The case for partial upgrading of raw bitumen from Alberta's oil sands
Exporting raw bitumen as dilbit isn't in Canada's national interest from the perspective of jobs, energy security, taxes, royalties and to discourage foreign imports, an oil and gas industry expert says. Upgrading would not only be safer, but also generate far more domestic jobs.
This calculation effectively subsidizes bitumen producers which produce and sell dilbit. and is to the disadvantage of companies which produce and upgrade raw bitumen, to the disadvantage of Albertans who are denied royalties, and to the disadvantage of Canadians who are denied economic benefits of upgrading, refining, petro-chemical industries, their support and service jobs, and government revenues from a wide range of associated taxes.
Compounding the problem, many key research and policy chairs at the University of Alberta and the University of Calgary are funded by the Canadian subsidiaries of foreign multi-nationals.
As a result, there are no commercial partial upgrading operations in Alberta.
Foreign multi-nationals like ExxonMobil, which through Imperial Oil owns 78% of the just-commissioned Kearl project —the first bitumen surface strip mine without an upgrader, would rather send low-royalty raw bitumen to Gulf Coast refineries where bitumen is processed into diesel for export at high margins to Latin America. They want to capture all the benefits of raw bitumen at Canadians’ expense and are unlikely to initiate large-scale partial-upgrading of raw bitumen
In October, Canada's largest energy company, Suncor, announced it was proceeding with its $13.5 billion Fort Hills bitumen sands strip mine project. It is expected to start production in late 2017 with a design capacity of 180,000 bbls/d.
Fort Hills will join ExxonMobil’s Kearl project as the the second bitumen sands strip mine without an upgrader. Together they will export a total of 525,000 barrels/day of raw bitumen contained in 750,000 barrels/day of dilbit.
Based on $50/barrel for raw bitumen and $200/barrel for refined products, these projects will cost Canadians $29 billion per year in lost upgrading, refining, and petrochemical jobs, profits, royalties, and taxes.
In the U.S., exports of crude are prohibited by Federal law unless determined to be in the U.S. national interest in order to conserve domestic oil reserves and discourage foreign imports.
While Canada does not need to urgently conserve domestic oil reserves, exporting raw bitumen as dilbit is not in Canada’s national interest from every perspective: energy security, jobs, taxes, royalties, the environment, and to discourage foreign imports.
Alberta’s and Canada’s governments must legislate, regulate, and/or discourage the export of raw bitumen and encourage building partial upgrading straddle plants by investing in research and development, providing seed money and/or seed volumes, creating crown corporations, initiating joint ventures with refiners and producers, changing bitumen royalty structures to discourage raw bitumen exports and, if need be, imposing some type of tax or duty on raw bitumen exports.