Notley signals that partial upgrading, petrochemicals will play bigger role in solving crude oil market access issue

Notley plan to grow domestic market for Alberta oil/gas a great strategy that needs Ottawa’s support

Update: Alberta government announced late Tuesday that it will double support for petrochemical upgrading, with total investment now set at $2.1 billion. Premier Rachel Notley: “For decades, we’ve been settling for less while seeing new jobs and investment go south of the border. The time is now to think big, take action and finally upgrade more of our energy at home.”

It’s no secret that Alberta needs a quick fix for plunging Canadian oil prices. And while three “envoys” are discussing with industry leaders how to square that circle, Premier Notley’s announcement Monday of a medium-term strategy – downstream diversification to process more crude oil in the province – is being largely ignored. It shouldn’t be. Expanding partial upgrading and petrochemicals is a Made-in-Alberta solution that doesn’t rely upon fickle governments in BC or Ottawa.

“Alberta needs and we must upgrade and refine more of our energy products here at home. It’s that simple. Right now,” she told reporters at Monday’s press conference where she announced that economist Robert Skinner, energy deputy Coleen Volk, and her former chief of staff Brian Topp will take two or three weeks to consult with Calgary C-suites about how to get Alberta’s oil to market and prop up prices in the short-term.

“Alberta is being treated like a branch plant for the US and it has got to stop. Alberta is a world energy leader with the expertise and ingenuity to make our own gasoline, to make our own jet fuel, to make our own plastics, to refine our own energy into the products that we’ll use.”

Notley has created an Energy Upgrading Unit that will “bring together government, industry, workers and Albertans to supercharge energy diversification across the province.”

This new team, whose members were not announced, will report directly to the Premier.

Why is this important? Re-organizing in the face of crisis is a timeworn ploy as old as government, designed to create the illusion that politicians are working to fix the problem.

But Gil McGowan – president of the Alberta Federation of Labour, an advisor to the Premier, and co-chair of the Energy Diversification Advisory Committee (EDAC) – says the upgrading unit marks a significant change in how the Notley government views partial upgrading and petrochemicals.

“The premier has made it clear that diversification will be part of the solution to the province’s on-going market access problems. That is not something that had been made really clear in previous announcements, but it was made clear today,” he said in an interview.

McGowan has a dog in this fight.

His committee’s report was the basis for the Energy Diversification Act passed by the legislature this spring.

The government announced $1 billion over eight years to support the commercialization of partial upgrading technology (upgrading oil sands bitumen into heavy or medium crude) and $1 billion to support construction of petrochemical plants and facilities to remove�methane, ethane, propane and butane (the building blocks for plastics) from natural gas.

But the government didn’t adopt all of EDAC’s recommendations, including the most important one: to provide the resources and the mandate to more aggressively pursue petrochemical investments, as well as the financial clout to compete with US Gulf Coast states Texas and Louisiana for projects.

Alberta has competitive advantages, including inexpensive feedstock and a shorter route to Asian markets, where all the anticipated demand growth for plastics will come from.

The greater short-term opportunity that could have the biggest effect on pipeline capacity is partial upgrading.

To be shipped in a pipeline, the gooey bitumen must be diluted with as much as 30 per cent of a lighter hydrocarbon, referred to as “diluent.”

Upgrade bitumen to a heavy or medium crude that is viscous enough to flow inside a pipe and the diluent is no longer needed.

Last year, Alberta exported 1.57 million b/d of non-upgraded bitumen, according to the Alberta Energy Regulator, that would have required diluent. If we assume 30 per cent diluent for all of it, that means about 500,000 b/d of pipeline capacity could be freed up for crude oil.

Harbir Chhina is the VP of technology for Cenovus. He told Energi News in an exclusive interview that his company actually uses 40 per cent diluent, which is why it is investigating three or four technologies, including one called “jet shearing.”

“We tested [jet shearing at] Foster Creek and Christina Lake [Cenovus oil sands projects] and everything looked really good and it was a very stable product,” China said.

“If we could reduce that [from] 40% to 20%, think of all the excess pipeline capability that would be available. So, that technology, we’re really excited about it.”

How much would it cost to accelerate the Cenovus pilot projects and get the jet shearing technology ready for scale-up to full commercial production? How quickly could it be done? Chhina chose not to share that information with Energi News, but perhaps he’ll be less reticent with Notley’s envoys.

Premier Notley told reporters to expect futher downstream program announcements in the near future: “Later this week I will be announcing new steps to expand energy upgrading in Alberta that will result in billions of dollars in new capital investment, thousands of new jobs, and hundreds of millions of dollars in revenue to pay for the services that Albertans count on. And these steps will be followed by others.”

The Alberta government’s $1 billion over eight years to speed up the commercialization of partial upgrading technology is meant to bridge the “valley of death,” the capital needed to move from the laboratory or pilot project to full commercial scale-up. There are approximately 10 companies working on bringing partial upgrading to market.

In Monday’s column, I suggested that Prime Minister Justin Trudeau should think about committing federal dollars to solving the oil price crisis.

Writing a cheque to help accelerate Alberta upgrading and petrochemical growth would be a great way to demonstrate to industry and Albertans that Canada is committed to wringing the most value out of a finite resource – as the Prime Minister has promised in numerous speeches.

The short-term issues caused by low prices will have to be endured with gritted teeth for awhile yet, unfortunately. But a well funded – with the assistance of Canada – strategy to create domestic demand for Alberta oil and natural gas would go a long way to resolving the crisis of confidence so evident in the oil patch these days.

Notley is on the right track. Trudeau should support her by putting his government’s money where his mouth has been.


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