The Alberta government’s decision to reject a proposal for an Aboriginal-owned oil sands refinery has critics up in arms, suggesting that provincial support was pulled due to racism and “backroom” dealings.
The $6.6-billion proposal from the Alberta First Nations Energy Centre (AFNEC) would create the country’s first Aboriginal-run petroleum refinery, and would help address what many see as a need for more domestic refining and upgrading. The project has been spearheaded by Enoch Cree Chief Ron Morin and Edmonton-based Teedrum Inc., and is backed by a number of other Alberta First Nations looking to increase Aboriginal involvement in the oil and gas industry.
But after years of consideration and negotiations with the province, Alberta Energy Minister Ted Morton officially pulled the plug on the project during a meeting on Feb. 8.
“In the end, it was determined that there were too many uncertainties—too many unknowns for the government to be comfortable taking a risk on it,” said Alberta Energy spokesperson Bart Johnson.
“Certainly on paper it looked good, but we needed a lot more front-end work to be done to be satisfied that it was worth proceeding with.”
Johnson said the decision was primarily based on the lack of engineering work done for the project, and because AFNEC had not yet secured land or confirmed significant partnerships. Their proposal was also being considered next to the North West Upgrading project, which was more successful in attracting provincial support because proponents had spent over $300 million on engineering and other “front-end” work.
For Ken Horn, president of AFNEC partner Teedrum Inc., none of these reasons hold water.
“We were invited to the table to negotiate this deal, having no risk, knowing what level of engineering we were to do, and the whole premise of the conditional agreement was to go to the next level. So for them to come back and say, ‘Well you haven’t done enough,’ it does not make any sense to us,” Horn told the Observer.
He explained that AFNEC did in fact do a significant amount of engineering work through a state-run Indian firm called Engineers India Limited, and was intending to move forward with additional work on a conditional basis.
“Their point that it’s just because North West spent $300 million and we didn’t really has no bearing,” said Horn.
“It’s very difficult to draw a lot of conclusions, other than that they have another deal brewing with somebody else unilaterally, or they just don’t want to see the advancement socially or economically for First Nations.”
Racism and “backroom” politics?
Horn’s remarks tap into a critique that’s been raised recently by chiefs in the Aboriginal community—that the Alberta government’s actions are “racist”, and are an attempt to limit the economic development of First Nations.
However, Johnson maintains that the decision was based on the merits and status of the proposal. In fact, he said their initial consideration of the project was intended to encourage more Aboriginal involvement in the industry.
“There’s been a lot of criticism of government around the handling of this as it relates to First Nations. But I should make the point that the government wouldn’t even have considered this proposal, had First Nations not been involved,” Johnson said.
The other conclusion critics have drawn is that the province favoured the North West project over AFNEC due to “very close” relationships with the competitors. Liberal MLA Kent Hehr, the opposition energy critic, recently requested an ethics investigation into the decision, claiming that the Alberta Progressive Conservative (PC) party has “suspicious” ties to North West Upgrading.
“I want assurance from the Ethics Commissioner that we didn’t lose $110 billion in net contribution to our GDP, 7,000 jobs and an easy route to new Asian markets for highly profitable refined products because someone did someone else a favour in the back room,” Hehr said in a release.
Regarding Hehr’s concerns, Johnson said Alberta Energy is open to an investigation if deemed necessary.
“If he has evidence of that then he can certainly launch something. But in fact, from our perspective, the decision was made essentially based on the business case,” Johnson said.
Value-added vs. raw exports
Controversy over the AFNEC decision has shone a light on the increasingly common desire for more initiatives supporting value-added processes in the domestic oil and gas industry. A recent poll showed that over 80 per cent of Albertans want the government to do more to increase upgrading and refining operations in the province, instead of exporting precious jobs and resources to other markets.
But for Alberta Energy, that “value-added” component involves complexities and decisions that they typically leave to industry stakeholders.
“The Alberta government’s approach has been largely to let the market decide and to let industry decide on what makes sense to them from a business perspective. There are a number of oil sands companies that have upgraders attached to them, and that makes good business sense to them,” Johnson explained.
“At the same time, we have gone down the road of getting involved with the North West Upgrader, as an incentive to get more upgrading in the province,” he said.
Through Alberta’s bitumen royalty in-kind (BRIK) program, North West Upgrading is set to receive 50,000 barrels per day from the province. Under the same program, the AFNEC proposal would have been poised to receive up to 75 per cent of its bitumen from the government for 30 years.
Horn and his colleagues say this is exactly the type of incentive that’s needed to prevent jobs and economic benefit from being shipped off “down the pipeline”.
“It’s imperative. Just on a 125,000 barrel per day refinery like ours, that’s $110 billion in GDP that’s going to go to the United States or China. So as a Canadian and an Albertan, I think it’s absolutely imperative that there are ways to incentivize these large projects,” Horn said.
“I think it’s very important, from the government’s mandate, to do it. And they are doing it, just not with us at this time.”
According to Johnston, at this point, the government does not intend to negotiate further—even if AFNEC were to come back with additional engineering or project assessments. But Horn says, with a provincial election around the corner, they’ll be appealing to supporters in the Liberal and Wildrose parties, and will continue to work on moving forward with the proposal.
“Both the Wildrose and the Liberals are very interested in moving forward with this project, on the record,” Horn commented.
“I think in the short term, we’re going to see what the outcome of the election is.”