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September 2014

Will Stockwell Day’s no-subsidy, pro-aboriginal green refinery fly?

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Stockwell Day’s refinery project on the B.C. north coast leaves little room for error.

The Pacific Future Energy refinery, proposed by the firm of the same name and headed by several men with experience outside of the refining business, must build a plant against a backdrop of closing refineries across Canada, convince local First Nations to come on board as they fight over petroleum projects in the region, and achieve a stated goal of near-zero emissions during production.

If it sounds crazy in practice, it sounds perfect on paper — especially to the political class.

British Columbia has put up stiff resistance to the Northern Gateway pipeline and tanker project, which would carry unrefined bitumen products through the province’s north and along its coastline, because of spill risks and the lack of aboriginal consent. But the drop in U.S. energy demand and the ever-present hunger for oil in Asia remain a critical concern for policy-makers looking to expand Canada’s energy sector.

The attraction of this type of project as a solution to the complex new paradigm whereby both governments and companies have to achieve a ‘social license’ is so great that Premier Christy Clark even had the Ministry of Energy, Mines and Natural Gas pen a report on the potential of another ‘clean’ refinery in northern B.C. last year. Just this week, Alberta Premier Jim Prentice suggested Kitimat, the port chosen for Northern Gateway, may not be the best route for oil to make its way to Asia.

“It’s a happy constellation of challenges that has given us this opportunity,” said Day, who pitched the project to the Economic Club of Canada at the Chateau Laurier yesterday morning. It’s one of three refinery projects for the B.C. coast: one named Kitimat Clean has been proposed by newspaper magnate David Black and another by the Aquilini Investment Group.
Day, a senior advisor to Pacific Future Energy who left a storied 10-year political career in Ottawa for the private sector in 2011, is in an odd position vis-a-vis his fellow Conservatives as he makes the case to build the refinery, now past the concept phase and looking for financing.

For one, the project is an opportunistic challenge to Enbridge Inc.’s Northern Gateway, now fumbling its way through aboriginal opposition and delaying its start date despite getting federal government approval in March. The Conservative government roared out of the gates when Gateway began the last phase of its regulatory process, slagging environmentalist opponents and streamlining its permitting at the National Energy Board in 2012.

But despite threatening a project that the NDP are hoping will be an albatross around the neck of Conservatives in the next federal election, Day doesn’t believe he’s eating away at his party’s support.

“I haven’t talked to (Industry Minister James Moore) specifically about this project, but I can tell you from everything I’ve seen him say, we’re virtually on the same page,” said Day, referring to one of the more outspoken B.C. Conservative cabinet members. “We think under the right conditions, under the right technology, economic arguments can be made that are also environmentally sustainable.”

The Pacific Future Energy refinery hopes to make a niche for itself among British Columbians opposed to raw bitumen in tankers, but less antagonized by the transportation of refined products like diesel and gasoline.

The company’s promotional material states that during a spill, “bitumen immediately sinks to the ocean floor and stays there.”

That’s a unapologetic departure from the federal government’s own research, which thanks to a report released in January, found that bitumen only sinks if it mixes with sediment in water.

“The scientific debate is strong,” said Day. “But nobody argues with this fact; a bitumen spill has a much greater impact on the environment than an unrefined product.”

Day’s father made a career shift from Montreal to B.C. to work on a trawler, said Day, and his attraction to Pacific Future Energy is linked to the importance his home province puts on the environment.

“They have a heightened sensitivity regarding environmental issues,” said Day. “As I looked more into this, I became acutely aware to the reality of the fear, some of it rational, most of it rational, of bitumen on the water.”

It also puts him into a similar camp as the NDP, who on Tuesday unveiled a bill that would ban the transportation of oil – any kind – in tankers off B.C.’s north coast, unless they’re meant to serve B.C. communities.

Pacific Energy Futures isn’t supporting the use of legislation to protect B.C.’s waters from economic activity that could result in a spill but is helped by the NDP bill.

“The sentiment in B.C. is so strong about the risk of bitumen in the water,” said Day. “But that legislation reflects the sentiment, so that doesn’t hurt our proposal that we’re talking about. So we’re leapfrogging past legislation to bring it into reality.”

The project is also trying to win its ‘social license’ from British Columbians by designing a refinery that would emit almost zero emissions. Forty per cent would be reduced by the combination of natural gas and renewable energy sources, fifty two per cent by using carbon capture and storage technology and the remaining reductions will be met by using a biogas fuel source, says the firm.

