Ross Urquhart: Are refineries a viable alternative to pipelines in Canada?

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      Oil refineries are ugly.  I suppose it’s hard not to be when your job is to change black goo into a clear liquid— and it's no secret that Canadians have long shunned the refining industry along with the polluting issues that attend it out of fear and revulsion for their impact.  

      Refineries may have become much cleaner in recent times, but their history is terrible and many of us have long memories.  

      Unfortunately, this particular prejudice may be leading us down a road that puts even greater pressure on our environment and economy than if we chose to accept and support the concept of refining Canadian oil in Canada.

      The Enbridge Northern Gateway, Keystone XL, and other controversial pipeline projects presently under debate are all about moving dirty oil to other countries— and I emphasize dirty. It's so dirty it’s classed as bitumen, which means it must be mixed with other products, mostly toxic solvents, to make it flow in a pipeline.  

      If it were refined on-site, the environmental threat caused by the pipelines would be reduced substantially.  

      Also, adding insult to injury, because of its low quality, we sell our dirty oil at a large discount—as much as $40 per barrel less than full market price.  A refined product we would get full market price. 

       A few of the major refining companies who actually want this bitumen have spent billions of dollars in modifications to their plants in Texas, Louisiana, and the Midwest to prepare them for the extra levels of processing raw Canadian oil demands.  

      The investments, although far away from the source, are deemed sensible because the basic refining infrastructure already exists in these locations, along with shipping facilities to distribute the gas, diesel, and other oil-based products to worldwide markets.  

      But why doesn't it make even more sense to build new refineries on-site in Alberta and forgo the cost of multi-billion dollar refinery upgrades and massively long and risky pipelines?  Is it because the Gulf Coast refineries would then be under-utilized, putting thousands of American jobs at risk?  

      Americans are starved for manufacturing jobs, and their Congress has put in place some very inviting incentives for the oil industry to create more.  Indeed, two new refineries, the first totally new American refineries built in many years, are under construction in North Dakota, just across the Canadian border. 

      In spite of Canada’s position as an important oil producing and exporting country, we haven’t even created enough refining capacity to supply our own needs—let alone to ship refined products abroad.

      The best indicator of this is the fact that a significant portion of the product we are shipping to Texas and Louisiana is—once refined—being pumped into tankers and shipped back to eastern Canada, where it is being sold back to us at full market price.  They are buying our cheap oil and selling it back to us at the world price so we are, in effect, paying them to refine our oil, keeping their refineries profitable, and creating jobs for their workers, while we lose jobs and revenue and put our environment at extreme risk from pipeline leaks as part of the bargain.  

      Is this really the best compromise?

      Many parts of Canada are screaming about the loss of manufacturing jobs, yet we don’t appear to consider refineries as a viable alternative, and neither the major oil companies nor our governments are showing leadership to change the situation.    

      There are three refineries in Alberta, all in the Edmonton area, processing less than half a million barrels a day.  A few companies also have “upgraders” but they are primarily for refining dirty oil into a higher grade crude for ease of shipping, and to qualify for the higher world price.  

      However, it has recently become evident that not only are there no plans to expand this capability but production has also been cut and major expansion proposals have been put on the back burner.  Suncor has just this year shelved its plans to build an $11 billion “upgrader” because it is cheaper to ship dirty oil to the United States.  

      The new upgrader, upon which construction had already begun, would have cleaned up 200,000 barrels per day and was projected to be in operation for up to 40 years, creating many new jobs for Canadians—and that was just to upgrade the bitumen to crude without even refining it to a useable product.  

      There is one new, homegrown refinery proposal on the table— and I find this truly weird— a group has formed with the goal of building a refinery in Kitimat.  They want the multi-billion dollar Enbridge pipeline carrying dirty oil and toxic solvents to be built across the entire province endangering hundreds of watersheds, major salmon rivers, and remote wilderness areas. And when it arrives at the coast, it would then be refined and put it on ships bound for Asian Pacific countries (who are heavily involved in the financing).  

      At least it would be employing Canadians to refine Canadian oil, but why couldn’t it be refined in the oil patch and shipped by rail to the coast, avoiding a large portion of the risk posed by a pipeline and providing for the flexibility of moving Canadian gas and diesel east to supply our own markets?

      The industry and government are desperate to have the Keystone and British Columbia pipelines built.  The federal government has even written and pushed through new environmental regulations to facilitate this process, while Alberta has gone so far as to suggest the future financial health of the province rests on its approval.  

      According to a report issued by CIBC, Canada has lost as much as $25 billion in revenue last year because of production bottlenecks caused by the lack of ability to ship our dirty oil. What no one seems to be talking about is why we are so anxious to ship much-needed, well-paying, long-term jobs to other countries along with it.  

      A big fuss is being made over the short-term construction jobs and all the revenue they bring (politicians like short-term revenue pumps), and much is being made over the value of the longer-term tar sands projects, but that is pure raw materials mining.  What happened to our desire to reclaim the manufacturing jobs we’ve lost abroad?  

      Why is our government so ready to put our environment at extreme risk and sacrifice thousands of better jobs that go with manufacturing in their haste to achieve quick gains in revenue?  They certainly have no problem supporting manufacturing jobs in the auto industry in southern Ontario with billions of dollars in aid, so why are they so anxious to sell out our refining capacity to the United States for a quick buck?  

