CALGARY, Alberta (Reuters) - The Alberta government is backing construction of a C$5 billion ($5.05 billion) bitumen refinery planned by Canadian Natural Resources Ltd and North West Upgrading Inc as it seeks to develop energy-processing facilities in the province and create jobs.
Under the agreement, the culmination of more than a year of talks between the parties, the Western Canadian province will supply 75 percent of the feedstock and Canadian Natural the remainder for the 50,000 barrel a day plant.
The deal essentially means Alberta taxpayers will pay three-quarters of the cost through tolls to process the crude, and take in three-quarters of the returns over a 30-year term.
Plans call for construction of a three-phase project northeast of Edmonton, Alberta, that would eventually process 150,000 barrels a day of crude derived from the province’s oil sands.
The first phase, slated for completion in mid-2014, would produce more than 5.5 million litres (1.45 million gallons) per day of ultra low-sulfur diesel and other products, such as diluent, to be sold into the local market and exported, the government said.
The project is part of an initiative by Premier Ed Stelmach’s government to boost processing of crude from Alberta’s oil sands — the largest oil source outside Saudi Arabia — within the province to create economic activity and jobs.
Alberta takes some of its royalty payments from energy companies in physical bitumen rather than cash, and Stelmach, who is stepping down as leader in September, has said he wants to use that as a tool to achieve those aims.
Executives at the companies have said it would be difficult to get the project built without participation from the government, given high costs and volatile heavy oil prices. That has fueled some criticism that the agreement equates to heavy subsidies.
Stelmach and his energy minister, Ron Liepert, rejected criticism they were intervening in the market.
“This is no different that what we’ve been doing with conventional oil,” Liepert told a launch ceremony in Fort Saskatchewan, Alberta. “It’s the government’s, the Crown’s, share of the product and the decision that’s being made here is to enter into an agreement to have it refined locally versus refined somewhere else. I really challenge the word intervention.”
Construction of the first phase is expected to create 8,000 jobs starting in the fourth quarter of this year.
The funding will be structured with 80 percent debt and 20 percent equity, officials said.
Privately held North West has planned the facility for seven years, and along with several other oil sands upgrader developers in the region near Edmonton was forced to shelve it during the credit crunch and recession.
It brought Canadian Natural, the country’s largest independent oil explorer, on board more than a year ago and started talks over the royalty oil, putting its plans back on track.
In addition to the bitumen plant, the Alberta government will provide C$495 million to Enhance Energy Inc’s Alberta Carbon Trunk Line, which will ship carbon dioxide from the facility plant to be injected into oil fields to increase output.
That is part of a C$2 billion fund the Stelmach government set up to boost carbon capture capabilities in the province.
Editing by Peter Galloway