Upgrader project shelved
BA Energy Heartland unable to find financing to continue construction of $5-billion facility
Dave Cooper
The Edmonton Journal
Thursday, September 25, 2008
EDMONTON - A partially completed oilsands upgrader project near Fort Saskatchewan has been mothballed by its owners.
The BA Energy Heartland upgrader, owned since last spring by Calgary-based Value Creation Inc., was quietly closed down this week.
"They told us it would be three or four years before they go back to the site, it's very disappointing," Gerry Gabinet, manager of Strathcona County's economic development department, said Wednesday.
Hundreds of millions of dollars had already been spent on construction when the previous owners ran into economic trouble earlier this year. When Value Creation acquired the upgrader project, company president Columba Yeung said his firm was "fully committed to the successful completion" of the project.
No company officials were available for comment.
Today, a large tower and rows of fabricated equipment spread across the site near Shell's Scotford refinery and upgrader. As well, much of BA Energy's underground work has been completed.
With recent price escalations, it is expected the project could cost a total of $5 billion. Phase one would have processed 77,500 barrels a day of bitumen blend with production eventually rising to 260,000 bbl/d.
BA Energy intended to buy bitumen on the market and process it for customers. But with the continuing credit crisis and no contracts in hand, obtaining the billions of dollars needed has proved impossible.
Value Creation also has a major underground (steam-assisted gravity drainage) oilsands project near Fort McMurray which would have supplied the upgrader.
"They told us they will focus on that area first," said Gabinet.
Getting the bitumen flowing, and getting some cash coming in, is a pretty normal approach for oilsands developers, said Laurie Danielson, executive director of the Northeast Capital Industrial Association.
"It is logical for these firms. Everything is contingent on financing for them to proceed."
The other independent project, the North West Upgrader, is still a year or more away from major construction.
Located on the west side of the North Saskatchewan River adjacent to Petro-Canada's proposed Fort Hills project, North West is trying to raise billions in cash and establish bitumen supplies and customer contracts.
"We have spent $300 million in engineering and design. And our major vessels, ordered two and a half years ago, are ready to be shipped from Japan," said senior vice-president Rob Pearce. The cost estimate for his upgrader jumped to $4.2 billion last year.
Today, the North West upgrader site is still just a field.
Pearce said his project will produce low-sulphur diesel, in addition to other products. And he has an arrangement with Enhance Energy to provide two-thirds of the upgrader's carbon dioxide offgas for injection to improve oilfield production. "We have our CO2 solution, and we have prefab contracts with KBR (construction) ready to go."
But Pearce said he will spend the next year trying to get supply and customer contracts lined up, then go after funding. He hopes construction could start within a year
Fee-for-service or merchant upgraders will be eagerly eyeing Alberta's new royalty program, which begins on Jan. 1. The province will be accepting bitumen as payment for royalties.
Petro-Canada has said it will decide by the end of the year whether to proceed immediately on its upgrader. Shell's Scotford upgrader is currently being expanded. Two other upgrader projects, from French oil giant Total and Norway's Statoil-Hydro, are still in the regulatory approval stage.
