Can’t pipe, will upgrade: New $2B oilsands upgrading facility secures $440M loan from Alberta

Can’t pipe, will upgrade: New $2B oilsands upgrading facility secures $440M loan from Alberta


CALGARY — The Alberta government announced it is offering a $440-million loan guarantee for a new $2-billion oilsands upgrading facility, and is eyeing more funding opportunities to boost oil processed in the province, ahead of a pivotal election.

“We have been spending decades sitting around wringing our hands because we are not getting full value for our resources,” Alberta Premier Rachel Notley said Tuesday, adding that few new refineries or upgraders have been built in the province since the 1980s.

The province is providing the loan guarantees for Calgary-based Value Creation Inc., which plans to build a 77,500-barrel-per-day partial upgrading facility near Edmonton.

The project is currently on track to reach a final investment decision within six months and is expected to be financed through a combination of debt and equity, said Columba Yeung, Value Creation chair and CEO.

Yeung said the privately held company has already spent $700 million on the facility, which would be the first fully commercial-scale partial upgrader in the province.

Value Creation’s facility would process bitumen into medium-grade oil that can be processed at most North American refineries.

The facility would also eliminate the need for oilsands companies to use expensive blending agents like diluent to lighten their crude before shipping it on pipelines.

“We are fully committed to realize our vision in totality,” Yeung said, adding the company intends to build additional 77,500-bpd phases that would eventually expand the size of the facility to over 500,000 bpd in total.

Value Creation may partner with “major bitumen producers” to finance the facility and future projects, Yeung said.

The company is looking at debt financing, financing based on supply contracts and eventually some equity financing to develop the complex.

“There is a lot of promising technologies and every producer seems to have their technology,” said Kevin Birn, vice-president of North American crude oil markets at IHS Markit.

Companies are currently chasing technologies with the lowest capital cost method to process oil and eliminate costs associated with blending agents. Diluted bitumen, or dilbit, is about 70 per cent bitumen and 30 per cent diluent, which is imported at a high price from the U.S.

“This may be the first one that gets there but it’s not the only technology in the horse race for the future,” Birn said of Value Creation’s project.

Notley has announced a series of loan guarantees and other incentives in an attempt to spur investment in downstream facilities that would process Alberta’s crude oil and raw natural gas into higher value products.

This may be the first one that gets there but it’s not the only technology in the horse race for the future

Kevin Birn, IHS Markit

The NDP government announced last year it would provide up to $200 million in grants and up to $800 million in loan guarantees for partial upgrading in the province. Tuesday’s announcement uses up roughly half of that total funding.

“Our government is committed to diversification,” she said, while fielding questions about whether the loan guarantees could be rescinded if Jason Kenney’s United Conservative Party replaced her NDP as government in the Alberta elections expected to be held before May 31.

UCP energy critic Prasad Panda said the opposition agreed that “Alberta needs to pursue more upgrading, refining and petrochemical developments.”

“The question is how best to achieve that,” Panda said, and called on the NDP to provide a complete economic assessment.

Notley said the province is in discussions with other companies for similar partial upgrading projects, but would not provide details on when additional announcements would be made.

The province’s Royalty Review Panel, led by ARC Energy Research Institute’s executive director Peter Tertzakian, identified partial upgrading technology as being a potential game changer for the oilsands as it would “diversify our product range and alleviate some of the challenges facing the marketing of our oilsands resources.”

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