The Irving Oil refinery in Saint John — Canada’s largest, so far.
There’s an interesting rumour bobbing around on B.C.’s North Coast. David Black, owner of the Black Press chain of community newspapers, is said to be launching a new regional magazine focused on natural resource development.
Black is also the CEO of Kitimat Clean, the company that supposedly wants to build an enormous, state of the art, $25-billion bitumen refinery at the head of Douglas Channel. “It will be the largest investment in BC in the history of the province,” trumpets the oddly low-budget company website. (I say that as a lover of free WordPress blog themes, obviously.)
If Black is tempted to use his new magazine to build momentum for his Spruce Goose of a refinery project, he’s wasting his time. Like Howard Hughes’s doomed eight-engine flying boat, Kitimat Clean is a grand idea, but not one based in economic or political reality.
A Chinese Refinery on B.C. Soil
The whole purpose of shipping Alberta bitumen to the coast, whether by pipeline or rail, is so that oil sands producers can charge more money for a barrel of crude. Right now, refineries in Asia are hungry for heavy oil. They’ll pay more than refineries on the North American continent — where most can’t process low-grade oil sands crude, and pipelines to the ones that do are fully booked.
If you can build a bridge between North American oil deposits and Asian refineries, the price difference is yours to pocket. Hence the eagerness of Enbridge, Kinder Morgan, and those who stand to cash in when the price of Canadian oil jumps.
Like the other West Coast export proposals, Kitimat Clean is in no way designed to supply energy to British Columbia. That’s not where the demand is. The market is in Asia. As it says on the Kitimat Clean website, “up to 100%” of the diesel and gasoline made in Kitimat would go to fuel cars and trucks in Asia.
David Black’s logic is this: let’s build a new Chinese heavy-oil refinery, except not in China. The bitumen would still be mined in Alberta and burned in China. The construction loans would still come from China. But the processing infrastructure would be built this side of the Pacific.
There would still be a couple hundred supertankers leaving Kitimat every year, but they would carry refined products — which are easier to clean up than diluted bitumen when they spill.
Here’s the problem: that’s not what the oil sands producers signed up for. If they’re going to dig their product out of the ground (an increasingly costly endeavour), dilute it with condensate, then pay a toll to pipe it more than 1,000 kilometres, they want a buyer who will make it worth their while.
A new heavy-oil refinery in Canada would have to be built from the ground up, meaning construction workers would expect Canadian wages, not Chinese wages. No problem, says Black. The refinery components could be built in China, then shipped across the Pacific and assembled by Canadian workers, thereby cutting costs.
But a new refinery would also require people to operate it. Black claims 3,000 full-time jobs would be created in Kitimat. Unless the entire staff is also imported from developing countries, Kitimat Clean would presumably employ unionized Canadian energy workers, with wages and benefits superior to developing countries.
A refinery operating in B.C. would also pay B.C. and Canadian taxes, and be subject to B.C. and Canadian laws. That includes environmental regulations, which, though weakened of late, are still far stronger than in developing countries. Indeed, Black claims his project will use a bunch of fancy, expensive engineering processes to reduce carbon emissions. Hence the “Clean” moniker.
All of that makes it harder for a Chinese refinery in Canada to compete with a Chinese refinery in China. Unless Kitimat Clean can pay the same price for heavy oil as the big refineries overseas, the shippers will continue to push for ways to load raw bitumen onto tankers.
A political chess game?
Meanwhile, the project would have to pass muster with First Nations and B.C. voters. David Black runs community newspapers across the province. He must know what he’s up against.
The largest refinery in the country right now is the Irving Oil facility in Saint John, New Brunswick (see photo above). To soak up the entire capacity of the Northern Gateway pipeline, Kitimat Clean would have to be twice the size of the Irving refinery.
Any reduction in scale would mean crude oil tankers sailing B.C.’s inside coastal waters, which puts the whole idea back to square one. So it has to be gigantic.
Kitimat Clean, by David Black’s estimates, would emit 7 megatons of CO2 every year. That’s the equivalent of 11% of the entire province’s current carbon emissions — not counting any pipelines, trains or oil tankers involved.
Most significantly, the refinery would require feedstock: 550,000 barrels per day of oil sands crude, shipped either by pipeline or rail car across the Rocky Mountains and over hundreds of streams and rivers. Under the Save the Fraser Declaration, a piece of Indigenous law signed by 130 First Nations, that’s a no-go.
Which begs the question: why build the refinery on the B.C. coast? Why not build it in Alberta?
Andrew Weaver, the Green MLA for David Black’s home riding, suggests a compromise: let the private sector finance upgraders in Alberta. That way, the product travelling to the refinery would be a form of synthetic crude, rather than diluted bitumen.
Perhaps First Nations would drop their opposition if the pipeline carried upgraded crude. Perhaps not. Either way, it may not be profitable to build upgraders in Alberta — even with significant government investment. In December the Sturgeon project, which is less than one-tenth the capacity of Black’s proposal, suffered another setback as cost estimates ballooned to $8.5 billion.
Like the world’s largest flying boat, the whole scheme starts to sound a bit unwieldy.
The Fraser Institute, a pro-industry think tank, calls the West Coast refinery proposal a “red herring” — and suggests Andrew Weaver’s support is actually part of a clever plan to keep oil sands crude in the ground.
Kenneth Green, senior director of natural resource studies at the Fraser Insitute, put it this way in a recent blog post:
Where will the money come from to build this new refinery? Certainly some is on the table from the investment sector: the Industrial Commercial Bank of China has pledged up to $16 billion for the project. But a goodly share of risk will land on Canadian taxpayers.
It has been proposed that Ottawa put up another $8 billion in loan guarantees to help finance the project, an idea already rejected by Natural Resources Minister Joe Oliver.
It should go without saying that a project needing loan guarantees for one-third of its costs obviously lacks sufficient attractiveness to private investors, a clear indicator that the project rests on dubious economic grounds.
Not your typical energy sector PR campaign
All of this made me wonder how serious David Black is about his refinery proposal. Under the “Contact Us” tab on the Kitimat Clean site, I found no media relations department, no front office, just this:
David Black, President
It’s a mobile phone number assigned to Surrey, B.C. (Black’s home and office are in Victoria.) I called the number. I called it five times, on three different days. Each time it rang once, then played the same pre-recorded message:
“I’m sorry,” says a woman’s voice. “Kitimat Clean Limited,” says another voice. “Is currently on the phone.”
So the biggest project in the history of the province, backed by the largest bank in China, currently exists as a WordPress blog and an expired burner phone in Surrey. David Black appears to be Kitimat Clean’s sole employee.
Perhaps the newspaper baron is putting his time and resources into his new oil & gas magazine, or a formal project application. I’ll believe it when I see it.
In the meantime, I’d prefer to concentrate on real oil export proposals — the ones supported by oil sands producers, industry-funded think tanks, Alberta politicians, and the National Energy Board.