Pacific Energy Futures is in conversation with two companies with carbon capture and storage technology that are still at the non-disclosure phase, said Day. It has retained the services of Italian engineering firm Simeco, which has built similar low-emissions refinery designs in the past, he said.

But more important than winning the good graces of the B.C. general public will be winning the support of First Nations along the northern coast. Emboldened by the results of a Supreme Court of Canada case in June that granted aboriginal title to the Tsilhqot’in First Nation, coastal First Nations are currently deliberating new strategies in their land claim negotiations with the B.C. government.

There are at least nine First Nations identified in the Coastal First Nations alliance, a group of first Nations living along B.C.’s northern and central coast. But Pacific Future Energy won’t disclose which communities it is talking to publicly because it feels this would preempt the conversations the firm is having with leaders, said Jeffrey Copenace, senior vice-president of indigenous partnership at the company. It also hasn’t settled on an exact location.

“There are numerous discussions ongoing,” said Copenace. “But the last thing I want to do is negotiate with First Nations through the media.”

Pacific Future Energy’s consent may also hinge on provincial and national aboriginal leadership, said Copenace, a former deputy chief of staff to former Assembly of First Nations (AFN) National Chief Shawn Atleo. The company is sponsoring the AFN’s golf tournament in Ottawa next weekend, he said.

Pacific Future Energy won’t ever get off the ground if its $10 billion project doesn’t make money. In North America, where demand for gasoline and refined projects isn’t on the rise, building a new refinery is a tough go.

During committee hearings in the House of Commons two years ago, general manager of integration and planning, refining and marketing at Suncor Energy Inc. John Quinn told legislators that refineries are only profitable near the markets they feed. That way, the product can be adapted for demand.

For example, a refinery in India that imports oil from overseas could refine enough of it for domestic demand and still be able to sell refined oil back to the original country at a profit, he said at the time.

Despite growing its oil production, Canada has gone from 39 refineries in 1980 to 16 today, according to the Natural Resources Department.

Pacific Future Energy will not accept subsidies to get it off the ground, Day told the Economic Club.

“We are not asking or looking for subsidies,” said Day. “If a government comes along, be it provincial or federal with some kind of massive proposal that might involve training or something else of course it would make sense.

“That’s why I can stand here and talk freely about it and no one can say that I’m lobbying,” he said later.

Later, during an interview, Day explained that the company would be asking the B.C. government to clarify its tax regime for building a refinery.

“In the Alberta experience and with LNG, whenever there’s lack of predictability on the tax regime, it’s always going to affect you investors,” said Day. “So what we’re going to look for is predictability. We’ll get a sense of where it might land, we’ll build that into our economic model, and we’ll be able to handle the extremes of our range. But clarity and predictability will be important.”

“We’re not asking for special treatment other than, as you can realize, this is a unique project,” he said.
Pacific Future Energy’s executive vice-president of communications and research Mark Marissen is the former spouse of B.C. Premier Christy Clark.

Correction: An earlier version of this article included a typographical error that misrepresented Day’s comments on lobbying. We regret the error.

Amid a struggle to ship crude oil to the West Coast, three crazy ideas emerge

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David Black is used to it by now. Ever since the newspaper magnate went public in 2012 with his idea to build a West Coast refinery that would process Alberta bitumen into gasoline, jet fuel and diesel for export, his plan has been met with skepticism at almost every turn.

It’s easy to understand why. Black is a newspaper man, not an oilman. His project doesn’t have the backing (publicly anyway) of the Canadian oil and gas industry. It would also be massively expensive, costing an estimated $32 billion to build, and he says it would return at best 20 per cent to investors. It would also be located in B.C., where other proposed petroleum-related infrastructure projects – notably Enbridge Inc.’s Northern Gateway pipeline and Kinder Morgan Canada’s Trans Mountain pipeline expansion – have faced stiff opposition.

“As a pure merchant refinery, I can’t see how you make it work.”
On the phone from his ­Victoria, British Columbia home, Black doesn’t sound the least bit discouraged, however. In fact, he says he’s enjoying the journey. “I must say, I enjoy puzzles and this is a great puzzle to try to figure out,” Black says.

Apparently, Black is not the only one who enjoys tackling big, oily puzzles. This year two other B.C. groups have hatched ­major plans to process Alberta bitumen. Their projects don’t have any oil and gas industry backing, either. But the groups proposing them sound just as confident as Black does that their ideas are destined to succeed. While the industry continues to shun building refineries and upgraders in Canada (North West Upgrading Inc.’s controversial refinery in ­Redwater, Alberta, is a notable exception), industry outsiders on Canada’s West Coast are ­soldiering on with their bitumen processing projects. But are they on a fool’s errand? Or are they presenting the oil and gas industry with a viable solution to a thorny problem – how to get landlocked oil sands production from Alberta to the West Coast without raising hackles from First Nations and other B.C. residents who fear shipping bitumen in tankers is an environmental disaster waiting to happen.

