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Encyclopedia of the oil crash: U is for upgrader debate

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OIL_49

UPGRADER DEBATE


Should Alberta build a new oil sands refinery to upgrade bitumen to synthetic crude? The debate has raged in recent years. Andrew Leach, an environmental economist at the University of Alberta, explains the ins and outs:

“The concept of value-added [upgrading raw bitumen to synthetic crude to sell at a higher price] has enthralled the political class. Ask voters whether we should sell $40 bitumen or upgraded $55 synthetic crude, and they’ll pick $55 synthetic crude most every time. But the details of what must be done in order to secure an upgrading project—such as the government guarantee of $63-per-barrel payments involved with one new refinery—are lost in the talk of job creation. Refining is a tough business. Build a refinery in a high-cost market, and you’ll be hard-pressed to make it work in a global market for refined products. Low oil prices over the long term could change that. With slack in the economy, building a new refinery will not use workers who would otherwise be employed in the oil-extraction business, keeping wage inflation down. Furthermore, the promise of more stable cash flows might be more welcome in an Alberta reeling from a $10-billion hit to government revenues. On the down side, if government money is needed to get a refinery off the ground, it’s hard to see how Ottawa or Edmonton will be able to justify a big cheque to a refinery while cutting other programs.”

 

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    V is for viscosity
  • OIL_52
    W is for wealth, Western Canadian Select, Western Texas Intermediate
  • OIL_54
    X is for X-ray pipeline inspection

 

 


 

Encyclopedia of the oil crash: U is for upgrader debate

  1. Once again, I would like to take issue with Andrew Leach’s oft repeated claim (previously on twitter and in an opinion piece in the G&M Dec 11, 2014) about the cost of the NWU. Here he states:

    But the details of what must be done in order to secure an upgrading project—such as the government guarantee of $63-per-barrel payments involved with one new refinery—

    This is a flawed calculation. Andrew took the total of $26 billion from a Dept of Energy annual report prepared by accountants. It is the sum of forecast processing fees etc inflated at 2% over 30 years. Book Value. And the sum is at the end of 30 years.

    To do the calculation that he has done, he would first have to discount all forecast expenditures back to present day before averaging out the costs against total throuighput (over 30 years). This is Finance 101.

    Summary here:https://twitter.com/NetworkCitizen/status/560468836638416896

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