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Pipeline projects seeking to move crude oil to Canada’s coasts have ignited debate about whether exporting oil for refining elsewhere is in the country’s best interests.
Some argue Canada should refine its crude oil domestically and ship the resulting petroleum products abroad instead.
New refineries
This view has spawned two proposals for new refineries in British Columbia in the port communities of Prince Rupert and Kitimat. The refineries would process Alberta oil sands production into diesel, gasoline and jet fuel for export.
Project promoters contend that additional value would be captured from the oil resource for the benefit of Canada’s economy. New refineries would create new jobs and new sources of tax revenue for governments.
Refining domestically also poses less risk to the environment, project supporters contend.
A complex business
On the surface, building new refineries seems compelling. In reality, the business of building, operating and maintaining refineries is anything but simple. As the owner and operator of refineries in Edmonton, Montreal, Sarnia and Denver, Suncor knows this firsthand.
Profits or losses in the oil refining business come from the difference between costs inputs (crude oil) and the price outputs (refined products). While the economics appear basic, businesses need to consider and understand several variables before funding a new refinery build.
To help Canadians understand the basics of the refinery business, the Canadian Fuels Association (CFA) has published a helpful report (PDF). A few variables cited by the CFA include:
- Type of crude oil feedstock and refined products. What’s the cost of feedstock now, and what might it be over the next several decades? What fuels should be produced? Where are the markets? Are these markets declining or growing?
- Operations and maintenance. How much will it cost to run the refinery? How will the refinery be powered? How much will it costs to maintain the refinery? What sort of skilled labour is required?
- Logistics and transportation. How will crude be received? How will products be transported to markets? What transportation infrastructure exists? What needs to get built?
Constructive contribution
While proposals for new refineries will have their fans and detractors, they are solution-oriented ideas. Their backers should be lauded for contributing constructively to Canada’s energy dialogue.
Ultimately, market conditions and Canadians will decide which energy infrastructure projects move forward and which ones don’t.