Political will not enough to fuel new oil sands refineries – by John Ivison (National Post – February 3, 2012)

The National Post is Canada’s second largest national paper.

Top of the agenda for Stephen Harper when he visits Beijing next week will be the sale of Canada’s crude oil to China. The Conservative government’s enthusiasm for exporting this country’s raw resources has come under fire for perpetuating our reputation as hewers of wood and drawers of water.

New Democrats, such as leadership candidate Brian Topp, have called for raw bitumen from Canada’s oil sands to be processed at home before being sent south to the United States or to Asia.

“Canada is throwing away its economic future when we anchor our economy, our currency and our public revenues on the export of raw, unprocessed resources that can be processed here,” he said.

It is an argument that has supporters across the political spectrum. Former Alberta premier Peter Lougheed has added his voice to calls for oil sands bitumen to be refined in Alberta.

It sounds persuasive, so why isn’t it happening? The simple answer is, things don’t happen just because politicians want them to. The House committee on natural resources has spent the week looking at the state of refining in Canada and the prognosis for new capacity being built is grim.

The laws of economics suggest new refining plants will not be springing up across Canada any time soon. The U.S. Gulf Coast has 58 refineries, many of which have idle capacity — hence the plan to link the oil sands to the gulf via the Keystone XL pipeline. Even in Canada, refineries are running below optimal utilization levels.

Not only does capacity exceed demand in North America, but there is increasing competition from new super-refineries in India and China. One refinery in India has the capacity to produce 60% of all Canadian output (1.2 million barrels a day from one site, compared with two million a day from Canada’s 19 sites).

Since the estimated cost of a new refinery is between $5-$15-billion, it’s easy to see why no one is rushing to build a new plant in Alberta. “Building new refineries in this context is a tough sell,” said Peter Boag, president of the Canadian Petroleum Producers Institute.

There are points of light for the Canadian refining industry, such as Enbridge’s proposal to reverse the flow of its Line 9 pipeline from Sarnia, Ont., to Montreal that would allow more oil sands crude to be processed in eastern Canada and reduce the dependency on foreign supplies. “That would help secure Montreal’s long-term viability,” said John Quinn, general manager of Suncor Energy, referring to his company’s refinery in the city that currently processes crude from overseas.

But the background is flat demand for petroleum products in North America. This is largely because demand for gas for cars has peaked, thanks to demographics (fewer minivans and SUVs), new vehicle fuel efficiency standards and growing market penetration for alternative fuels like biofuels and natural gas. “This situation does not support the expansion of domestic capacity,” said Mr. Quinn.

For the rest of this article, please go to the National Post website: http://fullcomment.nationalpost.com/2012/02/02/john-ivison-political-will-not-enough-to-fuel-new-oil-sands-refineries/