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Why Canada Would Rather Export Oil Than Refine It

Canada has always been known as a “hewer of wood and drawer of water” for its reliance on natural resources for economic growth, and nowhere is this more apparent than the way the country handles its extraction of oil.

Despite boasting one of the highest proven oil reserves in the world -- second only to Saudi Arabia at 175 billion barrels-- a high percentage of Canadian crude is shipped across the border for refining in the United States. This has led to charges that Canada is selling out its vast oil resources to the U.S. and failing to uphold the national interest in ensuring that refineries are built in Canada, with the benefits accruing to Canadians.

In recent years, these voices have been amplified by the Canadian government's strategy to build new pipelines and expand existing ones – namely the Keystone XL pipeline expansion that would ship more Alberta oil sands crude to U.S. Gulf Coast refineries, and Enbridge's Northern Gateway pipeline that would move Alberta oil to coastal B.C. for shipment to Asia.

The Communications, Energy and Paperworker’s Union estimates that 18,000 Canadian jobs are lost for every 400,000 barrels of bitumen that are exported.

The Opposition New Democratic Party has called for a “national discussion” on how to develop new refining infrastructure they say would create jobs and bring in tax revenues, but has not said how they would overcome the economic challenges that have so far prevented new refineries from being built.

Those challenges, it turns out, are daunting.

The cost of a new refinery is pegged at $10 billion, and would take years to construct. A new one hasn't been built in Canada since 1984, or in the United States since 1976, although new refineries are in the works in Michigan and Illinois. A couple of years ago, British Columbia newspaper mogul David Black raised a few eyebrows when he proposed to build a $25-billion refining complex in Kitimat, using feedstock moved through a pipeline built with supportive native groups -- many of whom oppose the current Enbridge proposal.

Related Article: Canadian Supreme Court Ruling Throws Major Pipeline into Doubt

Another major issue is excess refining capacity. While Canada only refines about a quarter of the oil it produces, it refines more oil than it consumes. That means any newly constructed refineries would be refining oil for export, not for internal consumption.

So much for refineries built by Canadians, for Canadians.

Looking at the North American market for refined products, it seems obvious that the majority of refining capacity would exist in the United States, considering the imbalance in population. The U.S. has 142 refineries. Canada has 19, with most clustered around Edmonton, Sarnia, Ontario, and Montreal. The number of refineries in both countries has declined over the years, due to stricter environmental standards, lower fuel demand, and the decreasing availability of sweet crude, which is cheaper to process than heavy oil, including crude from oil sands.

Michael Moore, a professor at the University of Calgary's Institute for Sustainable Energy, Environment and Economy, thinks Canada at one time may have been able to out-muscle the States in the downstream (refining) business, but has likely lost that opportunity for good.

“The time to make the decision [to build up Canada’s refining industry] was probably 20 years ago, maybe a little before that,” he told the Huffington Post. “When you didn’t make that decision, you lost your ability to compete in that market. You couldn’t catch up.”

Moreover, said Moore, “Widespread higher quality refining capacity in Canada -- except in very specific instances -- is not likely to be very successful. We just don’t have the distribution network to support it.”

Viewing a map of that distribution network, it is instantly apparent that Canadian crude oil moves north-south, not west-east. Lines spinning out from the spider's web of production centered in northern Alberta, arc in a southeasterly direction toward the most highly concentrated population centers. Large swaths of central and northern Canada are without pipelines.

Because there are few pipelines running east-west, Canadian oil flows mostly south to the United States, where refineries with the capability of processing heavy oil (the kind Alberta oil sands produce) turn it into gasoline, jet fuel, and other refined products. Even if there were pipelines running from the Alberta oilfields to Eastern Canadian refineries, it is not at all certain the refineries could handle the feedstock.

That's because oil sands comes out of the ground as bitumen, which must be upgraded to lighter, synthetic crude to be able to flow in pipelines. There are no upgraders east of Alberta and only one refiner in Sarnia has a coker, leaving producers few choices but to flow the oil south. Refitting the refineries to receive oil sands crude is an expensive proposition that few refineries are willing to contemplate. These refineries are also competing against cheaper refining capacity in Asia, which would be only too happy to receive synthetic crude or raw bitumen from the oil sands.

Related Article: ‘Green’ Oil Refinery Planned For Canada’s Pacific Coast

When the crude flows south, Canadian producers receive a lower price for Western Canadian Select than the Brent crude oil that is imported by Eastern Canadian refineries. That difference in price costs the Canadian economy an estimated $19 billion a year, according to Bloomberg News, and is the primary reason that Canadian oil producers, along with the Canadian government, are pushing for more pipelines. The theory, and it makes good business sense, is that as pipelines free up more oil to move, the glut of oil in the Midwestern U.S., that is currently depressing the price of Western Canadian Select, will dissipate and prices will rise.

