Bitumen is not crude oil. Bitumen must be upgraded into synthetic crude, after which it can be further refined into gasoline, diesel, motor oil and so on. The Keystone XL pipeline expansion is intended to carry bitumen for upgrading and refining in the US. This is worth noting because media stories (CBC, Calgary Herald to name just a couple) are regularly referring to the XL line as a “crude oil” pipeline. It’s not.
It’s important because Peter Loughheed, the Canadian Energy and Paperworkers Union, the Alberta Federation of Labour and the Alberta NDP amoung others, are calling for the upgrading of bitumen at least to synthetic crude before being exported. And if people are given the wrong information about what the pipeline is intended to carry, they can’t be expected to understand critical aspects of the issue.
Upgrading bitumen requires considerable investment and creates a significant number of permanent jobs – good jobs. It is this investment and jobs that will be lost to the US if Keystone XL is built. This part of the story is being ignored.
Media seems to want to boil this down to a simple environment vs. jobs story, but there is another important dimension to the debate. By failing to report on this issue completely and accurately, they do a disservice to their audience.
Brian's Blog 
That is just one difference. It is worth noting that bitumen requires the use of a toxic diluent and substantially more energy (due to its viscosity) for transportation. The clean up methods in the case of a spill are done in very different manner (and thus many communities are unprepared) due to the characteristics of bitumen and the neuro-toxic properties of the diluent. The short and long term effects of a spill is thus substantially different from crude oil, especially in the case of aquatic environments.
Just like Keystone, Keystone XL will realistically be transporting a mix of both heavy diluted bitumin and light synthetic crude. Albeit, the mix will likely be predominately heavy dilbit most of the time (you could guess ~70% heavy dilbit, but that number will be constantly changing depending on oil trading markets and other factors).
You’re right in that upgrading bitumin requires considerable investment, and whether an oil producer/shipper decides to make that choice will largely depend on the price differentials between heavy and light and the details of all the “economics” behind building upgrader in AB or not. The oil industry’s idea behind both Keystone pipelines as heavy and light “bitumin/crude oil” pipelines is that US refineries in their delivery areas are not 100% utilized and they are closer to a larger market. Simply there is refinery space and a market in US.
I propose that the big multi-national oil companies don’t really care that much whether their investment is on the AB end or the US end of the pipe – just as long as it makes sense to their bottom line. And when it comes to their bottom line, the answer of upgrading all bitumin to light synthetic in AB is not that simple.
The recent “non-surprise” that the Keystone XL pipeline was “further” delayed by the Obama administration appears to have wrangled, justifiably so, a large number of senior business leaders and politicians in Canada. If “we” were unable to see this coming it would seem that “we” were not listening to the “loud” signals coming out of Washington, Nebraska and
elsewhere in the USA for the last year.
I’m disappointed, not the least surprised, that the USA “administration” has withdrawn its support for the Keystone XL pipeline but, in another sense, am somewhat relieved. Make no mistake, I
support pipelines to the USA, British Columbia and further east in Canada to carry Alberta oil. My concern is the exporting of raw bitumen, without capturing the value added for Albertans and
Canadians by upgrading the bitumen.
Prime Minister Harper made a recent observation that approving the Keystone XL pipeline was a “no brainer” and I’m inclined to agree, however, it is “equally” a no brainer for Alberta and
Canada, if it were to carry upgraded synthetic crude, not “raw bitumen”.
The following, by the numbers, should clearly explain why I advocate the upgrading of bitumen prior to export:
1. Alberta’s government projects eventually exporting 5,000,000 barrels/day of bitumen;
2. Recent projections indicate 48% (the ERCB indicated recently they expect a great deal more raw bitumen to be exported, maybe less than 40% upgraded in Alberta so the following numbers are all substantially understated) or 2,400,000 barrels/day will be exported as “raw bitumen”, that is, not upgraded in Alberta or Canada;
3. An upgrader has historically been built for each 100,000 barrels/day of bitumen;
4. 48% or 2,400,000 barrels/day of “raw bitumen” equates to 24 upgraders loss;
5. Craft hours to build an upgrader ranges from 30,000,000-40,000,000 million per upgrader and recent experience is at the high end of this range;
6. 24 upgraders equates to 720,000,000,-960,000,000 million hours or 360,000-480,000 person years of work or (i.e. 36,000-48,000 people working fulltime for 10 years);
7. Estimate $100/hr all in cost or $72,000,000,000-$96,000,000,000 billion in loss wages, benefits, contractor profit, etc. for construction only;
8. Spinoff at a 4 to 5 ratio re upgrader construction, operating the 24 facilities, day-to-day maintenance, turnarounds/shutdowns, etc. is estimated at $985,000,000,000
to $1,440,000,000,000 (trillion) for the estimated 40 years of life of each upgrader;
9. Synthetic crude and raw bitumen differential is now at approximately $37.00/barrel (recent Calgary Herald article);
10. Alberta’s estimated recoverable bitumen (from the 1.7 trillion barrels estimated in the oilsands) is 173,000,000,000 billion barrels (I expected substantially more “recoverable”
with future new technology);
11. Negative affect on Canada’s balance of payments is 83,000,0000,000 barrels *$37.00=$,3,070,000,000,000 (trillion) as well as loss royalties, corporate taxes, etc.;
12. Estimated lost provincial and federal taxes re the $985,000,000,000 to $1,440,000,000,000 (trillion)* 35% (estimated Alberta and federal taxes combined) is $345,000,000,000-$504,000,000,000 billion;
It would appear to the writer that “we” (Alberta and Canada) are in the process of giving away upwards of $4,000,000,000,000 trillion plus (in wealth and associated tax base without as
much as a serious, open discussion re same). “We” constantly complain, as a province and nation, about being unable to fund healthcare, education, infrastructure, the military, pensions,
the arts, our cities, etc. etc. etc. Yet we “appear” more than willing to fund other nations’ programs through our apparent and obvious largesse.
