say it will be several years before it makes sense to invest billions in new upgraders, which process raw bitumen into higher quality oil that refineries can use.

“Given the economics of upgrading today, I would say greenfield upgrading doesn’t make sense in our view,” Ryan Kubik, chief financial officer of Canadian Oil Sands Ltd., told a Peters & Co. energy conference.

“We do, however, believe it is a cycle. You will see a point in time at which that additional refining capacity that’s used to upgrade that heavy oil will be chewed up,” Kubik added.

“Some of the upgraders that are being built up there will be filled. At that point in time, maybe greenfield upgrading expansion does make sense. I would say over the next decade, we don’t think that that’s going to be the case.”

Canadian Oil Sands owns 37% of Syncrude, a sprawling oil sands mine north of Fort McMurray, Alta.

Imperial Oil Ltd., which has a 25% stake in Syncrude and oversees its day-to-day operations, has a similar view.

“At this point in time we don’t believe … that there are economics in a grassroots upgrader,” said Paul Masschelin, Imperial’s senior vice-president of finance and administration.

Heavy oil sands bitumen used to fetch a dramatically lower price on the market than its lighter, easier-to-refine counterpart, so it made sense for oil sands companies to invest billions of dollars in upgraders to boost the quality of their product.

But over the last few years, US refineries geared toward a diet of heavy crude have seen shipments from Mexico and Venezuela drop, making oil sands crude an increasingly sought-after product and bolstering its value.

So Syncrude is foregoing building new upgrading capacity as it undergoes expansions to its mine over the next few years. Instead, its existing upgrading facilities will be tweaked so that more bitumen can run through them, and some of the raw stuff will be sold into the market.

It’s this dynamic that’s driving TransCanada Corp. to build its controversial Keystone XL pipeline, that would extend an existing Midwest-bound line to the US Gulf Coast, where Texas refineries are hungry for heavy crude.

Labour advocates in Alberta have long warned that high-paying jobs may flow south of the border along with the raw bitumen. The Alberta government has taken steps to make sure at least some of the upgrading continues to take place in the province, including a program to buy bitumen in lieu of cash royalties and sell it to merchant upgraders.

Still, the provincial government has been outspoken in its support of Keystone XL, urging the US State Department to approve the pipeline despite vehement opposition to the project from environmental groups.

But a prominent former Alberta politician has spoken out against Keystone XL. Peter Lougheed, who was premier during the early days of oil sands development in the 1970s, told CBC Radio that oils sands bitumen should be processed in Alberta, not Texas.

“I would prefer…we process the bitumen from the oil sands in Alberta and that would create a lot of jobs and job activity,’’ he told The Current program.

“That would be a better thing to do than merely send the raw bitumen down the pipeline and they refine it in Texas. That means thousands of new jobs in Texas.’’

© 2011 The Canadian Press