Market muscle will power area upgrader projects
NorthWest COO says conditions are right
Gordon Jaremko
The Edmonton Journal
Wednesday, May 02, 2007
REDWATER - Free markets will fuel Alberta oilsands processing, the next Edmonton-area upgrader project predicted Tuesday in rejecting political intervention to curb bitumen exports.
"We don't seek government help," NorthWest Upgrading chief operating officer Gary Vassie said in an interview as regulatory hearings opened on the firm's proposed 150,000-barrels-daily plant near Redwater.
"It's a business decision," Vassie said. "Business conditions more than justify bitumen producers considering this option."
As a "merchant upgrader" or independent manufacturer of refinery-ready light oil, NorthWest is offering to create a better outlet than the United States for low-grade initial oilsands output.
The plant will buy bitumen or process it for a fee, saving oilsands developers export pipeline tolls and strengthening prices by expanding limited markets for the tarry raw material.
NorthWest will live on a quality differential or gap between bitumen and light oil prices. The difference is still 30-35 per cent or more than $20 a barrel despite recent reductions of the spread, Vassie estimated.
The province, prompted by forecasts that one-third or more of bitumen will go to expanding U.S. refineries, is considering new policies to keep multibillion-dollar investments and thousands of jobs in Alberta.
But prospects that Northwest's business model will naturally fuel new construction of nine or more proposed mega-plants in an emerging Redwater upgrader row prompted Edmonton to make its first intervention in an oilsands case before the Alberta Energy and Utilities Board.
"Development will transform this region," city litigation chief Mark Young told the AEUB as a scheduled two weeks of hearings on the NorthWest project started about 60 kilometres northeast of Edmonton in Redwater.
"Look what's happened to Fort McMurray. They're overheated with development. The same thing could happen here," Young warned.
He pointed to strained local services, inflated construction costs and growing shortages of affordable housing in Edmonton even though the development wave is only in early stages.
"The City of Edmonton is in favour of all the proposed upgraders" but wants the AEUB to ensure "a strong regional plan" emerges to cope with up to $40 billion worth of projects announced by industry, Young said.
NorthWest should only be allowed to kick off the development wave if conditions are put into its plant approval to require co-operation with Edmonton on coping with cumulative effects of all projects in the Redwater upgrader lineup, says a written city submission to the AEUB. The Edmonton region's population will grow by up to 200,000 over the next 10 years and 140,000 or 70 per cent of the new residents will settle in the city, the document predicts. In 20 years, the development wave is forecast to increase the regional population by up to 500,000.
But Vassie told reporters "this isn't a Fort McMurray," where industrialization requires building a community from scratch in remote northern woods.
Upgrader projects are choosing the Edmonton region because it has a large skilled workforce, strong local services, capacity to expand them and organized growth planning by the Alberta's Industrial Heartland Association of municipalities beside the city, the NorthWest chief operating officer indicated.
The project is on schedule for about 2,000 construction personnel to build its first 50,000-barrels-daily stage for $2.9 billion by late 2010, Vassie said.
When complete, the plant is expected to create 300 permanent operating jobs.
Edmonton is using the wrong arena by resorting to AEUB hearings for making its move into regional planning, Heartland executive director Larry Wall said in an interview.
He urged the city to work with its neighbour municipalities in an eight-year-old local government group known as the "greater Edmonton economic growth team."
About 10 towns and districts are urging the AEUB to approve NorthWest's plant. But about two dozen rural households near the site are questioning potential air and water pollution, while the Saddle Lake and Alexander Indian bands seek reviews of effects on claimed traditional native territories.
gjaremko@thejournal.canwest.com