In June, a company called Pacific Future Energy Corporation announced plans to build and operate a $10-billion refinery in B.C. to process Alberta bitumen and do it in a way that it says will result in nearly zero carbon emissions. The refinery would take 200,000 barrels per day of bitumen and convert it into diesel, gasoline, kerosene and other distillates. Robert Delamar, Pacific Future’s CEO, credits David Black with helping his company get to this point. “We owe him a great debt,” Delamar says. “He really evangelized this idea.”

Along with Black’s project, which is known as Kitimat Clean, and Pacific ­Future’s “near zero” refinery project, the third in the planning stages is headed up by Eagle Spirit Energy Holdings Ltd. and the Vancouver-based Aquilini Investment Group. In April, they announced a plan to build a bitumen upgrader in Alberta or northeastern B.C. along with a pipeline that would ship up to one million ­barrels per day of synthetic crude to Prince ­Rupert. The cost of this project could be a whopping $50 billion.

The “idea” shared by each of these ­proposals is a way to create jobs and benefits for First Nations people and other residents in B.C. and eliminate the risk of shipping raw bitumen from its coast. “I don’t think any project that proposes [shipping bitumen to the West Coast] is going to have any traction because it poses too much risk to the environment in the opinions of the people we’ve met,” says Calvin Helin, chairman and president of Eagle Spirit, a First Nations-owned company.

The three proposals are a response to Enbridge Inc.’s controversial Northern Gateway pipeline project. The $7.9-billion dual-pipeline system would carry 525,000 bpd of bitumen from Bruderheim, ­Alberta, to Kitimat, B.C., and the conditional recommendation from the National Energy Board has recently been approved by the federal government. Nevertheless, the B.C. government says it still isn’t satisfied that British Columbians and First Nations people will reap an adequate share of the economic benefits from Enbridge’s pipelines. It also says it’s not convinced Ottawa’s oil spill response plans are up to snuff. Even after the federal government granted conditional approval for Northern Gateway in June, the B.C. government said it would not be forthcoming with relevant, and required, construction and access permits unless its concerns were alleviated. Meanwhile, 31 First Nations organizations have said they will fight the project in the courts.

“I don’t think any project that proposes [shipping bitumen to the West Coast] is going to have any traction because it poses too much risk to the environment in the opinions of the people we’ve met.”
Northern Gateway has been promoted by Canada’s oil and gas industry as a way to diversify export markets for Alberta bitumen away from the U.S. – where it fetches discounted prices. While America is swimming in oil thanks to the shale and tight oil revolution, the Asian markets that Northern Gateway is intended to serve look extremely promising. Oil sands production is estimated to grow from 2.3 million bpd in 2015 to 4.8 million bpd, according to the Canadian Association of Petroleum Producer’s latest crude oil forecast. However, with that pipeline project’s future very much in doubt, how are oil sands producers going to secure access to those Asian markets?

On the surface, it seems the three B.C. proposals provides a solution to Canada’s bottlenecked export infrastructure. But Andrew Leach, an associate professor and energy economist at the University of ­Alberta’s School of Business, isn’t convinced the economics make sense. “As a pure merchant refinery, I can’t see how you make it work,” Leach says.

A March 2013 IHS CERA report did however say that given the right conditions, new refinery projects in B.C. could indeed work, “assuming that the refinery can consume bitumen, maximize diesel production, control capital costs to a minimum, and maintain a strong price for its products by not oversupplying the market.” However, that’s a lot of assumptions, and when it comes to controlling capital costs, that could be difficult for the B.C. proponents. “They want to build these projects in northern B.C, which is a high-cost and remote environment. You’re going to duplicate what is going on in Fort McMurray,” Leach says.

Black, Helin and Delamar sound undeterred by the skeptics. Perhaps that’s because they seem to view their bitumen processing proposals not only in the light of their economic viability. In the case of the Kitimat Clean project, the company website claims the refinery will create 3,000 permanent jobs and “nearby petrochemical businesses” will create another 3,000 permanent jobs. Thousands of indirect permanent jobs will also spring up thanks to Kitimat Clean and billions of dollars of new tax revenues will be generated for governments, the website says.