There is one way for more refineries to be built in Canada, and that is through government subsidies. The Alberta government recently struck a deal with North West Upgrading and Canadian Natural Resources to build a bitumen refinery north of Edmonton. Under the deal, North West Upgrading will receive a quarter of its bitumen from CNR, and the rest from the Alberta government. The province will also kick in 75 percent of the operating expenses, on top of a debt-financing arrangement where CNR and Alberta each loan the company $300 million.  

While some see project as evidence of private sector confidence in boosting Canadian refining capacity, others say it is proof that new refineries and upgraders are not viable without government largesse. The current Conservative government has clearly indicated its preference for pipelines over refineries and a reliance on the market when it comes to the economics behind any new refining capacity.

As Joe Oliver told Canadian Press when he was Natural Resources Minister in 2012: “The economics have to be there to do it, and the fact that there hasn't been a refinery built since the early '80s indicates that the economics weren't there.”

He added, “That's a pre-condition, unless of course the government is willing to subsidize the industry to the tune of many billions of dollars, and that's certainly not our approach.”

By Andrew Topf of Oilprice.com




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  • William Kandravi on July 22 2014 said:
    Living down in Tulsa Okla. and like investing in Canada come out of the ground product, minerals/oil/etc. I have held Veresen for years like there mnthl. Div and also in and out of Petrobakken now lightstream even though they cut there Div. They have land for days and experience with a lot of debt but have been good to me, this SYNODON looks like it will take off one of these days for a penny stock it is very hi-tech and now with opus for air to ground with Tablet application just seems that there day is coming just by looking at there client list. But the USA should have been a better neighbor to Canada and North America would be a better place, hope to see that change. Good ARTICLE and I have other oil and mining investments up there and it is good as it gets to go fishing. Thanks for the Article. There is a lot more to be done up there and the exporting should be great especially because the technology is so much safer and efficient now.
  • David Sowinski on January 09 2015 said:
    Refining is a no brainer . Unfortunately, the federal government has no brain and has lost valuable time in doing this. Undoubtably , this decision is controlled by the U.S. BECAUSE OF THE VALUE IT GETS BY REFINING AND SELLING IT. DUH !!!
  • Taylor on January 28 2016 said:
    There needs to be a big push to develop a massive refining industry in Alberta. Joe Oliver's comments come from a government that pretty well got everything wrong.

    Guess who's making money in the oil business right now? Refiners. Low input costs and reasonable output prices make for great margins. Extractors are getting crushed and Alberta is in the worst recession since the 1930s.

    Building in a refining capacity to process our bitumen and sweeter crude would help reduce the reliance on commodity prices, and help counter the boom-and-bust economy of Alberta that rises and falls with oil prices.

    Government needs to get involved, because when times are good oilsands producers simply rip it and ship it as fast as they can. When times are bad... well they're flirting with bankruptcy.

    The current energy strategy in Canada makes no sense.
  • shanon on January 17 2017 said:
    It's better late than never to build Refineries. What if Trump puts a tax on Canadian oil crossing the border to increase the cost of Canadian Oil making it higher and less competitive just like the threatening of the Automotive industry. Trump can control Canada in that way and thats scary. If the Federal Government just sits idle like it has been it will get worse and all of Canada will suffer from the money thats being lost everyday and I do mean all including environmentalist's and green energy after all it takes money to get into green energy and thats something the country won't have in the years to follow.

    If environmentalist's want to do some good in the country quit fighting pipelines and use that energy to fight for well abandonment and reclamation. That creates work for them and oilfield workers and it's great for the environment.
  • Ed on November 21 2017 said:
    What would happen if we shut off the oil to the U.S.? Seems stupid to send our oil to them and have to pay more for gas here. Can we not reopen some of our own refineries or are then destroyed. What a dumb government we have.
  • Bill Pylypow on February 04 2018 said:
    I've often ondered about the lack of refineries in Canada, and why oil is shipped south for refining. As an investor in oil both in the states, and Canada, it's puzzling too. Considering how far the Texas Gulf Coast is from Northern Alberta. Be that as it may, now it makes sense after reading your article. Thanks.

