Irving Oil’s Ashar Says New Oil-Sands Upgraders Belong on Coasts
New upgraders that process heavy Canadian oil will be built in North American coastal markets where labor and capital are cheaper than in Alberta, Irving Oil Corp. President Mike Ashar said.
Building upgraders in Alberta, where bitumen is mined or extracted from the oil sands, doesn’t make sense anymore because labor and equipment costs are so high there that workers should be focused on production, said Ashar, whose company operates Canada’s largest refinery, in Saint John, New Brunswick.
Alberta has the largest amount of upgrading capacity in North America, more than 1.1 million barrels a day from five upgraders. The units convert heavy oil into synthetic light oil, which then has to be processed by a conventional refinery.
“The heavy oil upgrading game is over in Alberta; I think it’s over in Padd 2,” the U.S. Midwest, Ashar told an audience today at the Hart Energy World Refining & Fuel Conference in San Antonio.
He said in a phone interview that existing upgraders are viable. New plants should be built on the coasts, where labor costs are lower than in Alberta and where large refining equipment doesn’t have to be shipped over land, said Ashar, who was previously executive vice president at oil-sands operator Suncor Energy Inc. (SU)
“That resource is better deployed at extracting the oil versus upgrading it,” he said at the conference.
Suncor, one of the largest upgrader operators, told investors in its fourth-quarter earnings release last month that the economics of a proposed Alberta upgrader project with Total SA are “challenged.” The company plans to decide the Voyageur project’s fate later this month.
Inflation rates are subdued in Alberta, rising just 1.1 percent in 2012 compared with a 1.5 percent increase across the country, according to Statistics Canada, the federal statistics agency. However, the supply of skilled workers in the oil industry is very tight, the Petroleum Human Resources Council of Canada said.
“Industry will be challenged to manage workforce costs in this employee-driven labor market,” the Council said in a 2012 report. It estimates the oil-sands industry will have to more than double its current work force by 2021 because of industry expansion, retirements and turnover.
Judith Dwarkin, chief energy economist at ITG Investment Research Inc. in Calgary, she believes it’s risky to build a stand-alone upgrader anywhere because it’s expensive and the volatile price of heavy Canadian oil makes profits uncertain. Adding cokers to existing refineries to process heavy oil makes more sense, she said.
“This is what refiners in the U.S. with access to, or hoping for more access to, Canadian bitumen blends are doing,” she said in a telephone interview.
To contact the editor responsible for this story: Dan Stets at email@example.com