Eagle Spirit’s Helin also has more than dollar signs in his eyes when he talks about the upgrader and pipeline project his firm is proposing, or the refineries Black and Pacific Future hope to build. “When you build a pipeline there is not a lot of employment after it’s built. There is a lot of employment in a refinery. There are a lot of high-paying jobs. There will be millions of dollars in business opportunities with an operation of that scale,” Helin says. “You are talking some enormous benefits that can be invested into educating and training people.”

Black says Kitimat Clean’s return on investment will be 10 per cent – a figure that likely wouldn’t impress executives running the big oil companies in downtown Calgary. However, Black is already a wealthy man (his company, Black Press Ltd. publishes 150 titles in print and online) and if his project results in a modest return on investment, he seems fine with that.

“[Kitimat Clean] is not going to make a 15 or 20 per cent return on investment because you invest so much money in the construction phase for quite a long time,” Black says. “But I don’t have to make a fortune here. I’m all about trying to keep the environment safe and do something good for Canada. I really believe this is the only way we’re going to get a West Coast pipeline.”

Will Kitimat Clean or the other project proposals offer an enticing enough return on investment to merit the enormous capital costs? The financial numbers underpinning these projects are hard to come by at this point, especially with two of them having been announced only since April. Yet the backers behind each project are certainly highly credible. The privately held Aquilini Group owns the Vancouver Canucks NHL franchise and is involved in many business fields including construction, real estate, hospitality and agriculture. As for Pacific Future, its executive chairman is Samer Salameh, who manages the telecom practice and new business development for Grupo Salinas – owned by Mexican multi-billionaire Ricardo Salinas Pliego, the 195th richest person in the world, according to Forbes magazine.

Black’s project is furthest along. He has hired Calgary-based Hatch Ltd. to do the front-end engineering and ­design for his refinery and provide an estimate on capital costs for it. Black says that will be done by ­October and that’s when investors can get a look at the design of the refinery and a decision will be made on whether to proceed with the project or not.

He says the gross annual revenue for the ­refinery will be $25 billion and it is expected the $32 billion required to build everything – including refinery, pipeline and port facilities – will be borrowed. Black has approached the federal government about providing a $10-billion loan guarantee for Kitimat Clean. He admits that without this, the project probably won’t get built.

Leach agrees that it will take a helping hand from government for any of these B.C. bitumen processing dreams to ­become a reality. “I’m not particular ­optimistic about their chances. But I wouldn’t be surprised to see something happen government- wise,” he says. “The question governments have to ask is, ‘Do they want to underwrite oil ­processing?’”

Delamar sounds confident, perhaps even a bit brash, that Pacific Future’s plan will eventually see the light of day. The company is confident it can get the financing to build a refinery, and its social license from First Nations and other B.C. stakeholders – something the Northern Gateway project is struggling to secure.

He also says that what Pacific Future is doing isn’t much different from what oil sands pioneers like Syncrude and Suncor Energy Inc. accomplished many years ago against stiff odds – finding a way to make a profit at producing bitumen. “We’re just following in their footsteps,” Delamar says. “Nobody said they could do what they did and they pulled it off.”

Stockwell Day speaks on the critical need for a refinery on Canada’s West Coast

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OTTAWA, Sept. 23, 2014 /CNW/ – The Hon. Stockwell Day, former Leader of the Opposition and head of the Canadian Alliance will speak Wednesday in Ottawa on the need to expand access for Canadian oil products to new global markets, and why a refinery is the only option that will meet the conditions needed to meet this critical national policy objective. As the newly appointed Chair of the Advisory Committee for Pacific Future Energy Corporation, Day will speak about how building the world’s greenest oil refinery in British Columbia, is vital to Canada’s national interests.

In the wake of recent Supreme Court decisions, Day will make the case that the energy industry needs to recognize First Nations’ right to full participation in the energy economy and to ensure they have a seat at the table throughout the entire process, from conceptualization onwards.

True partnership with First Nations also means true respect for the environment and for Canada’s unspoiled coast – and Day will argue that this means that there is also a need to think creatively about how we export our energy, how it is refined, and how we get it to the markets where it’s most in-demand.

DETAILS:

WHO: The Hon. Stockwell Day, PC, Senior Advisor, Pacific Future Energy

WHAT: Address to the Economic Club of Canada, “Canada’s Pacific Future”

WHEN: Wednesday, September 24, 2014, 7:30 a.m.-8:45 a.m.