    But the Federal Government of Canada, and gov't. of Alberta,and oil companies, it is still possible to build refining capacity closer to sources of crude oil, like tar sand oil,AKA: bitumen. Let's go Canada! Good for new jobs, and Environment Canada!
  • Darren MacKay on April 20 2018 said:
    Canada is merely an extension of the British Monarchy.... and having said this - We Must Accept the Conspiracy Theory- or Something there to it:

    Justin Trudeau had already stated he will support the UK against Russia.

    The U.S. and U.K have been Thriving on War for Over a Century. Canada Supplies the Fuel to the U.S. for War.

    We also know that the wars were based on Lies!

    The Worlds a Stage, and Prime Minister Justin Trudeau is the Drama Teacher! So let's Look at some of History and Facts:
    __________________________________________________

    "Lest we forget, the tar sands fuel war and the phrase ‘never again’ requires a deeper look at the historical development of the tar sands. Since the creation of the first tar sands operations, the nation-state of Canada viewed bitumen as part of its military strategy. During the cold war, Pierre Trudeau brought tar sands plants online to help provide ‘energy security’ to North America. Over the past decade, Canada has been a war profiteer and fuel tank for the US military, who have killed well over a million people since the turn of the new millennium."

    https://canadiandimension.com/.../lest-we-forget-tar...
    _____________________________________________________

    The murder of Libyan leader Colonel Muammar Gaddafi is one of the greatest crimes in international law in recent history. The American government and NATO invaded a sovereign country, and turned it into a failed Islamic state, that has now turned into a terrorist hub.

    http://countercurrentnews.com/.../gaddafis-last-words.../
    ______________________________________________________

    What was Gained for Libya by the War:

    “Since Colonel Gaddafi’s death in Sirte in October 2011,” the BBC reported recently, “Libya has descended into chaos, with various militias fighting for power.” ISIS has taken control of parts of the country while a government in Tripoli and another in Benghazi claim national authority.

    http://dissidentvoice.org/.../canadas-role-in-the-war-on.../
    ______________________________________________________
    Harper's violation of international law in Libya:

    "In 2011 Ottawa defied UN Security Council Resolutions (UNSCR) 1970 and 1973, which were passed amidst the uprising against Muammar Gaddafi's four-decade rule in Libya.

    In direct contravention of these legally binding resolutions..."

    http://rabble.ca/.../harpers-violation-international-law...

    ________________________________________________________
    Gold, Oil, Africa and Why the West Wants Gadhafi Dead

    Muammar Gadhafi's decision to pursue gold standard and reject dollars for oil payments may have sealed his fate

    http://www.finalcall.com/.../World_News_3/article_7886.shtml
    _______________________________________________________

    What was Africa like before Muammar Gadhafi?

    https://www.youtube.com/watch?v=Jm6P5sDXs3k
    _______________________________________________________
    "Libya and Libyan "dictator" Muammar Gaddafi:"

    1. Electricity is free for all Libyans.

    2. Loans in Libya are free with 0% interest as banks are state owned.

    3. Homes are considered a human right in Libya – Gaddafi vowed that his parents would not get a house until everyone in Libya had a home. Gaddafi’s father has died while him, his wife and his mother were still living in a tent.

    4. All newly married people in Libya receive US$ 50,000 by the government to buy their first home to help the new family.

    5. Medical treatment and education are free in Libya. Before Colonel Muammar Gaddafi ruled the country, only 25% of Libyans were literate. Today the figure is around 83%.

    6. If Libyans wanted to take up farming as a career, the government funded people from equipment to seeds, all for free.

    7. The government subsidised 50% of the price of a new car if a Libyan citizen wanted to buy their first car.

    8. Petrol price in Libya is around $0.14 per litre.

    9. Libya has no debt externally and its reserves amounts to $150 billion – now globally frozen.

    10. The Libyan government would fund anyone who got a degree and if they could not get employment, and they would receive income as if they were employed until they got a job.

    11. The sale of Libyan oil is credited directly to the bank accounts of all Libyan citizens in proportion.

    12. A family would get US $5,000 if they had a new baby to support the childs upbringing.

    13. 40 loaves of bread in Libya costs around $0.15.

    14. 25% of Libyans have a university degree.

    Do you still think Colonel Muammar Gaddafi was really a BAD leader??? If so, read on...
    https://soapboxie.com/.../Was-Muammar-Gaddafi-Really-A...

    _______________________________________________________
    The War in IRAQ:

    "Opinion polls showed that people of nearly all countries opposed a war without UN mandate and that the view of the United States as a danger to world peace had significantly increased.
    https://en.wikipedia.org/wiki/Rationale_for_the_Iraq_War
  • L Armstrong on September 03 2018 said:
    Seems to me it would have made more sense to build a refinery than buy a pipeline. Feds weren't very bright now, were they?

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