David Black’s Kitimat refinery pipe dream

Export strategy sparks pipelines debate.

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(The Canadian Press/Darryl Dyck)

Victoria businessman David Black has thrown yet another log on the fiery debate over Enbridge’s Northern Gateway pipeline with his proposal to build a $13-billion oil refinery on the province’s northern coast. While the scheme is given little credence in Canada’s oilpatch, the discussion it sparks could be surprisingly useful.

Black, owner of Black Press Group Ltd., revealed his vision for the refinery back in August. It involves taking 550,000 barrels per day of bitumen from Alberta’s oilsands via the pipeline, refining it and exporting products such as diesel and gasoline to Asia. Black travelled to China and Japan in November, where he says there is interest in the processed fuel.

The suggested site for the 10-square-kilometre facility is Kitimat, B.C., the would-be last stop on the Northern Gateway pipeline. Black has also said he thinks his proposed refinery, by providing permanent jobs and economic benefits to British Columbians hitherto wary of oil exports, “will change the debate on the pipeline.”

Many doubt the viability of such an audacious project, though. Right now, the 66-year-old newspaper publisher lacks investors, formal government support and the all-too-crucial nod from Enbridge to allow access to the bitumen from Alberta.

Moreover, B.C. already has a refinery serving the domestic market, and its current struggles offer a hint of those Black’s project might face even after raising the enormous capital cost and obtaining approvals. The last of a cluster of oil processors that once lined Vancouver’s Burrard Inlet, Chevron’s Burnaby refinery is hard-pressed to get its required supply of crude from Kinder Morgan’s 1,200-kilometre Trans Mountain pipeline out of northern Alberta. As of December, the line is overbooked by 72%, which means those on the receiving end can only expect about 30% of their requested volumes for the month. Chevron has begun transporting crude by truck and rail to make up the shortfall. “The supplemental crude measures that we’ve taken have been to some extent successful,” says Ray Lord, a Chevron spokesperson. “But none of them are sustainable in the long term, and certainly ongoing apportionment at this level jeopardizes the long-term viability of the refinery.”

This is a new problem for Chevron. For decades, it got all the feedstock it needed off the Trans-Mountain system. With the widened spread in oil prices between Edmonton and tidewater, however, rival customers from Washington, California and Asia are now fighting over the cheaper Canadian crude. Chevron has applied to the National Energy Board for “priority destination designation,” which would put it first in line when the supply is rationed, but it has been turned down before. It’s also unclear whether Kinder Morgan’s planned $4.1-billion expansion of Trans-Mountain to 750,000 barrels a day from 300,000 now would help or hinder the local refinery. Certainly a commitment to supply Chevron in the future would help build support for the pipeline expansion among the plant’s 460 workers and local politicians.

Against this backdrop, Black’s refinery looks like a pipe dream. Even so, it may yet help focus the national debate. Paul Evans, professor of international relations at the University of British Columbia, attended a conference in China where Black discussed his idea. “It’s unlikely to be realized,” he says, “but the Black proposal does open up what I would say is the next chapter in what our discussion should be on an energy strategy.”

 

2 comments on “David Black’s Kitimat refinery pipe dream

  1. Kitimat is the wrong place to build a refinery. A pipeline spill would be much less of a problem if the bitumen was refined in Alberta and only refined products sent through the pipeline to Kitimat. We know from the bitumen spill in the Kalamazoo River in Michigan that bitumen tends to sink to the bottom which makes it extremely difficult to clean up. Refined products such as gasoline and diesel fuel float and can be captured by a boom. Unlike bitumen they can also evaporate so there is less to clean up.

    Asian countries won’t be happy because they would rather buy the raw bitumen and process it in their own refineries. However, oil is a sellers market and there will still be buyers for refined products shipped out of Kitimat.

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  2. I’m not so sure it’s quite as crazy as many think. In fact, a new refinery in Kitimat might be exactly what cures Chevron’s woes. By refining more in Kitimat and exporting refined products, they’d be getting regular market rates for their product. And this would, in the longer term, help reduce the discount that AB bitumen typically is subject to. By reducing the discount, demand for bitumen from the Trans Mountain pipeline, which would alleviate Chevron’s problems, as their issue isn’t one of price, but of volume.

    If the demand for bitumen at current prices is too high for Chevron to be able to generate a profit, it seems one solution would be to remove the discount associated with AB bitumen. One highly effective way of doing that would be to increase domestic demand, which is what Black is proposing.

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