WHERE: The Fairmont Chateau Laurier, 1 Rideau Street, Ottawa

About Pacific Future Energy

Vancouver-based Pacific Future Energy is a company that has been developed to finance, design and construct the world’s greenest oil refinery in British Columbia, Canada. The management team consists of leaders from the venture capital, corporate and government sectors, who share the belief that while it’s in Canada’s national strategic interest to diversify its markets for oil, it should be done in a socially and environmentally responsible manner and while ensuring the protection of Canada’s west coast. For more information about the company www.pacificfutureenergy.com

SOURCE Pacific Future Energy

Image with caption: “Pacific Future Energy (CNW Group/Pacific Future Energy)”. Image available at: http://photos.newswire.ca/images/download/20140923_C1895_PHOTO_EN_5931.jpg

For further information: Alexandra Pecoskie, Citizen Relations on behalf of Pacific Future Energy, 604-647-6256

Vancouver Sun – Opinion: Refining lets us control our oil

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By Stockwell Day, Special to the Vancouver Sun August 28, 2014

Canada has a problem. We are blessed with a resource — oil — needed by people around the world but we’re selling 99 per cent of that resource to one customer, the United States. We’re selling it at a significant discount. We do this because it’s what the pipeline infrastructure in North America obliges us to do.

Expanding access for Canadian oil products to new markets, especially those with growing demand in Asia, is the clear solution. This is becoming increasingly important as we experience declining demand in the U.S. due to increased self-sufficiency in its market.

I have been an advocate in the past for a pipeline from Alberta to the Pacific, allowing us to export our bitumen to these fast-growing markets in Asia. Canada’s economy loses billions of dollars every year simply because one of our most important strategic resources is in a captive market.

But many British Columbians — and many others across the country — have expressed deep concerns to me about a number of issues associated with building a pipeline and shipping unrefined bitumen off of Canada’s West Coast. They have convinced me there must be a better alternative.

That’s why I have joined Pacific Future Energy, a new company based in Vancouver. The company’s mission is to build the greenest oil refinery in the world in a manner that respects First Nations consultation and accommodation, provides tangible economic benefits for Canadians, and protects Canada’s West Coast from the threat of a bitumen spill.

Many First Nations feel resource discussions do not always recognize and respect their role in the process. From the beginning, and every step of the way, our partnership with First Nations will ensure we all benefit from traditional and ecological knowledge, while respecting their rights to full consultation and accommodation, all with the goal of shared prosperity and health for future generations.

Many First Nations communities and British Columbians have grave concerns about the impact of a raw bitumen spill along Canada’s West Coast.

Bitumen sinks to the bottom of the ocean and would cause long-lasting devastation. Refined products evaporate within a short period, posing a much smaller risk.

The livelihoods of commercial and recreational fishermen, loggers, tourism operators, as well as indigenous peoples’ ways of life that go back thousands of years, would be irrevocably altered if a bitumen spill were to occur.

To see something as important as the future of our energy industry not rooted in respect and recognition of those issues would not be acceptable to me.

Building the world’s greenest refinery isn’t just good public policy, however. It’s also good business.

Many critics of building Canadian refineries see the world through the prism of multinational companies with global networks of refineries, shareholders, supply routes and investment priorities that are often beyond our borders. Their assertion that a new refinery in Canada can’t make a profit is simply not backed by economic realities.

Dozens of refineries in the U.S. Midwest — which are almost exclusively processing Canadian bitumen sent to them by pipelines — are generating an average profit of $23.50 per barrel by refining Canadian crude into products for sale in the U.S.

The economics of refining are so good, the one per cent of Canadian crude not sent to the U.S. last year was piped across the continent to the Gulf of Mexico, put on ships, carried across the Atlantic Ocean and delivered to Bilbao, Spain. There it was refined and sold on the European markets at a profit.

These are dollars and jobs that could and should be realized in Canada. Moreover, refining our hydrocarbon resources allows us to ensure all possible steps are taken to minimize the impact these resources have on the environment. Even the industry’s harshest critics would agree that selling high-efficiency products, refined in Canada, is far better than simply shipping raw bitumen out of the country.

The only viable solution for the problems facing Canada’s oil industry is to expand to new markets. The way to make this acceptable to a great number of Canadians — especially First Nations — will be through a refinery that delivers jobs and economic benefits for Canadians, while protecting our coast at the same time.

Stockwell Day is a former minister of international trade, treasurer and acting premier of Alberta, and Conservative MP for Okanagan-Coquihalla, and is now the chair of Pacific Future Energy’s advisory board, as well as a senior adviser to the company’s management team.

© Copyright (c) Special to the Vancouver Sun