BC Chamber of Commerce March 6 2013



Good morning.  A Chamber of Commerce breakfast is the perfect forum to discuss the Kitimat refinery. The Chamber champions business. This refinery is a generational business opportunity for BC. It will broaden our economy, create thousands of union and non-union jobs, offer ongoing million dollar projects to contractors and other small businesses, and generate taxes to help pay for BC’s social programs.

Best of all, the refinery will improve our planet’s environment. That is probably the main reason this old newspaperman and his family are so keen on the idea. I will discuss environmental issues more in a minute.

What Are We Proposing?  Some Facts.

Kitimat Clean Ltd. is proposing to construct a new oil refinery approximately 25 kilometers to the north of Kitimat BC on a 3,000 hectare site.

The refinery will process 550,000 barrels per day (87,445 cubic meters per day) of diluted bitumen from the oilsands region of Alberta delivered to the site by pipeline or by rail. The diluent will be extracted at the refinery and returned to Alberta if needed there. If not, it will be processed into gasoline. The bitumen will be converted into fuel products, primarily for export.

The projected capital cost of the refinery is now $16 billion. The tidewater location will enable the modular construction, transportation and installation of large refinery components from lower wage countries.

The proposed refinery will be the largest refinery on the west coast of North America and amongst the largest in the world. Direct employment will be in the order of 1,500 full time equivalent jobs with another 1,500 contract jobs to support the operations and maintenance. During the construction period it is expected that a workforce of 6,000 will be required for a five year period.

The proposed Northern Gateway Pipeline would cross the site. Existing road, rail and electrical infrastructure are nearby. Natural gas pipelines for the proposed LNG facilities will also be nearby. Six dedicated product pipelines will run to a marine terminal on the Douglas Channel. The Douglas Channel is a wide and deep fjord. VLCC tankers will transport the refined fuels to markets around the Pacific Rim.

The Business Case

This refinery will be the lowest cost producer on the Pacific Basin.  The reasons are as follows:

  • The largest cost in a refinery is of course the feedstock cost of crude oil. It will be substantially lower for this refinery than for any other on the Pacific.
  • The second largest expense is the cost of natural gas. North America has a 4 or 5 x advantage over Asia in that regard.
  • Scale of production is a big factor in the cost per barrel of refining. This plant will be twice as large as the average refinery in the Far East.
  • Shipping costs will be less: there is no diluent to carry both ways across the ocean; the distance from Kitimat to the Far East is less than from the Mideast; and the refinery will be located on the Pacific, so when compared to the Gulf refineries there is a $20 per barrel transportation advantage to the Far East.

Why is This a Good Idea for BC and Canada?

The refinery will be the largest single investment in the history of the province. It will be $16 billion. It will likely be accompanied by an oil pipeline costing an additional $6 billion, which wouldn’t get built otherwise, and a gas pipeline costing $2 billion. It may even be accompanied by new ocean going tankers which could cost an additional $1 billion. The total of all this is $25 billion.

The refinery will create 6,000 construction jobs in BC for five years. The pipelines will create additional thousands of construction jobs.

The refinery will result in more permanent jobs than any project has ever created in the province. It will create 3,000 well paid permanent jobs in BC. They should last 50 to 100 years.

Additional factories spring up beside all refineries to make use of byproducts and chemical streams. Typically for each refinery job there is a second petrochemical job created. We could end up with another 3,000 direct petrochemical jobs in the valley.

These direct jobs will create thousands of indirect jobs in the area.

The refinery will be a large consumer of BC’s surplus natural gas, which will help BC’s economy in the Northeast. At 1.25 billion cubic feet per day, the consumption will be larger than that of the Apache Chevron Kitimat LNG plant.

Any risk of a supertanker spill of bitumen will be eliminated. Shipping gasoline, jet fuel, and diesel is much safer. While still toxic, they all float and evaporate.

Dirtier refineries elsewhere will be displaced which will improve the world’s environment.

Billions of dollars each year in economic spinoffs will help reduce BC government deficits.

A great deal of money will be generated each year for local First Nations.

The refinery will also provide enormous benefits for Alberta and Canada in that it will consume 400,000 barrels per day of heavy oil from Alberta that is in danger of being landlocked. By changing the North American supply/demand situation this will have the additional positive effect of reducing the $25 billion per year of existing sales discounts on all Canadian oil exported to US refineries, freeing up more profit and more income tax.

