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BC Chamber of Commerce March 6 2013

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REFINERY PRESENTATION TO  BC  BUSINESS COMMUNITY

Introduction

Good morning.  A Chamber of Commerce breakfast is the perfect forum to discuss the Kitimat refinery. The Chamber champions business. This refinery is a generational business opportunity for BC. It will broaden our economy, create thousands of union and non-union jobs, offer ongoing million dollar projects to contractors and other small businesses, and generate taxes to help pay for BC’s social programs.

Best of all, the refinery will improve our planet’s environment. That is probably the main reason this old newspaperman and his family are so keen on the idea. I will discuss environmental issues more in a minute.

What Are We Proposing?  Some Facts.

Kitimat Clean Ltd. is proposing to construct a new oil refinery approximately 25 kilometers to the north of Kitimat BC on a 3,000 hectare site.

The refinery will process 550,000 barrels per day (87,445 cubic meters per day) of diluted bitumen from the oilsands region of Alberta delivered to the site by pipeline or by rail. The diluent will be extracted at the refinery and returned to Alberta if needed there. If not, it will be processed into gasoline. The bitumen will be converted into fuel products, primarily for export.

The projected capital cost of the refinery is now $16 billion. The tidewater location will enable the modular construction, transportation and installation of large refinery components from lower wage countries.

The proposed refinery will be the largest refinery on the west coast of North America and amongst the largest in the world. Direct employment will be in the order of 1,500 full time equivalent jobs with another 1,500 contract jobs to support the operations and maintenance. During the construction period it is expected that a workforce of 6,000 will be required for a five year period.

The proposed Northern Gateway Pipeline would cross the site. Existing road, rail and electrical infrastructure are nearby. Natural gas pipelines for the proposed LNG facilities will also be nearby. Six dedicated product pipelines will run to a marine terminal on the Douglas Channel. The Douglas Channel is a wide and deep fjord. VLCC tankers will transport the refined fuels to markets around the Pacific Rim.

The Business Case

This refinery will be the lowest cost producer on the Pacific Basin.  The reasons are as follows:

  • The largest cost in a refinery is of course the feedstock cost of crude oil. It will be substantially lower for this refinery than for any other on the Pacific.
  • The second largest expense is the cost of natural gas. North America has a 4 or 5 x advantage over Asia in that regard.
  • Scale of production is a big factor in the cost per barrel of refining. This plant will be twice as large as the average refinery in the Far East.
  • Shipping costs will be less: there is no diluent to carry both ways across the ocean; the distance from Kitimat to the Far East is less than from the Mideast; and the refinery will be located on the Pacific, so when compared to the Gulf refineries there is a $20 per barrel transportation advantage to the Far East.

Why is This a Good Idea for BC and Canada?

The refinery will be the largest single investment in the history of the province. It will be $16 billion. It will likely be accompanied by an oil pipeline costing an additional $6 billion, which wouldn’t get built otherwise, and a gas pipeline costing $2 billion. It may even be accompanied by new ocean going tankers which could cost an additional $1 billion. The total of all this is $25 billion.

The refinery will create 6,000 construction jobs in BC for five years. The pipelines will create additional thousands of construction jobs.

The refinery will result in more permanent jobs than any project has ever created in the province. It will create 3,000 well paid permanent jobs in BC. They should last 50 to 100 years.

Additional factories spring up beside all refineries to make use of byproducts and chemical streams. Typically for each refinery job there is a second petrochemical job created. We could end up with another 3,000 direct petrochemical jobs in the valley.

These direct jobs will create thousands of indirect jobs in the area.

The refinery will be a large consumer of BC’s surplus natural gas, which will help BC’s economy in the Northeast. At 1.25 billion cubic feet per day, the consumption will be larger than that of the Apache Chevron Kitimat LNG plant.

Any risk of a supertanker spill of bitumen will be eliminated. Shipping gasoline, jet fuel, and diesel is much safer. While still toxic, they all float and evaporate.

Dirtier refineries elsewhere will be displaced which will improve the world’s environment.

Billions of dollars each year in economic spinoffs will help reduce BC government deficits.

A great deal of money will be generated each year for local First Nations.

The refinery will also provide enormous benefits for Alberta and Canada in that it will consume 400,000 barrels per day of heavy oil from Alberta that is in danger of being landlocked. By changing the North American supply/demand situation this will have the additional positive effect of reducing the $25 billion per year of existing sales discounts on all Canadian oil exported to US refineries, freeing up more profit and more income tax.

