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Ron Liepert’s greatest fear is to be `landlocked in bitumen’
News Articles | Calgary Herald | Deborah Yedlin | August 12, 2010
Read the full article on the originating site
It might be a sunny, Friday afternoon but that doesn’t mean the mood of Alberta’s energy minister matches what’s going on outside when it comes to the industry that falls under his purview. Ron Liepert is definitely preoccupied.
This is days after the Enbridge pipeline leak, a week after the expansion of Trans Canada’s Keystone XL has come under fire from the U.S. Environmental Protection Agency and months into the BP oil spill in the Gulf of Mexico.
Even as he says his crisscrossing of the province has revealed a more optimistic sentiment than what was in evidence at this time last year, because people are working, Liepert is preoccupied with Alberta’s oilsands.
“My biggest worry is Alberta being landlocked in bitumen,” says Liepert while munching on an esoteric version of fish and chips.
Much like federal Environment Minister Jim Prentice, Liepert is convinced new markets need to be developed for Alberta’s oilsands production because being beholden to one customer puts the province and the industry at too much risk.
For that reason, Liepert is keenly focused on the outcome of the National Energy Board’s hearing into Enbridge’s Northern Gateway pipeline, which will be challenged by the other company with pipeline access to the west coast – Kinder Morgan.
In the worst of all possible worlds, Alberta can’t export enough of its burgeoning bitumen production either because of unfavourable energy policies that penalize oil produced from the oilsands or failures in developing markets beyond North America.
This means prices fall and so, too, do the royalties flowing into provincial coffers – never a good thing for a province that remains highly vulnerable to the swings in commodity prices to fund its budgetary needs.
There’s no reason to panic today because there is more than enough export capacity to meet current production, but Liepert is looking beyond the next few years to production hitting the 3.5 million barrels a day mark by 2025.
Not only is the issue of export markets top of mind, so, too, is how the government will handle the barrels it gets as part of the royalty structure.
Aside from its bitumen royalty-in-kind program that is entirely earmarked for upgrading purposes, companies can elect to pay royalties in cash or in barrels. Liepert says the government could be handling between 350,000 and 400, 000 barrels a day by 2025, once all the projects are producing and have paid out.
As things stand right now, there is no mechanism to handle those kinds of volumes, nor is the bitumen market all that liquid. A solution to this will require a sophisticated mechanism that ensures fair value for the bitumen and does not distort the market in any way.
Of course, any discussion about the oilsands must include the province’s intent to effectively backstop the addition of upgrading capacity even as the economics of a greenfield site, located far away from markets, remains tough to justify.
This is particularly the case given the growing refining and upgrading capacity in the U.S. Gulf Coast as a result of declining imports into the U.S. from Venezuela and Mexico.
As industry and finance types consistently point out when the topic is raised, if the refining business was so good why is it that the last new facility to be built in North America, from scratch, was Shell’s Scotford refinery – which is more than 30 years old?
The answer, of course, is a mix of politics and business.
Liepert points out the usual political reasons as to why it makes sense: construction jobs first, followed by operating employment. Then there’s the benefit to the tax base from corporate, property and income taxes. Other positives from his perspective are that the proposed facility will produce diesel – something that is apparently in chronic short supply in the province – and provide byproducts for the petrochemical industry, which presumably include ethane.
And he is quick to draw the line as far as the upgrader being compared with other failed businesses backed by the Alberta government over the years that didn’t end well, because this involves the private sector having something at risk too.
“It’s not a crown corporation. It has to make money. I look at it as the ultimate P3 (public-private partnership),” he says.
And for good measure, Liepert points out that sometimes things that initially don’t make sense, do bear fruit in the long run.
“We wouldn’t have an oilsands industry were it not for Peter Lougheed.”
Point taken.
He’s clearly put the royalty mess behind him – while acknowledging the need for dialogue and transparency between the political and bureaucratic realms and the energy sector in the context of developing policy.
No one is going to suggest there is a warm and fuzzy relationship between the oilpatch and the Alberta government, but it has to be said the sector is giving Liepert more than just a passing grade.
Ask anyone in industry what Liepert’s report card looks like since taking over from Mel Knight last January and they will tell you it might have an A for effort, B+ for getting up to speed and an A for listening.
He’s not the subtlest of politicians, they say, but he gets the job done.
And these days, given the challenges facing the sector from so many different levels, that might not be a bad thing.
Tagged with: alberta, bitumen, energy, ron liepert
