NEW KITIMAT OIL REFINERY

Remarks by David Black

 Introductions

David Black.   I will self-describe myself as a businessman, a father and grandfather, a British Columbian, a sailor and quiet environmentalist, and a believer in putting back for the next generation. All of these characteristics bring me to this podium today.

Glenn McGinnis.   Glenn is a consulting engineer. He has a Masters in Chemical Engineering. He has been involved in all aspects of the oil refining business for 40 years.

 

Proposed New Oil Refinery at Kitimat BC

My company, Kitimat Clean Ltd, is submitting an Environmental Assessment Application to build a world scale oil refinery at Kitimat BC.

The refinery will have the capacity to process all of the output of the planned Enbridge Northern Gateway pipeline.

The refinery will be state-of-the-art and designed specifically for processing Alberta oil sands heavy crude oil. We want it to be the cleanest and greenest upgrading and refining site in the world.

The plant will process up to 550,000 barrels per day of dilbit (condensate diluent and Alberta oil sands bitumen). The diluent will be separated and returned to Edmonton via the proposed Enbridge secondary pipeline.

The plant will produce 240,000 barrels per day of diesel, 100,000 of gasoline and 50,000 of kerosene, or aviation fuel.

We hope to begin construction in 2014 and conclude by 2020.

The plant will be located at the 3000 hectare Dubose location which is 25 kilometers north of Kitimat and 25 kilometers south of Terrace. The Dubose site is Crown Land zoned for industrial use. The Enbridge pipelines are planned to run through the property.

The refined fuels will be piped forty kilometers south of the Dubose property to a marine terminal site on the Douglas Channel. Enbridge currently plans to use this site as its proposed crude oil shipping terminal.

Petroleum coke and sulphur by-products will be loaded onto ships at Kitimat if a bulk marine terminal is available or shipped by rail to Ridley Island at Prince Rupert for loading.

We will also build a natural gas cogeneration facility at the Dubose site that will provide steam and electric power for the refinery.

 

Why Does a Refinery at Kitimat Make Sense?

A Kitimat refinery provides four enormous advantages for BC and Canada:

First, the refinery removes the threat of offshore pollution from a heavy crude oil spill. Transportation of refined fuels is much safer. Gasoline, kerosene and diesel all evaporate. No extensive remediation would be required if there ever were an accident.

Second, a refinery creates a great many construction jobs. Roughly 6,000 workers will be hired for five years.

Third, a refinery creates a great many permanent jobs. This one will employ approximately 3,000 fulltime, half of them via private contractors. These primary jobs will likely result in several thousand additional secondary jobs. All of these jobs will be based in an area of the province that has experienced a considerable decrease in permanent employment over the past ten years and is facing sawmill closures in future.

Fourth, the public purse will benefit annually from hundreds of millions of dollars of new tax revenues.

 

Oil Pipeline Background Information

Canadian oil sands producers are in need of new pipeline and refining capacity. They particularly want a Canadian west coast terminal to provide access to world markets and Kitimat is the only practical location. Western Canadian crude oil prices are currently depressed because the only outlets are through pipelines in the US that are already very full, and because the recession has reduced US demand for oil. Furthermore with growing crude production in the US from shale fracking techniques new US pipelines may fall behind new North American supply for some time. The discounts in Western Canada amount to about $25 billion on an annual basis. This badly hurts industry profits and government tax revenues.

The US currently enjoys a pipeline monopoly and a refining monopoly on all Canadian oil leaving Canada. US laws effectively prevent the export of crude oil from that country even if the oil came from imported sources. Therefore Canada cannot, without special approval by the US Administration, transship its crude oil through the US to other countries. We are the largest exporter of crude oil to the US and in the process we have exported most of our potential refinery jobs to that country as well. There is a lot of employment in running refineries, very little in operating pipelines.

 

 

 

Markets for Kitimat Refined Fuels

The refined products produced by this refinery will be marketed throughout the Pacific Rim. They will be price competitive everywhere. For example they should result in lower prices for consumers in BC. A key opportunity, though, is to market to China which is the world’s fastest growing oil market. As China’s economy continues to develop it needs 500,000 additional barrels of crude oil per day each year. That is, its consumption is growing by the equivalent of the throughput of the Northern Gateway pipeline every year. It also needs more refineries each year to convert the new crude oil to refined products. Any new refineries located outside of China must be economically competitive with China’s to serve this market.

