Thursday, June 20, 2013
Why Won't Alberta Do the Right Thing, Refine Their Bitumen There?
Why build two pipelines instead of just one? Why transport dangerous dilutent from the Pacific coast all the way to Athabasca just so it can be transported right back again? Why import dilutent only to then export it? Why run an oversize diluted bitumen pipeline from Athabasca to the Pacific coast when a much smaller pipeline transporting fully refined synthetic crude is all that's really necessary? Why not use just a fraction of supertankers to export fully refined synthetic crude instead of far more tankers making far more trips to bring in dilutent and carry out hazardous dilbit? Why all the extra, unnecessary supertanker traffic that can only increase the likelihood and frequency of tanker accidents? Why export all those processing jobs when they could be kept right on site in Alberta?
When you look at it, no matter the angle, the whole dilbit trafficking business is counter intuitive. It makes no sense. It multiplies the tanker traffic. It multiplies the pipelines needed to move the product for export. It multiplies the pipeline costs. It multiplies the shipping costs. It increases energy costs and resulting emissions. And for what? So that somebody can do the refining in Asia? The stuff is still going to have to be refined into a useable product. They're going to have to refine out the dilutents. They'll have to refine out the particulates and other contaminants in the bitumen.
Often when things like this seem to make no sense at all, it's because something is being overlooked, perhaps even concealed. So what is all this energy-wasting, hazardous, convoluted dilbit business really about?
I'm going to guess there are two things not being addressed - carbon emissions and petcoke. This is all about exporting both of those problems.
Alberta is already leading all Canadian provinces and territories in greenhouse gas emissions. And, unlike most other provinces, Alberta's emissions are set to increase rapidly as Tar Sands production is ramped up.
In other words, Alberta stands out like a sore thumb when it comes to greenhouse gas emissions and even exporting dilbit it's going to get much worse in the years ahead.
Refining that dilbit into fully processed synthetic crude would consume a lot of energy and other resources, upping Alberta's greenhouse gas emissions even further.
And then there's the petcoke problem. This issue came to the fore in, of all places, Detroit where a small quantity of Tar Sands dilbit was sent for refining. Once you refine the crude oil out, you're left with a form of really filthy carbon called petroleum coke or petcoke. With the Ambassador Bridge in the background here is a pile of petcoke belonging to Koch Carbon which, as you might have guessed, is owned by the Koch brothers, Charlie and Manfred.
The Guardian calls petcoke the "dirty secret of Alberta's tar sands."
Every barrel of crude that comes out of the Alberta tar sands throws off between 60-130lbs of pet-coke. By May 2012, Alberta had stockpiled 70m metric tons of the stuff, driving down prices.
"They are drowning in it. It just can't be absorbed any more in the refining process," Gordon said.
Until now, the industry had shipped pet-coke off to Asia or southern Europe as a cheaper alternative to coal.
Most power plants in the US or Canada will not burn pet-coke for fuel because it is so polluting. Burning pet-coke for electricity require expensive equipment to clean up the sulphur – although a plant in Nova Scotia announced this week it would begin chipping away at the mound in Detroit.
And suddenly it all makes sense why Ottawa and Alberta are so insistent on exporting dilbit, regardless of the hazard to British Columbia's pristine coast and the interior pipeline route. This isn't about selling oil, it's about exporting their environmental nightmare to places where it can be handled out of sight/out of mind. They can sell their refined crude oil anywhere. It's their petcoke problem they need solved and the Northern Gateway is their solution.
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Very good post. I am curious also about the Chinese, Japanese, and Korean tar sands operators who will be shipping their oil west. China for sure will want to add value by refining, and who knows what interests the Koreans and Japanese tar-sands producers have in who gets to refine the oil? This could be part of the full circle of tradeoffs in FIPA, with the CPC exporting the carbon and toxic sludge, the foreign producers coining money refiningthe crap, and FIPA there to ensure that nobody can change the arrangement for another 30 years.
Not dealing with mounds of petcoke and other waste may be one reason why the industry extracts and ships with minimal processing. I don't know if it is the main reason. The Alberta government seems happy enough to allow the northern part of the province to be moonscaped by the oil industry, and now the frak gas industry: pipelines everywhere in the north.
Another reason is refineries with capacity to refine dilbit exist in the US. So there would be a duplication of industry in Canada, which would cost money to build.
And who would have predicted a decade ago that America would lose so much pride in itself? It's like the Soviet Union: the populace in the US has taken so many punches it just has given up. Detroit allowing itself to be buried in industrial waste? C'est la vie. Dilbit pipelines across America? They've largely ceased caring.
And there is the high Canadian petrodollar and wages, which makes investing in plants and jobs to refine bitumen very expensive compared to the right-to-work US. There may also be a relative lack of skilled labour in Alberta, which would increase costs even more.
Another is the evolution of excessively laisser-faire policies of the Canadian and Albertan governments, who, despite all the talk, clearly prefer to have no strategic energy policy, and don't care whether tar sands maximize the benefit to Albertans and other Canadians, as opposed to only looking at a few companies' bottom lines. This was not Lougheed's vision. Nor did it use to be the oil companies' vision: witness the Voyageur upgrader mothballing: clearly it was at one time thought that upgrading in Alberta would take place, and good money was bet on that vision.
Get it out the ground and out of the country, as quickly as possible, as cheaply as possible. That maximizes profits for the oil companies, and pipeline companies. Who cares if Canada loses out in the net?
I have nothing to add to the learned commentary here except to congratulate you, Mound, on an excellent bit of sleuthing here. You've really connencted some very important dots!
As I understand it, Matt, China is willing to burn the petcoke despite its carbon and sulphur emissions. I recently read that the EPA won't permit that stuff to be used in the U.S. and it presents a leaching hazard simply stockpiled so it has to go somewhere.
Chris, I'm not so sure this isn't a major factor. When you look at the pushback Enbridge has received over the Northern Gateway and how much of that could be alleviated if only the bitumen was refined on site, pushing dilbit seems illogical. On the other hand, full refining could be Alberta's fallback or Plan B if the dilbit operation isn't successful. That is, assuming they could find some way of dealing with the emissions and petcoke problems. I suppose the petcoke could simply be dumped in the open pit bitumen mines as they're exhausted.
This may well be a sizable factor. But I do think the biggest is simply that it's not up to Alberta, because Alberta's oil patch is not under Albertan, or Canadian, control. And Alberta's government governs for the campaign contributions and graft from the companies, not for anything related to the interests of Albertans. Their strategic policy is to pocket payola while in office and retire to cushy directorships once out of office. So if China, for instance, wants to do the refining in China, have the refining jobs and value added and dirty-burning petcoke in China, then Chinese companies will tell the Alberta government that that is what is going to happen, and the Alberta government politicos will pull their forelocks and say "Yes, massa". Similar things hold for US companies.
Why then, don't they ship the undiluted bitumen by rail in regular coal cars, to whichever coast and ship it again undiluted to China where they can upgrade it and refine it and use the petcoke as well?
The patch is still pissed off at PET. They will do anything to get around rules in Canada. Many thousands of jobs could come from this. Great post Mound!
Thanks, everyone, for your considered and helpful comments. Please understand that I'm not saying my theory accounts for the inexplicable nature of the bitumen trafficking problem. It is a possible factor but it may be just one. There could be others that also play into this situation.
I have long wondered about the economic viability of bitumen and the vulnerability of the Alberta government from its dependence on Tar Sands royalties that now fund 30% of its current budget.
The royalty scheme is complex and tiered but, until the operator recovers its costs, the Alberta government is due something under 7% of net revenues. When Amoco locked up the Saudi oil fields, it gave the House of Saud 50% of net profits.
This royalty/cost deferral business could be something of a reverse Ponzi scheme, growing ever larger until the best and cheapest bitumen is gone.
Alberta, given its in-house engineered vulnerability to boom & bust oil prices, must be desperate to wring every last dime out of the Athabasca bounty. Perhaps Alberta is dependent on petcoke revenues to pad its numbers.
In my former career I spent many a billable hour seemingly idle, repeatedly re-arranging facts, looking for patterns that suggested questions the answers to which might unlock apparently illogical situations. There was one sophisticated fraud that I pondered almost every morning for 14 or 15-months, never really getting anywhere, until one morning all the pieces fell perfectly in place. It was a brilliant scam intended, from its planning stage, not only to lure in its victims but to later lead pursuers, investigators, into dead ends. They should have gotten away with it except, for some reason, I couldn't get it out of my mind. I just couldn't let it go. When I did figure it out - in all its incredibly simplistic beauty - and called my colleague at RCMP commercial crime, over the phone I could literally hear him gobsmacked.
The thing is, I don't have enough facts on what really lies behind this illogical situation to get beyond the possibility stage. Maybe they'll emerge over time, perhaps not. That said, at the moment the best we can do is keep throwing the pieces up in the air until, finally, they all come together.
The brilliant scam sounds interesting. Can you describe it further without violating any confidences?
I would be very hard pressed to recall enough of the details. It involved a criminal organization, most of them from a single family, where even the children played important roles (one of the things that stymied investigators), a missing yacht and sports cars, a hotel burned to the ground in the middle of the night, assets transported hundreds of miles by barge, a litany of violence, even a case of child molestation with the perp fleeing to a remote spot in the South Pacific (which was not related to the fraud).
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