Recent BC Poll

Mustel completed a BC poll for us last week regarding the Kitimat refinery.

  • The majority of B.C. residents agree that B.C. and Canada should add value to natural resources before exporting (86%), that it is better to refine bitumen within B.C. rather than offshore (76%), and agree with diversifying exports to find markets beyond the United States for Canada’s petroleum products (70%).
  • Only 30% of B.C. residents are in favour of the current Northern Gateway Pipeline plan to ship unrefined bitumen offshore (57% oppose and 13% unsure).
  • If an environmentally sound method of transporting bitumen from Alberta to the refinery in B.C. can be found, support for the refinery proposal is 66%,opposition is 24% and 10% are unsure.
  • Without the foregoing assurance, after being provided with basic information about the refinery, 52% express support for the proposal, 39% oppose it and 9% are unsure.
  • The main reasons for supporting the proposal include economic benefits for B.C., and the creation of jobs within the province.
  • The main reasons for opposing the proposal are general concerns for the environment but these concerns appear to be more related to the transport of bitumen to the refinery and climate change issues, rather than to the refinery itself.
  • In summary, if environmental concerns can be addressed related to the transport of bitumen, there is strong support for the proposed refinery from all regions of the province. Even before hearing about our new refinery design which will dramatically reduce greenhouse gases, two out of three support the concept.

Getting Crude Oil to the Refinery

As seen by the poll results, there is great skepticism about the Enbridge pipeline project. Partly this is due to their plan to ship bitumin in tankers. Partly it is due to Enbridge’s poor relationship with First Nations and its Kalamazoo disaster. And partly it is due to extreme environmentalists’ efforts to close down the oil sands by preventing the construction of pipelines.

Pipelines are safe if managed properly. The TransMountain pipeline is the only existing line in BC. It has been in the ground for 60 years and has never had an environmentally damaging leak. Pipelines today are even better made and better constructed. They are coated. They are welded better. They are better controlled with automatic sensors and shutoff valves. They are better inspected. And to help prevent geophysical problems they are drilled underneath rivers and mountains rather than being routed overtop.

Once the building blocks for the refinery are in place I intend to work on the pipeline. I believe we can in fact build it intelligently and operate it safely. We have lots of time to research the issues carefully and use the world’s best practices. The refinery will take a lot longer to build than the pipeline.

If BC remains set against a pipeline the oil will come to the refinery by rail. CN and the oil companies are keen on this. A great deal of crude in North America is being moved by rail now. The costs are not that different in this case and no permits are required. Rail tankering is, however, not as safe and it is more disruptive. Small towns along the route with level crossings would rue having 12 more trains running through every day.

Progress Report

We are making very good progress on all fronts. I am not at liberty to be specific but I said in a speech three weeks ago in Calgary that I expect most issues to be resolved in the next 60 days. I stand by that. These issues include agreements regarding financing and the sale of the refined products.

New Refinery Design

I have saved my best news for last.

We completed the preliminary design work for a standard coking heavy oil refinery. It was going to be the cleanest and greenest refinery in the world to meet Canada’s emission standards. Particulate emissions were to be far lower than in any other refinery, roughly equivalent to running 40 diesel trucks or buses. We have now decided to change the configuration to make it even cleaner. We are going to drop the coking equipment in favour of gasification and Fischer Tropsch equipment.

An innovative Calgary company, Expander Energy, has recently patented a new approach to processing heavy oil. We will be the first in the world to use it. All other heavy oil refineries use coking equipment. Our consultants estimate Fischer Tropsch will increase our capital costs by $3 billion. But it will decrease greenhouse gases per barrel by 50%. Our refinery will now be much much cleaner than any other heavy oil refinery in the world.

I didn’t get into this refinery business to try to make more money for myself in a new industry at the age of 65. I have enough wealth and I enjoy the newspaper business very much. However I am also a sailor and I love the BC coast. I got into this to ensure we don’t threaten the coast by putting bitumen into tankers. The refinery eliminates that risk and it has other enormous advantages for BC as discussed.

The new design will be far far better for the environment than what we had envisioned. As my daughter said, “Dad let’s keep this refinery in our back yard so we can build it right and help look after the planet”. If we work together we can do just that.