Wednesday, January 11, 2012

Why is there is no refinery being built directly at the source?


On Monday I wrote about the proposed Northern Gateway Pipeline, and the review process which is now finally underway.  My opinion piece began by saying;

"The Northern Gateway oil pipeline, proposed to run from the oil sands of Alberta, to Kitimat in British Columbia, has many opponents – and champions. 

On one hand, we have thousands of jobs on the line, and millions in much needed tax revenues are in limbo, waiting approval.  On the other, are the environmental concerns that are also very much on the minds of Western Canadians. 

Some though, from outside of Canada, are trying to disrupt and stall the review of this project for their own self-interests, and personal glorification in the media..."

It didn’t take long for a comment to come in on it.  One person asked:

Here’s a stupid question, but why don’t the governments of British Columbia, Alberta, Saskatchewan and Canada each throw in $500B to take a 50% interest in a refinery at Bruderheim.  That way, we could ship middle and light distillates to both the USA and Asia via rail, forgoing the need (and opposition) for a pipeline altogether? 


Now that is a good question … at least I think it is … but I’m no expert on where refineries should be built.  Close to the source seems to makes sense to me though. 

I did wonder however, why something like this should need, or be funded with,  taxpayer / government money.   So I asked, “but why taxpayer / government money??  There has to be more money in it for the big oil companies to refine the oil so it's ready to transport as a finished product.  That being the case, why aren't they.

Again it didn’t take long for a reply to come in:
Apparently the margins for refining petroleum products are exceedingly low.    Don’t worry....  I’m against government investment in business as well, but this wouldn’t necessarily require a cash outlay.   Their equity position, held by their various pension plans, could be financed out of royalties and taxes collected from the resource extraction itself.  In other words, a good old-fashioned short-term tax holiday in exchange for a longer term revenue stream.

Years ago there were refinery’s all across Canada … including one right here in Kamloops ... but most are now long gone.  Obviously I'm not the only one wondering why there is no refinery being built directly at the source, and I’m sure there must be a good answer.

Is it simply that there would be one long and protracted environmental review after the another --- are the controls far too high to even attempt the construction of a new refinery in Canada these days??  Or is it simply that crude can be refined at a far lower cost elsewhere?

You'd think there would be a wealth of information on this topic … not so.  One of the few direct answers to my question, when searching Google, came from Oil-Price.net.  This is what they had to say on the question of why new refineries are not being built:

Oil companies won't be building more refineries, because there won't be enough oil left to refine by the time new refineries could pay for themselves … today there are only 149 refineries, and they're producing 17.4 million barrels … increase in efficiency is impressive but not a miracle … these outputs are carefully calculated to optimize profitability … new refineries require tremendous financial commitments which take anywhere from 15 to 25 years to amortize. With record oil prices it would make perfect sense to invest in a few refineries today, except... for the lack of oil to be refined 20 years from now.

This leads me to wonder:

… what future affordable sources of energy resources are companies looking at, and planning to bring online, for consumers …

… will we be totally relying on having foreign refineries produce the oil, gas, and diesel we need

… will we decide to build the refinery(s) we require to produce what we need to continue living a modern and comfortable lifestyle?

Anyone care to weigh in with a thought on the topic???  I'm Alan Forseth in Kamloops, with the thoughts of one conservative

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