For comparative purposes, I provide the following:
Alberta’s budget 2011-12 is 38.4 billion;
Canada’s budget 2011-12 is $278.7 billion;
Canada’s GDP in 2010 was $1,216,976,000,000 (trillion);
Equalization payments 2009-10 were $14.2 billion
The $4,000,000,000,000 (trillion) in largesse to other countries
equates to the following:
104 Alberta 2011-12 budgets;
14.35 Federal 2011-12 budgets;
3.3 times Canada’s 2010 GDP;
282 times 2009-10 equalization payments.
Note: I realize not all of the above $4,000,000,000,000 (trillion) would be available for taxes but wanted to provide comparative numbers to help with this essential provincial and national discussion.
Note: it is apparent that my estimates are very conservative, in the long-run that is, as they are based on today’s estimated recoverable of roughly 10% of the estimated 1.7 trillion barrels
of bitumen in the oilsands.
Finally, there has been and continues to lots of commentaty and discussion regarding the return on investment (ROI) re upgraders and that it is expensive to build them in Alberta. I provide the following for your consideration regarding how this may be solved:
1. One of the major impediments to building a “cost effective” upgrader is the manner in which engineering is approach. in virtually all recent mega projects there has been a tendency to get
“into the ground” with construction well before engineering is advanced in the proper sequence and sufficiently completed to promote and advance effecient and effective construction. Many “experienced” industry folks have indicated that this can “easily” add 10% to the overall cost of an upgrader. On a $10,000,000,000 (billion) upgrader project this could help save upwards of $1,000,000,000 (billion);
2. Improper, insufficient, out-of-sequence engineering, again as per many “seasoned” industry veterans, easily adds 5% to the overall cost of an upgrader, potential savings another $500,000,000 (million dollars);
3. There has not been a major project built in Alberta in the last 20 years that has not been over manned by at least 10%, potential savings al least $400,000,000 (million);
4. The non use of apprentices in the numbers they should be (25-35%)–most mega projects will have 10% or fewer with the exception of several recent “enlightened” owners promoting more apprentice employment —, equally distributed between 1, 2, 3 and 4th years (when a 4 year program) could save the project at least $250,000,000-$300,000,000 (million) plus. The added advantage of this approach is that we would be growing the craft workforce of the future that we so desperately need.
As well, the myth that apprentinces on these mega projects are less safe, less productive, etc. are just that–myths. The Canadian Apprenticeship Forum have done several detailed studies re the employment of apprentices and have conclued that an employer gets a 47% (included in the above projected potential savings number) return by employing an apprentice for the duration of their apprenticeship. In essence, apprentice don’t cost a project any monies, they actually provide a very decent rate of return of, on average, of 11.75% annually;
5. The cost of absenteeism (often in the 10% plus range) on upgraders built in the Edmonton area can be upwards of $400,000,000 (million), addressing this “opportunity” by the owner, EPCM, contractor and labour provider can provide the above noted in savings;
6. The cost of turnover–quits and dismissals– (often in the 100% plus range) on upgraders can be upwards of $100,000,000 (million), addressing this “opportunity” by the owner, EPCM, contractor and labour provider can provide the above noted in savings;
7. The negative impact of drugs and alcohol on productivity and safety is another opportunity for savings.
There are certainly many more opportunities for savings and it behoves all of us to seek out, find and correct these “opportunities”. I believe it is obvious from the above that there is upwards, in the ideal situation, of $2,500,000,000 (billion) plus in “potential” savings on a typical 100,000 barrels/day upgrader. In essence, a potential 25% reduction in cost and a massive and positive “potential” impact on the ROI.
As well, the federal and provincial governments do not need to get in the direct investment of upgraders but they can certainly establish “applicable” tax policy, regulations, etc. that makes it more “investment” attractive to build upgraders in Alberta/Canada. I believe it is obvious from the above numbers that “we” need a Pan Canadian approach and the wealth lost from not having these upgraders built in Alberta/Canada warrants a second, third or fourth sober thought process to arrive at the proper conclusion for our province and country.
Food for thought!!!!