Friday, August 17, 2012

The David Black Refinery Proposal - quick first thoughts

Today a new factor has been thrown into the Northern Gateway Pipeline proposal - plans for a huge refinery between Terrace and Kitimat, one of the biggest in the world and would be able to process all of the oil in the proposed Enbridge Pipeline.   The proposed refinery is call Kitimat Clean and to be the greenest and cleanest refinery in the world.

The Economics:
At 550,000 barrels of oil per day, the refinery would be the 7th largest in the world if it was open now.  It would produce 240,000 barrels of diesel, 100,000 barrels of gasoline and 50,000 barrels of kerosene.  It would also recover around 150,000 barrels of diluent.  The heavy crude from the tar sands needs a diluent to allow it to flow through the pipeline.   At the moment this would have to brought into BC and then sent via pipeline to Alberta.   The refinery would recover this meaning fewer tankers would be needed to export the products produced and there would be no need to bring in diluent from the other side of the ocean,

Based on the prices today the oil in the pipeline has a value of about $38,000,000 a day to the Canadian economy.  The refined product would have a ballpark value of around $50,000,000 a day.  This is not a large added value, I am actually surprised that there is only a 30% or so increase in value added through the refining process.   The total value added to the Canadian economy would would be around $4,200,000,000 per year.   Keep in mind these numbers are ballpark ones to give us an idea of the scale we are talking about.

It would employ 3,000 people, which for the Terrace-Kitimat area is a huge number.  At the moment Kitimat has 8,335 people and Terrace 11,486, another 3,988 in KSRD area E, 2696 in KSRD area C and 1200 people living on reserves for a total population of a 27,705 people living in the area.  The current labour force in the region is about 15,250 people which means the refinery alone would mean close to a 20% increase in the labour force.   The retail, service and government sectors would see an increase of about 2000 jobs.  All of this would mean an increased population of about 9,000 more people than now.

Total new wages in the area would be about $400,000,000 a year.

The refinery would provide the Kitimat-Stikine Regional District with a huge increase in property taxes.  I am not even sure how to estimate it because the numbers sound so large - think hundreds of millions.

The refinery would provide the provincial and federal government with something on the order of $500,000,000 in new tax revenues for all sources.   The number sounds large but I am estimating low.

The $13,000,000,000 cost estimate is early and will likely be much larger as the process goes along, I would think that it is safe assume the cost will more like $20,000,000,000 to $25,000,000,000.  This is a lot of money, by far the single largest investment in BC history.   There is no one and no business in BC that has the financial capacity to raise this much money.  Without a serious partner with deep products the project has no real future.   As far as I can tell, refineries tend to belong to vertically integrated oil companies.

The timeline is very ambitious, the goal is to start construction in 2014.  The timeline of the environmental assessment is not likely to finish that fast and I can not see how it will be possible to raise the money to build it without first having approval to build.

The Environment:
The proposal changes nothing about the issues related to the pipeline crossing BC especially with respect to aboriginal land.   There is little point in going forward unless the Enbridge pipeline is approved.   There is little chance of the pipeline managing to go ahead without some sort of consent of the First Nations.

The refinery itself would have a significant impact on the location where it is proposed to be built.  Canada would also have a serious increase in CO2 emissions.  At the moment our oil is exported and refined elsewhere and those countries are on the hook for the CO2.  Though overall the CO2 emissions would be no worse and I suspect in a number of ways lower with this proposal.

The proposal reduces the number of tankers coming to Kitimat but it still means a dramatic increase in traffic from the status quo.

The Politics:
This proposal is clearly beneficial for the government and puts the NDP in a quandary.   The NDP in their opposition to Enbridge made it clear that one of the problems was that the oil was not being refined here in BC.   3,000 high paying jobs, many of them union, is not something NDP can lightly dismiss.

The proposal is a good out for Alison Redford because the refinery would spread the wealth and she would not have to consider a deal with BC to share royalties to ensure the pipeline would go ahead.

I am not sure how this plays our federally.

I am also not sure how this plays out with China - will the oil be available for a Canadian refinery?  Enbridge is not the owner of the oil, they simply transport it.   The Northern Gateway pipeline is a way to get more crude to China and I suspect they really are not interested in selling to a Canadian refiner.
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