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Alberta wants India to join its oil sands strategy

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Alberta welcomes plans by Indian state oil companies to invest $1 billion in the Canadian province's burgeoning oil sands sector, as long as they also join efforts to study processing options for the heavy crude, the provincial energy minister said on Friday.

"We have been open to investment," Alberta Energy Minister Greg Melchin said. "As long as it doesn't detract from what the Alberta and Canadian objectives are, then that certainly could be satisfactory."

Faced with a frenzy of investment that could triple oil sands output in the next decade, the Alberta government is working on a strategy to integrate development with processing and refining in hopes of preventing a glut of raw crude.

Melchin met this week with a delegation of Indian energy officials charged by their government to search out new foreign reserves to help fuel one of the world's fastest-growing economies.

The delegation leader, M.S. Srinivasan, secretary of the Ministry of Petroleum & Natural of the delegation, told Reuters that state-run firms, such as Oil and Natural Gas Corp. and Indian Oil Corp. Ltd. , aim to spend $1 billion on early-stage oil sands projects over the next year.

"Our objective in Alberta is to not just be raw resource extractors," Melchin told reporters. "So if this works for India, how does it also work for Alberta? How do we upgrade that so it's not just bitumen? Do we have an opportunity?"

Melchin said he gave the same message to Chinese state oil firms, which made a handful of oil sands investments in 2005.

Bitumen is the tar-like crude that encases the sand granules in northeastern Alberta's Athabasca oil sands region.

It is extracted and mixed with lighter hydrocarbons to be sold directly into the market, or "upgraded" at large processing plants into light oil, which refineries use to make gasoline and other petroleum products.

Some developers, such as Imperial Oil Ltd. , have warned that plans to build too many multibillion-dollar upgraders will be harmful to an industry already pressured by a severe construction labor shortage.

However, expectations for a sharp increase in production amid tight world supplies of conventional crude mean Alberta must keep processing options on its agenda, Melchin said.

"We only produce a million barrels a day out of the oil sands today. If in a decade we're at three million, no one wants bitumen -- there are not enough canoes in the world to patch up just with bitumen," he said. "You've got to have something to get to more of an end-use product."

Long before Alberta's oil sands were developed on a mass scale for energy, native Canadians used the gooey crude to seal canoes.

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