Axed plans test Alberta's upgrader strategy

Calgary: More than C$40 billion (Dh186.29 billion) in cancelled and delayed projects in the oil sands of northern Alberta are derailing the province's plans to create an oil-processing hub on par with the globe's major refining centres.

Alberta had counted on the companies that rushed to exploit the biggest oil reserves outside the Middle East to build expensive upgraders to process oil sands bitumen, creating thousands of skilled jobs and boosting the value of the province's exports.

Plunging oil prices

Upgraders are masses of pipes and vessels that convert the low-value bitumen into refinery-ready synthetic crude.

But plunging oil prices, still-climbing construction costs, worries over pending environmental regulations and low-cost opportunities to use US refineries as upgraders have laid waste to Alberta's ambitions.

With oil down more than $100 a barrel since the summer, nearly every firm operating in the oil sands has deferred, delayed or rejigged plans to build or expand upgraders.

And several players, like EnCana Corp and Husky Energy Inc have already acquired an interest in refineries in the US while others look set to follow.

The government of Conservative Premier Ed Stelmach will now have to find a way to secure upgrader investments or watch the money and jobs flow to other jurisdictions along with the raw bitumen.

"It's a tough one and there is no easy solution," said Chris Feltin, an analyst with Tristone Capital in Calgary. "There needs to be some way to equalise the attractiveness of building upgraders in the province versus south of the border."

The list of lost upgraders expanded again on Thursday, as Norway's StatoilHydro walked away from plans spend C$16 billion on a plant designed to produce more than 200,000 barrels of synthetic crude per day.

Statoil blamed prohib-itive costs, weak oil prices, economic turmoil and a lack of "'legislative clarity," for its decision.

Other oil sands companies, including Nexen Inc Suncor Energy Inc Petro-Canada and Canadian Natural Resources Ltd have also backed off or slowed upgrader expansions.

Observers say Alberta must find ways to check the rampant inflation that has beset major projects.

Oil sands firms had been competing for a small pool of skilled labour to build upgraders, raising costs and hindering productivity.

Indeed, before walking away from its plans to build an upgrader along with its Fort Hills oil sands mine, Petro-Canada's estimate of costs for the combined project had climbed by half, to C$21 billion, in under a year.