Armed with fresh benefits forecasts, Canadian domestic industry is reviving a generations-old crusade for a priority spot on energy policy agendas dominated by government support for export pipeline projects. Provincial and federal authorities are being told that enough current refining and petrochemical development opportunities have been identified in Alberta alone to add about C$6.4 billion to Canada’s annual gross domestic product and create 18,600 jobs.

The gains are available if “value-add” policies favor projects to use natural gas, bitumen and fossil fuel byproducts earmarked to fill proposed export pipelines and tanker ports for the United States and Asia, according to a report prepared by a Calgary economics consulting house for an alliance of processing firms and local governments of areas where they want to build plants.

The Alberta Industrial Heartland Association, a coalition of municipalities around the provincial capital of Edmonton, commissioned the report with processor Williams Energy Canada, Nova Chemicals, fertilizer manufacturer Agrium, Enhance Energy, and the North West Redwater Partnership (NWR) of North West Upgrading Inc. and Canadian Natural Resources Ltd.

Flying a new banner as Alberta Plus, the civic industry consortium wants provincial and federal authorities to concentrate on expanding or devising policies like one that enabled NWR to start construction this spring on a C$5.7 billion bitumen upgrader at Redwater, an industrial and farm service town about 40 miles northeast of downtown Edmonton. The project is widely cited as a model for enlightened policies that go beyond raw commodity exports.

The development relies on a scheme called BRIK, short for bitumen royalty-in-kind, which is rooted in a 1970s economic diversification strategy promulgated during the 42-year-old provincial Conservative government’s first term in office. The policy is frequently revived — most recently in a resolution adopted at a 2010 provincial Conservative convention — by political coalitions of industrialists, civic leaders and trade unionists inside the ruling party. BRIK enables the provincial treasury to swap its normally paper-barrel cash share of bitumen revenues for the physical commodity, and to allocate the government supply of wet barrels to projects deemed to foster economic diversification.

The program guarantees NWR a 30-year supply of 75% of the raw material required by its processing plant, which would turn bitumen into diesel fuel and byproducts used by refineries and petrochemical plants. The government is to pay processing fees and receive 75% of output of upgraded products, for a provincial marketing agency to sell at higher prices than either bitumen or even premium light oil fetch. The treasury is expected to reap a net gain over the standard practice of collecting bitumen royalties in cash.

As a foray into an emerging environmental industry sideline, Enhance Energy plans to build a 100-mile network of pipelines, the Alberta Carbon Trunk Line, to take 1.2 million metric tons/year of carbon dioxide (CO2) from NWR, which its plant would otherwise emit. The CO2 would be delivered and sold to central Alberta oilfields for life-extending injections into aging wells where natural pressure needed to drive production is running down.

The CO2 would remain underground permanently, enabling Enhance to qualify for C$495 million from a C$2 billion provincial carbon capture and storage fund. Despite its first impression as an environmental industry subsidy, the deal is expected to do better than pay for itself in the form of provincial oil royalties over the long haul. Enhanced oil recovery schemes made possible by the CO2 pipeline are forecast to increase Alberta production from conventional wells by 1.4 billion bbl, eventually generating up to C$25 billion in provincial royalties and taxes.

The action by NWR and Enhance to date is only the beginning of much larger developments made possible by BRIK and the carbon-capture program, said supporters of resource processing policies. The 50,000 b/d plant now under construction near Edmonton is only the first of three stages in a 150,000 b/d giant that has received approval from Alberta’s Energy Resources Conservation Board. As the bitumen upgrader grows, numerous opportunities would be created for using byproduct off-gases as raw materials for spin-off additions to petrochemical complexes in the Edmonton region, said the Alberta Plus consortium.

A similar case for encouraging resource processing, as a value-added alternative to exporting raw fossil fuels, is made by Ontario counterparts to Alberta Plus, the Sarnia Lambton Economic Partnership and Sarnia Lambton Industrial Alliance. Named after the chief towns in a region where the Canadian oil and gas industry was born in the 19th century, the groups promote survival and growth strategies for petrochemical and refining complexes that have used Alberta and U.S.-sourced fossil fuel supplies for raw materials since the original Ontario wells depleted.

Canadian oil and gas producers do not oppose resource processing. Some even venture into the field on their own or in joint ventures, such as Canadian Natural’s partnership with Northwest Upgrading in the NWR plant. But the producers invariably insist that markets rather than provincial or federal authorities should drive development, and that governments should at most provide incentives for processing investments rather than restrict exports in the name of protecting or creating raw material supplies.

Processing advocates, from trade union leaders and academic economists to Canada’s New Democratic and Liberal opposition parties, have been seeking a say on export pipelines for a decade, in cases before the National Energy Board (NEB) and in appeals of regulatory approvals to the law courts. So far, none of the regulatory and legal actions have succeeded in changing the market-driven approach that has become known as Canada’s default policy since its adoption by mid-1980s agreements between Conservative provincial and federal governments.

The NEB has repeatedly ruled that pipelines cannot be held responsible for use of the materials they carry and the courts upholding the board’s approval decisions. In current cases, on pipelines proposed to flow both west to new tanker docks on the northern Pacific Coast of British Columbia and east to the St. Lawrence Seaway and the Atlantic Coast, the NEB has made advance rulings that the proceedings and decisions will focus exclusively on the transportation services and not delve into activities either upstream or downstream from their inlets and outlets.

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