If China is not interested there will be other buyers. A Kitimat refinery will be a compelling opportunity for any country that has to import oil. It will offer a guaranteed long term refined fuel supply at a competitive price from a new diversified source. It will also offer a major construction opportunity for that country’s firms. And it will offer a refinery investment opportunity if the country desires that.

 

Economics:   Capital Costs

Building an oil refinery requires a massive amount of labour. Canada’s labour rates normally rule out the construction of a refinery here. The capital costs become so high that the refinery is uncompetitive with others around the world. But if the refinery location is on tide water much of it can be built offshore in large modules using many different suppliers in lower cost areas of the world, thereby speeding up the construction period a great deal and reducing capital costs hugely. Kitimat has that advantage. Even so the capital cost is estimated at $13 billion. While that will still be higher than in a country like China, the capital cost per barrel will be competitive because the Kitimat refinery will be so large. It will be among the top ten in the world.

 

Economics:   Operating costs

Overall operating costs will be comparable to or less than those of refineries in China, Taiwan, Korea, Japan and most other countries. Kitimat employee and contractor wages of $300 million per year will be higher than those in some of these countries, however, this economic disadvantage will be offset by North American natural gas costs which are much lower than in Asia. In addition, shipping costs across the Pacific for refined fuels will be 30% lower than for crude oil because no diluent has to be shipped out or shipped back.

 

Current State of Progress

We have been working on this Kitimat refinery concept for eleven months.

• We have commissioned two consultant’s studies that agree on methodology, costs and returns.
• We have briefed the various levels of government and believe they will be supportive.
• We hope that the citizens of Kitimat and Terrace, the Haisla, the Kitselas, and all other local communities along the coast will agree to the proposal after a full and complete review. We think the refinery is the best solution to a main concern of most of these communities – a possible catastrophic disaster at sea from a heavy crude oil spill.
• We think that the general population of BC would be in favour of the Northern Gateway pipeline if it can be built safely and if a refinery is built.
• We have analyzed the project with investment bankers. Projected revenues and profits from the refinery are large enough to enable equity and debt financing.
• Shipping of refined fuels across the Pacific is easily arranged in conventional tankers.
• We have discussed the opportunity at length with Enbridge and with many of the oil sands producers. Some partners in the Gateway pipeline are not in favour of a Kitimat refinery at this time. They remain hopeful they will be allowed to export heavy crude by tanker from Kitimat.
• We have engaged an independent refinery consultant, Glenn McGinnis who is here today, and undertaken engineering studies to support the environmental assessment application.

 

Environmental Assessment Application

We will begin the environmental assessment process immediately. Starting this work quickly is important because the refinery will take longer to build than the pipeline. The Enbridge process covers its proposed pipeline, tank farm, tanker terminal and inshore shipping route so the refinery assessment will touch primarily on the refinery itself. The principal environmental issues will be air and land/water protection. We hope to avoid drawn out controversy during the environmental process by setting specifications that make this the cleanest and greenest refinery in the world.

 

Why Is This Better For The Environment and the Planet?

First, as mentioned the new refinery will remove any threat of catastrophic offshore pollution from heavy crude oil/dilbit.

Second, it reduces the number of tanker shipments off the coast because the diluent in the heavy crude oil dilbit will be stripped out at Kitimat and piped back to Edmonton. Since diluent comprises about 30% of dilbit, this will save about 30% of the tanker loads out of Kitimat and 30% back to Kitimat.

Third, the new refinery will produce very low sulphur fuels. When burnt in automobiles and trucks, these are better for the environment than the fuels produced by most existing refineries.

Fourth and most importantly, this refinery will be built somewhere in the world. Our Kitimat refinery will be designed to have very low emissions. It will be fine tuned for the Alberta crude. It will incorporate the latest technology and surpass the latest environmental requirements. To the extent that it displaces oil refineries elsewhere, the planet will benefit. All older, and probably all newer, refineries are built to less stringent environmental standards than we now have in Canada. This is a case where Canadians can be good stewards for the planet by keeping the refinery ‘in our backyard’ and doing the job properly from an environmental point of view.