      Is this simply about Canadians not liking refineries—or are other factors at work here?          

      Ross Urquhart served as chair of both a large and successful environmental coalition and of a business development centre located in a resource-based region. He spent nine years as a municipal politician and subsequently managed a failed campaign for higher office. In between, Urquhart completed graduate work in both public administration and environmental studies. More recently, he has authored an e-book entitled Being Reasonable: Plain Talk for Living in the Future. Urquhart may be contacted through his website at www.ofbandg.com.

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      9 Comments

      J. Beaulieu

      May 4, 2013 at 11:09am

      The "Toxic" solvent used as diluent is Condensate which are the natural hydrocarbons lighter than Crude Oil and heavier than Natural Gas Liquids, mostly Pentane and Hexane. This is coming from the Eagle Ford fields in Texas and the Montney fields in Alberta. As to building more refineries near Edmonton, the positive is that it would lead to more Canadian jobs, the negatives are the Billions dollars of cost to build them, and you would still need lots of new pipeline or rail capacity to move the Gasoline and Diesel fuel from the Edmonton area to where the demand is in Eastern Canada and the USA(or Asia). The US refineries aren't going to go away and if Canada won't supply them with Heavy Crude then they will obtain it from Venezuela and wells in the Gulf of Mexico.

      blah

      May 4, 2013 at 12:07pm

      We seem to be "so anxious to ship much-needed, well-paying, long-term jobs to other countries" because we prefer to stick our heads in the sand(s) rather than man up and make hard but necessary decisions. We seem to think that we can't have a clean, safe environment AND a productive economy at the same time. We seem to think that it's not hypocritical to shut the door on every economic proposal put forth while living in our cities, riding around in our transportation sources (buses included) in an area that was once nothing but forest. We seem to think that it's okay if our life is good through the efforts of our ancestors to create a viable civilization, yet we want to deny that to future generations by stifling the engine that got us here in the first place. We seem to think we know everything that "might" happen. And the author of this article seems to think that a pipeline that just sits there is more dangerous than a moving train filled with flammable liquids. And since he is pushing refineries, he seems to think that pollution in Alberta is ok as long as it isn't pollution in BC.

      Steve Elwart

      May 4, 2013 at 4:33pm

      As a member of the U.S. Oil Refining Industry I found your article very interesting. I agree, it would be safer and more economic for you to refine the bitumen up there and sell "clean" products for internal use and export.

      However, I would take exception to the idea that moving petroleum products by rail is safer that pipeline.

      The U.S. Department of Transportation clearly show that, in addition to enjoying a substantial cost advantage, pipelines result in fewer fatalities, injuries, and environmental damage than road and rail. Americans are more likely to get struck by lightning than to be killed in a pipeline accident.

      Martin Dunphy

      May 4, 2013 at 5:32pm

      Steve: I don't think anyone is worried about some innocent person being accidentally killed somehow by a pipeline (whatever that would entail).
      People are much more (almost entirely) concerned about environmental damage that will result when a pipeline, inevitaby, ruptures.

      Forward Thinker

      May 5, 2013 at 10:44am

      It seems to me that if a refinery costs $16 billion and you are losing $25 Billion per year, that it would make sense to build refineries. I can appreciate that American and Chinese companies may prefer to ship the bitumen to thier refineries and keep the profits, but the Canadian government should be concerning itself with the interests of Canadians. Insist that all oil is refined here and building refineries will make sense to the oil industry. If it does not make sense to them now, it will in the future, so stop the expansion and just maintain current production. These pipelines are needed mostly to handle increased production. We should be managing OUR resources in the interest of Canadians not to increase profits to companies.

      perception8

      May 5, 2013 at 11:34am

      This is one of those times when the "right" decision isn't made because of lobbying, kickback, and governmental favour exchange. We have a loooong history of doing what the U.S. government of the day asks in exchange for support on other issues, usually international affairs. The pipeline is too important to the US. Not only for the obvious jobs which the gov't of the day has PROMISED the people, but they are very determined to have more control over their energy supply. They WILL have this pipeline, and the fact that it appears to be something "up in the air" or being debated is a charade. I'm not prepared to suggest Harper is corrupt, but sometimes I am confused by his actions and vision for Canada.

      anonymous

      May 5, 2013 at 11:22pm

      BC knows these pipelines are a bad idea both environmentally and ecologically for British Columbia and we will fight it tooth and nail.

      What is at stake here is the future viability of British Columbia, so refine it in Alberta and ship it south or east, we in BC stand to gain nothing and would take all the risks for free.

      RUK

      May 7, 2013 at 4:02pm

      Great article, and I asked a week or so ago about why we didn't refine our bitumen if we are also major oil importers.

      I asked a person high up in the oil and gas building industry. He said: sure we could do that. It's a national resource, the federal government could say, no your company does not get a licence to export bitumen. However we will give you a licence to build a refinery.

      It comes down to the politicians.

      Jason B

      Jun 16, 2014 at 1:17pm

      Isn't one of the biggest problems the amount of water needed to upgrade/refine? I thought that was one of the biggest issues with a northern Alberta refinery.

      Anyway...if B.C. doesn't help out the country, with Ontario about to be downgraded to something approximating Cuba, we are all screwed. Alberta can't keep us all afloat.