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Soaring costs push back upgrader to 2017

Province stumps $300 million loan to support

By: Kevin Ma

  |  Posted: Wednesday, Dec 11, 2013 06:00 am

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The North West upgrader will be a year late thanks to some soaring costs, the county learned last week, but Mayor Flynn says that won’t hurt the county’s coffers.

North West Upgrading Inc. and its partner Canadian Natural Resources Ltd. announced last week that the proposed North West upgrader would now open in September 2017 instead of mid-2016 as originally planned.

Construction of the upgrader, which was at one point supposed to open in 2014, formally started last year.

The delay was due to an almost $3 billion jump in the project’s price: originally pegged at $5.7 billion, it’s now projected to cost $8.5 billion.

North West chairperson Ian MacGregor blamed the jump on inflation and some unduly optimistic assumptions made during the planning stages. “It’s going to take about a year longer.” The actual scope of the 50,000-barrel-a-day upgrader has not changed, he noted.

The province and Canadian Natural also said last week that they would each loan the project $300 million over 10 years at a rate of prime plus six-per-cent interest, with the potential for more loans to come if they’re needed. In return, the province would get 25 per cent voting rights in the project until the loan is paid.

This is in addition to the support the province is already giving the project through the bitumen royalty in kind (BRIK) program, where it pays North West to upgrade bitumen and gets that money back through the sale of the upgraded product (diesel).

And it follows on the province’s $495 million commitment to the Alberta Carbon Trunk Line, which would take carbon dioxide from the upgrader and inject it underground to help recover more oil.

Athabasca-Sturgeon-Redwater MLA Jeff Johnson, whose riding includes the future upgrader, defended the loan, saying that the project’s potential jobs and economic spinoffs made it worth supporting.

“We’ve got a shortage of diesel in our province every year,” he said, and this upgrader would produce diesel needed by local farmers. It would also bring a substantial number of jobs to the region and boost oil royalties.

And if a big project like this fails, Johnson said, it could deter other investors from stepping up for value-added projects. “It could be very damaging to our options, to our reputation.”

This was a made-in-Alberta project that was worthy of support, Johnson said. “If we don’t, what does that say to other entrepreneurs in the province that are bringing great ideas forward?”

Sturgeon County Mayor Tom Flynn said he was not surprised to hear of the delay. “These mega-projects do take a long time,” he said, and delays were common. “I’d like to see it get done sooner than later, of course.”

The delay would not affect the county’s finances, Flynn said, as the county has already received the $5,588,000 in pre-paid taxes North West agreed to hand over once it approved construction of the upgrader. (A further $1.6 million to hook the upgrader up to wastewater services was due by next June.) The upgrader was already encouraging growth in the county’s industrial park, he noted.

MacGregor was bullish about his company’s ability to pay off its $300 million loan from the province, noting that the upgrader would produce about $900 million a year in revenue for Canadian Natural and the province (together) once operational. “We’re well able to pay that off.”

The province would likely make about $45 per barrel of bitumen processed in the plant once it starts running, he continued. “The margins have never been tighter.”

Crews were now working on the sewer and electrical systems of the upgrader, MacGregor said, and would keep at it all winter. “It’s almost equivalent to building a town out there.”

With about $2 billion already invested in it, MacGregor said he was confident that the upgrader would go ahead. “These are difficult projects, but we’re getting there.”


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