Tuesday, April 15, 2014

CANADIAN OIL SANDS PLAYERS NEED TO COME UP WITH A NEW UPGRADER AND JOIN HANDS WITH BC FIRST NATIONS CONSORTIUM

A First Nations-led consortium proposed on Monday 14 April to build an alternative project (to Enbridge’s Northern Gateway project) that would link Alberta’s oil sands to the British Columbia coast. Eagle Spirit Energy Holdings Ltd. and Vancouver-based Aquilini Group say they have signed non-disclosure agreements with a “substantial number” of First Nation groups in northern B.C., including some “staunchly opposed” to the Enbridge project.

The proposed one-million barrel-per-day pipeline has a tentative start date of 2020 and it is contingent on securing a “social license” from First Nations to operate. However, the Eagle Spirit project proposes to ship synthetic crude oil (SCO) (light crude) instead of bitumen, after being refined in an upgrading project. This business model is very much on the lines of a plan outlined in my blog of 27 January 2014 (CANADIAN PIPELINE PROJECTS IN LIMBO? NO WORRIES, HERE IS AN ALTERNATIVE SOLUTION!)

The above proposal is a win-win for all parties and makes a lot of sense in view of following:
·       It would be First Nations’ headache to secure the ‘social license’ and all the required approvals to build and operate the pipeline.
·       Transportation of SCO (light crude) in the pipelines will be more acceptable to local population (in BC) than bitumen.
·       An upgrader can be suitably located in either Alberta or Saskatchewan to be able to feed SCO for shipping overseas through West Coast and/or for pumping to refineries in Quebec, Ontario and New Brunswick.  
·       Building of an upgrader will squelch the criticism that by exporting bitumen to other countries many jobs (that could have been potentially created in Canada if there was an upgrader) would also export jobs overseas.
·       There will be less worry about Keystone XL’s outcome.

Now to the question of financing the projects:

Financing of the Pipeline: The Aquilini Group is reportedly willing to underwrite the cost of the pipeline as long as it gets support of all First Nations through whose territory the pipeline would travel. To some it may seem far-fetched or unrealistic, still, once the First Nations endorse the proposed project, financial analysts would get the chance to get down to the brass tacks regarding financing.

As a suggestion, why should Enbridge not like to collaborate on this proposal? They could possibly hedge their bets by investing in this project and carry on with their efforts on their Northern Gateway project despite number of First Nations bands informing NEB that they are not in favor of the project and the unbinding rejection of the project by the Kitimat city plebiscite.
  
Financing of the Upgrader: As suggested in my above cited blog dated 27 January 2014, the Provinces of Alberta and Saskatchewan and Mr. David Black (the BC billionaire who claims to have investors ready for investing in a refinery in Kitimat) could possibly share the cost of an Upgrader. Suncor and/or Total could revisit their economic models to fit in some investment sharing for this upgrader. Even TransCanada can think of diversifying and investing in this project depending upon the outcome of KXL project clearance by the US government.

Summary: All in all, the above pipeline project proposal predicated on an upgrader (in Alberta or Saskatchewan) seems to be a viable proposition and should be pursued by the various stakeholders and potential investors with great vigor and urgency. After all, the window of opportunity for oil and gas exports from Canada will not remain open for a long time. The Federal and Provincial governments should act as facilitators and help smoothen the path forward. Mind you, running with the above proposal does not mean that other viable proposals (e.g. Kinder Morgan pipeline twinning) cannot be pursued alongside. What may happen is that other projects may have to tweak some aspects, if and as necessary. 

No comments: