Petrodollars: The growing oil sands role of the Alberta government

Alberta’s role in developing Canada’s oil sands, and then marketing its output, has been extensive. It’s about to get wider, as Calgary correspondent Ashok Dutta reports in this week’s Platts Oilgram News column, Petrodollars.

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When a definitive textbook is written about the development of Alberta’s oil sands patch from an embryonic to a full-grown stage, a special chapter should be dedicated to the role played by the province’s Progressive Conservative party that has been in power without interruption since 1971.

The party’s latest foray into the oil market is a clear breakaway from the country’s homegrown rule, under which both the federal and provincial governments have been more content playing the role of a policymaker and regulator rather than a direct investor. This changed in late 2013 when Alberta’s Legislative Assembly passed by a majority vote a new act of what some in the industry have labeled as “direct intervention.”

Enter the Alberta Petroleum Marketing Commission, which was set up in 1974 primarily to oversee the sale of some 300,000 b/d of bitumen and 70,000 b/d of conventional crude oil the Alberta government receives in lieu of cash royalties from its producers. This is about 15% of Alberta’s output of 2.45 mil b/d (about 2 million b/d of bitumen and 450,000 b/d of conventional).

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Under the Building New Petroleum Markets Act (Bill 34), APMC was given a facelift as the province’s new investment vehicle and tasked with either taking equity stakes or extending loans of up to C$1 billion ($905 million).

It was not the first time the commission has been brought in to kickstart a project.

Last summer, it put pen to paper on an offtake agreement with TransCanada for 100,000 b/d of bitumen on the planned Energy East pipeline that would ship crude from Alberta to Ontario, Quebec and even New Brunswick for both refining and exporting to Asia and Europe.

Prior to that, there have been several instances of the Alberta government entering into a vacuum left by the private sector to get projects up and running including the ramp up of first bitumen production in the province in 1967 by the Great Canadian Oil Sands Ltd (the predecessor of Suncor Energy). The province also put money upfront in the 1970s and 1980s to build a natural-gas-based petrochemical industry at Joffre in central Alberta by laying feedstock pipelines and related infrastructure. More recently it has provided preferential royalty repayment terms.

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Not all of the decisions made by the Alberta government have worked out, particularly in 2007, when an independent Alberta Royalty Review panel set up by the province’s ruling party concluded, “Albertans do not receive their fair share from energy development and they have not, in fact, been receiving their fair share for some time.”

As a result, the panel recommended a rate hike of 20% or an extra C$2 billion each year.

The Tories partially implemented the panel’s recommendations with devastating across-the-board results as it coincided with the setting in of the global economic downtown and a drastic slump in crude oil prices.

Consequently, when the majors either put their planned projects on the backburner or threatened to move out investments to neighboring Saskatchewan or British Columbia, the province rolled back the royalty increases in 2010.

“Winning back the industry trust and reversing a thought process that we were killing the goose that laid golden eggs was my foremost task,” said Ron Liepert, who was appointed as the province’s new energy minister.

Four years later, the Alberta government is chartering a new path for itself.

“One of our policies will be to share both the risks and gains,” Alberta’s new Energy Minister, Diana McQueen, said recently.

While the province is drawing up a wish list for investments, the APMC has decided to extend a C$300 million loan for the 150,000 b/d Sturgeon bitumen refinery in the province that is dealing with a C$2.8 billion cost overrun, and a verdict has yet to be decided on another C$700 million for the project.

“There is a likelihood APMC could invest in new refineries in other Canadian provinces as a precursor to winning their support for the passage of crude oil pipelines,” said one analyst.

Don Wood, a consultant with The Bowman Centre, said there is a case for APMC to invest in a greenfield refinery in Sarnia, Ontario, that will provide Alberta an opportunity to market 100,000 b/d of bitumen, which is similar to the capacity it has already booked on TransCanada’s Energy East pipeline.

These are changing times for the APMC as it assumes a new role of an investor, from just that of a marketer of raw bitumen. With so many projects on the horizon to develop Alberta’s hydrocarbon sector, APMC’s role will doubtlessly continue to be in flux. But one thing is certain, driving that change will be the Progressive Conservatives. — Ashok Dutta in Calgary


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Comments

  1. Simon Jacques at February 9, 2014 4:52 pm

    The royality competitiveness part is ok but
    APMC or other agencies should not intervene in the market.
    They should not be an investor. I believe it’s a mistake, not a good message to send.

     

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