Recent BC Poll

Mustel completed a BC poll for us last week regarding the Kitimat refinery.

  • The majority of B.C. residents agree that B.C. and Canada should add value to natural resources before exporting (86%), that it is better to refine bitumen within B.C. rather than offshore (76%), and agree with diversifying exports to find markets beyond the United States for Canada’s petroleum products (70%).
  • Only 30% of B.C. residents are in favour of the current Northern Gateway Pipeline plan to ship unrefined bitumen offshore (57% oppose and 13% unsure).
  • If an environmentally sound method of transporting bitumen from Alberta to the refinery in B.C. can be found, support for the refinery proposal is 66%,opposition is 24% and 10% are unsure.
  • Without the foregoing assurance, after being provided with basic information about the refinery, 52% express support for the proposal, 39% oppose it and 9% are unsure.
  • The main reasons for supporting the proposal include economic benefits for B.C., and the creation of jobs within the province.
  • The main reasons for opposing the proposal are general concerns for the environment but these concerns appear to be more related to the transport of bitumen to the refinery and climate change issues, rather than to the refinery itself.
  • In summary, if environmental concerns can be addressed related to the transport of bitumen, there is strong support for the proposed refinery from all regions of the province. Even before hearing about our new refinery design which will dramatically reduce greenhouse gases, two out of three support the concept.

Getting Crude Oil to the Refinery

As seen by the poll results, there is great skepticism about the Enbridge pipeline project. Partly this is due to their plan to ship bitumin in tankers. Partly it is due to Enbridge’s poor relationship with First Nations and its Kalamazoo disaster. And partly it is due to extreme environmentalists’ efforts to close down the oil sands by preventing the construction of pipelines.

Pipelines are safe if managed properly. The TransMountain pipeline is the only existing line in BC. It has been in the ground for 60 years and has never had an environmentally damaging leak. Pipelines today are even better made and better constructed. They are coated. They are welded better. They are better controlled with automatic sensors and shutoff valves. They are better inspected. And to help prevent geophysical problems they are drilled underneath rivers and mountains rather than being routed overtop.

Once the building blocks for the refinery are in place I intend to work on the pipeline. I believe we can in fact build it intelligently and operate it safely. We have lots of time to research the issues carefully and use the world’s best practices. The refinery will take a lot longer to build than the pipeline.

If BC remains set against a pipeline the oil will come to the refinery by rail. CN and the oil companies are keen on this. A great deal of crude in North America is being moved by rail now. The costs are not that different in this case and no permits are required. Rail tankering is, however, not as safe and it is more disruptive. Small towns along the route with level crossings would rue having 12 more trains running through every day.

Progress Report

We are making very good progress on all fronts. I am not at liberty to be specific but I said in a speech three weeks ago in Calgary that I expect most issues to be resolved in the next 60 days. I stand by that. These issues include agreements regarding financing and the sale of the refined products.

New Refinery Design

I have saved my best news for last.

We completed the preliminary design work for a standard coking heavy oil refinery. It was going to be the cleanest and greenest refinery in the world to meet Canada’s emission standards. Particulate emissions were to be far lower than in any other refinery, roughly equivalent to running 40 diesel trucks or buses. We have now decided to change the configuration to make it even cleaner. We are going to drop the coking equipment in favour of gasification and Fischer Tropsch equipment.

An innovative Calgary company, Expander Energy, has recently patented a new approach to processing heavy oil. We will be the first in the world to use it. All other heavy oil refineries use coking equipment. Our consultants estimate Fischer Tropsch will increase our capital costs by $3 billion. But it will decrease greenhouse gases per barrel by 50%. Our refinery will now be much much cleaner than any other heavy oil refinery in the world.

I didn’t get into this refinery business to try to make more money for myself in a new industry at the age of 65. I have enough wealth and I enjoy the newspaper business very much. However I am also a sailor and I love the BC coast. I got into this to ensure we don’t threaten the coast by putting bitumen into tankers. The refinery eliminates that risk and it has other enormous advantages for BC as discussed.

The new design will be far far better for the environment than what we had envisioned. As my daughter said, “Dad let’s keep this refinery in our back yard so we can build it right and help look after the planet”. If we work together we can do just that.

