After a long and controversial development process, the North West Redwater Partnership’s Sturgeon Refinery has begun to produce diesel from bitumen. It’s the first new refinery to begin production in Alberta since 1984, but does poor timing mean the refinery will have a negative impact on Alberta energy rates? Not necessarily, although Ian MacGregor, chairman of North West Refining, urges that the Alberta government has a lot more work to do in order for refineries like this one to fulfill their potential.
What are the financial impacts of the new refinery?
The project inspired a bit of excess controversy when its production costs nearly doubled the project estimate, landing the project at a total cost of $9.5 billion instead of the earlier estimate of $5.7 billion and attracting some negative attention to both the refinery industry and the Alberta government. However, now that the project is complete and the refining process has begun, things are looking up for Alberta energy rates—and Alberta’s economy overall.
The refinery is currently able to produce 20,000 barrels of diesel (bpd) per day; however, that capacity is expected to quadruple to 80,000 bpd by the start of the summer. The refinery’s main output will include low-sulphur diesel fuel, a product that is intended to meet high diesel demands and thus prevent a repeat of the 2012 diesel shortage. However, it is also anticipated to take some of the pressure off oil exports, hopefully creating an economy-stabilizing balance in response to destabilizing oil prices, and since oil producers have already seen an extra $23 earnings margin, after fees, on each barrel they send to the Redwater refinery, it is looking like the new refinery could actually create a positive impact on Alberta energy rates across the board.
Why is Alberta the right location for a new refinery?
While refineries aren’t as well-known for their economic impact, the refinery industry does represent significant production—and impact—for Alberta and Canada. Alberta’s new refinery will add to the national capacity; it will also supply fuels and lubricants to households and businesses across Canada, impacting other industries, like the transportation industry, in the process. Alberta’s proximity to bitumen and other fuel resources, in addition to the presence of its booming transportation industry, helps to maximize the industry’s efficiency, thus contributing to lower average gasoline prices and better Alberta energy rates across Western Canada.
However, providing better Alberta energy rates isn’t the only benefit the new refinery has to offer. It also introduces new jobs to the area—and jobs in the refining industry tend to be highly paid (due to the amount of training and skills required) and highly stable. That carries significant economic potential for the area around the new facility. Already, the refining industry contributes $5.6 billion to Canada’s GDP and employs over 18,000 people. Further, a recent study by the University of Calgary’s School of Public Policy estimates the refining sector to add close to $300,000 to the economy for each worker employed. Those statistics factor in on top of the 76,000 person years of employment the construction phase of the newest refinery generated alone, the $2.3 billion per year increase to the GDP it is expected to create, and the $385 million per year the refinery is expected to create in government revenues.