Alberta refinery costs level at $8.5 billion, on track for start date
CALGARY – The costs of building Alberta’s first new oil refinery in 30 years have stabilized and it’s on track to be up and running by 2017, says the chairman of the company developing the government-backed Sturgeon project.
Ian MacGregor, chairman and chief executive of North West Upgrading Inc., says that with close to $5 billion already spent, he expects the total cost of constructing the refinery to come within the company’s $8.5 billion estimate.
That’s in line with what the company has been saying since late 2013, when it hiked the projected cost by 50 per cent — from $5.7 billion — and said the refinery wouldn’t be ready for a 2016 start-up.
In early planning stages, the project was estimated to cost less than $4 billion and some critics have referred to the swelling costs of the refinery as a boondoggle.
But North West Upgrading, which has partnered with Canadian Natural Resources Ltd. to develop the refinery, hasn’t encountered any new problems that could push the cost beyond the current $8.5 billion estimate, MacGregor says.
“It’s the first time in the last 10 years I can say that,” he said at a briefing this week. “I think we’re on the right side of that.”
Once completed, the refinery will be able to process 50,000 barrels of bitumen a day and refine it into low-sulphur diesel fuel. The company has plans to add two more phases with the same capacity in the future.
The Alberta government has committed to supplying three-quarters of the oil that will be processed thanks to a program in which it takes barrels of bitumen as delivery instead of royalty payments.
Last year, the government estimated it would have to pay $26 billion in tolls over 30 years to process that bitumen through the refinery, up from an earlier estimate of $19 billion.
Ted Morton, a former provincial finance and energy minister and current professor at University of Calgary’s School of Public Policy, has called the project a “multibillion-dollar boondoggle with high risks for Alberta taxpayers.”
Morton estimates the government will have to pay $63 a barrel in processing costs, but MacGregor disagrees, saying the cost will actually be about $35 a barrel.
Energy Minister Margaret McCuaig-Boyd said in a statement that the Sturgeon refinery is an initiative of the previous government, but that the NDP is looking at ways to create more value-added products in the province.
“We are considering our options when it comes to the best options for upgrading and refining. Specifically, the royalty review panel is considering ways to encourage and benefit from upgrading and refining as a part of its work.”
The Sturgeon project, located about 45 kilometres northeast of Edmonton, is also incorporating a carbon-capturing element, where about two-thirds of the refinery’s carbon dioxide will be captured and then used to recover more oil from depleted wells in the province.
MacGregor said that the diesel produced from the refinery will have five to 10 per cent fewer emissions compared with conventional U.S. oil production, whereas average oilsands production is 20 per cent worse than conventional American oil today.
More processing alongside a smaller environmental footprint are critical for Alberta’s economy, he said.
“If we’re thinking what’s going to protect the economy, I believe it’s refining and carbon capture, and if we don’t do those things, forget it, we’re going to be rolling up the sidewalks,” he said.
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