Vancouver Sun Op-Ed – Kitimat oil refinery to boost GDP

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By David Black

September 26, 2012

Opinion: Refinery would strengthen B.C. and Canada – Proposed $13-billion facility with technological efficiencies, environmental superiority and easy access to Alberta bitumen will boost GDP

Our consortium, Kitimat Clean Ltd., filed an environmental assessment application on Sept. 21 to build an oil refinery in Kitimat, the first such refinery to be built in Canada since 1984.

Why am I proceeding with this $13-billion project? Simply put, this is a nation-building idea that will work and is in the interests of both Canada and British Columbia. Construction will employ 6,000 workers for five years. Permanent employment to operate the refinery will be 3,000. Hundreds of millions of dollars of new tax revenues will flow to government every year. This one refinery will generate $2 billion of exports every month and will reverse our negative balance of trade. The business case is strong. The naysayers are wrong.

Let me first dispel the oft-repeated red herring over the future market prospects of a Canadian refinery – that there is no market for the petroleum products that would be produced by a West Coast oil refinery, leaving no alternative other than to ship oilsands bitumen to others by supertankers off the west coast.

This is simply not true. South Korea exported $51 billion of gasoline, avgas and diesel in 2011. It is a very profit-able endeavour there even though it has to import all of its crude oil first, and even though the cost of natural gas which powers its refineries, is four times higher in Korea than in Canada. Singapore is also an exporter in the Far East. Closer to home, in 2011 the United States exported $88 billion of refined fuel. In fact refined oil is the largest single export category for the U.S.

And what is one of the main feed stocks of the refined petroleum from those job-creating U.S. refineries? It’s Canada’s oilsands. In fact, The Oil and Gas Journal reports one of the few risks to this renaissance of U.S. refiners would be an interruption in the supply of Alberta oil flowing south.

So there is indisputably a strong world market for refined petroleum products. Furthermore a West Coast refinery is much better positioned geographically to take advantage of markets in the Pacific, including the U.S. West Coast.

One of the competitive advantages U.S. refineries have is they buy Canadian oil at deeply discounted prices – Alberta’s oil fetches rates about 20 per cent below world price in the U.S. This helps make some of their older refineries competitive with others elsewhere.

However, a new Kitimat refinery, built at a cost of $13 billion, would have significant advantages over those U.S. refineries.

We would build a more modern facility that would drive more efficient production and be much cleaner. Also it would have access to B.C.’s own supply of cheap and plentiful natural gas for power and a steady supply of Alberta bitumen at a fair price. A West Coast refinery would also eliminate any risk of a devastating super-tanker spill of oilsands bitumen off the coast. This is because the products that would be transported would be the lighter, refined byproducts of petroleum, such as gasoline, which are easier to clean up and also naturally dissipate in the rare event of a super-tanker spill.

Peter Lougheed, Alberta’s visionary premier who died this month, was a leader who always believed Canadians had to move away from being hewers of woods, drawers of water – or mere exporters of oil. He believed in the business case for Canada in refining our natural resources at home, because it would produce Canadian jobs, taxes to pay for our schools, hospitals and highways, and build our national economy and society.

This is precisely the reason it is now our responsibility to pursue the feasibility of a West Coast refinery. Yes, it is a complex endeavour. We need to make sure that the markets are there and bring together the investment to make this mega-project happen.

But we can do it. I can say that, because we already have. Canada is a proven and longtime player in refining petroleum products. The 19 refineries that now exist on Canadian soil account for 17,500 high-paying jobs and generate billions of dollars in revenue.

Yet, in recent years, this vital sec-tor has been shrinking. The Conference Board of Canada predicts in the five-year period from 2011 to 2015 the refining sector’s contribution to the GDP will drop by $4 billion, eliminating more than 38,000 person years of employment.

A West Coast refinery, with its modern technological efficiencies, environ-mental superiority, access to Alberta bitumen and B.C. natural gas would reverse this trend. It would be a highly competitive producer.

Providing a pipeline can be safely built – and I believe it can with hard work – a West Coast refinery is an idea we have a duty to explore and embrace.

As Peter Lougheed said, refining our resources at home “would be a better thing to do than merely send the raw bitumen down the pipeline to be refined in Texas. That means thou-sands of new jobs in Texas” and few at home.

I suspect most British Columbians – and Canadians – would agree.

 

Announcement: New Kitimat oil refinery proposed

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 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.