THE BLOG
02/17/2014 11:18 EST | Updated 04/19/2014 05:59 EDT

The Proposed Kitimat Oil Refinery Is Just Another Barrier to Oil Sands Development

Both the people lauding the refinery proposal and those condemning it miss the point. In tying pipeline development to the building of a heavy-oil refinery in B.C., MLA Andrew Mr. Weaver is not so much accepting a reasonable compromise as he is floating still another costly, lengthy, prerequisite to new pipelines.

B.C. Green party MLA Andrew Weaver has (grudgingly) endorsed the idea of building a $25-billion refinery in British Columbia to convert Alberta's bitumen into gasoline, diesel fuel and aviation fuel, allowing the export of refined product, which, Weaver says, is safer for the environment because refined petroleum products evaporate more quickly and cause less environmental damage than heavier oils. The B.C. refinery idea has also gotten a nod from Premier Christy Clark, but has been criticized by members of the B.C. NDP. Mr. Weaver calls the proposed refinery plan a "compromise solution" to the challenge of getting Alberta's hydrocarbons to market.

Ostensibly, Mr. Weaver's refinery acceptance flows from his fear that in the absence of some kind of "compromise," bitumen will find its way into tankers off the coast of B.C. by rail, which, he correctly observes, is a pathway for oil transport that's supported by law. Environmentalists are, predictably, outraged, accusing Mr. Weaver of all kinds of betrayal, and painting him as some kind of tool for big-oil, which is something of a joke given Mr. Weaver's environmental track-record.

But the people lauding the refinery proposal and those condemning it miss the point. In tying pipeline development to the building of a heavy-oil refinery in BC, Mr. Weaver is not so much accepting a reasonable compromise as he is floating still another costly, lengthy, prerequisite to new pipelines, and to the production of Alberta's oil sands, which he admits, he'd "rather see...stay in the ground." The suggestion that a refinery might allow for acceptable development of the oil sands is little more than a red herring.

First, let's talk about the scale of the proposed refinery. If the Northern Gateway pipeline goes ahead, it is expected to carry 525,000 barrels of oil westward per day. If all that oil is refined in B.C., the Kitimat refinery would process more oil than is currently processed by Canada's largest oil refinery, the Irving refinery in Saint John, which "only" processes 250,000 barrels per day.

Does anyone really think that British Columbians are going to approve the construction of a refinery more than double the size of Canada's largest existing refinery, given the province's environmental values? Does anyone think it'll get past BC's strong environmental regulations? Mr. Weaver certainly doesn't believe it will. Though polls show that a majority of British Columbians would favor a refinery, Mr. Weaver's website says that he sees little appetite for such a refinery among British Columbians, and of course, he observes that such a project would require consultation with First Nations and a "social licence" from British Columbians to go forward. Given the extremely strong environmental values held by most British Columbians, that's likely to be an expensive licence.

Next, let's talk about time and money. New refineries (even if you can get permission to build them) do not come cheap. The Canadian Fuels Association observes that it costs between $7- to $10-billion (not including land costs) to build even a mid-size refinery, and that can take five to seven years. One would have to assume that building the largest heavy-crude refinery in Canada would take significantly longer. Also one must bear in mind that only one new refinery has been built in Canada in the past 30 years. Canada's trend in recent decades has been closing and consolidating refineries, not building new ones.

And where will the money come from to build this new refinery? Certainly some is on the table from the investment sector: The Industrial Commercial Bank of China has pledged up to $16-billion for the project. But a goodly share of risk will land on Canadian taxpayers. It has been proposed that Ottawa put up another $8-billion in loan guarantees to help finance the project (an idea already rejected by Natural Resources Minister Joe Oliver). It should go without saying that a project needing loan guarantees for one-third of its costs obviously lacks sufficient attractiveness to private investors, a clear indicator that the project rests on dubious economic grounds.

The new "willingness" by Mr. Weaver to make pipeline acceptance contingent on the construction of a $25-billion dollar refinery that's likely to take a decade to complete is not a sign of reasonable compromise. It's not a sell-out to big oil. It's not even an accommodation with the reality of oil movement by rail. It is simply another potential obstacle to developing Alberta's oil sands, and a stalling tactic to keep bitumen in the ground, as Mr. Weaver wishes.

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