CALGARY — Alberta's investment boom is taking another hit, after Norwegian oil and gas firm StatoilHydro ASA shelved a $4-billion upgrader.
Statoil is the latest in a string of producers to cancel or delay new bitumen upgraders, citing the worsening economic climate and the high cost of development. The company's withdrawal of its application for provincial approval of the project brings the total value of stalled or halted upgraders to at least $45-billion.
Losing the upgraders is a critical blow to efforts to keep the lucrative processing of Alberta's bitumen within the province's borders. Companies increasingly see converting U.S. refineries to handle Alberta's heavier crude as a cheaper alternative for processing bitumen.
Statoil cited “prohibitive construction costs, the state of the global economy, an uncertain oil price outlook and lack of legislative clarity” in a statement outlining its reasons for the decision not to build the Kai Kos Dehseh upgrader, which would have been completed in 2016.
While construction of the upgrader was priced at $4-billion, cost increases in Alberta's still-overheated oil sands region mean that figure had likely risen substantially.
In the current economic environment, in which raising money is expensive and investors look unkindly on major capital projects, upgraders – which can cost $12-billion to build – simply appear uneconomic.
“Upgraders aren't completely dead, but they are dormant,” said Todd Hirsch, senior economist at ATB Financial. “Companies have got to wait for costs to come down and [oil] prices to come back up, as at the moment they aren't attractive.”
Still, “these projects have come off the drawing board more quickly than expected,” he said.
None of the cancelled upgraders was under construction, so the company decisions won't affect the current state of the Alberta economy. But the cancellations will clearly reduce the province's future growth as more bitumen is processed elsewhere, Mr. Hirsch said. “The perpetual worry is that Alberta will just be an exporter of raw materials,” Mr. Hirsch said. “The Holy Grail for the province is how you get that missing value-added piece.”
Alberta is now finalizing measures that would allow the government to take some oil sands royalties in bitumen instead of cash, a move that could allow it to provide incentives or guarantee supplies for companies that do build upgraders in the region.
In addition, the province is expected to announce a new provincial energy strategy within days that could encourage companies to build upgraders. While the details are as yet unknown, Alberta Energy Minister Mel Knight has said the strategy will “protect jobs in Alberta and the infrastructure that [companies] have built in Alberta.”
Statoil said it still plans to build its oil sands extraction project, which would produce 100,000 barrels a day of unprocessed bitumen by 2015 and 200,000 barrels a day by 2020. The company bought into the oil sands last year when it bought closely held North American Oil Sands Corp. for $2.2-billion. While it will to continue evaluate the cost of building an upgrader, Statoil will now reassess its processing options, it said.
“This decision does not impact the progress of StatoilHydro's upstream oil sands activities,” StatoilHydro Canada president Geir Jossang said in a statement. “StatoilHydro's long-term view of the Canadian oil sands development remains unchanged.” The company didn't immediately return calls seeking comment.
© The Globe and Mail
