CALGARY — Alberta's NDP government has made it clear it would prefer to see less of Alberta's resources ripped and shipped, and more processed into higher value products at home.
But much remains unknown about how, precisely, the NDP may opt to encourage more value-added activity. And many question whether it's even government's place to get involved.
The prospect of more in-province processing is good news for the cluster of oilsands upgraders, refineries and petrochemical plants near Edmonton, said Neil Shelly, executive director of the Industrial Heartland Association.
"The former government, its main mantra was not to get involved in business, just to sit back, keep taxes low and let business decide what's best for Alberta," Shelly said of the Progressive Conservatives' nearly 44-year reign.
"The position we're seeing from the new government generally has been that maybe government needs to get involved, sort of steer the direction of business to ensure that it's heading in the direction that provides the maximum benefits for Alberta."
That's not to say that the PCs kept their hands out of the energy business. Alberta's first PC government, led by Peter Lougheed, played a major role in squeezing more value out of the province's natural gas back in the 1970s.
More recently, the PCs under Ed Stelmach got involved in bitumen processing with a program to collect royalties in crude, rather than cash. The government then provides the crude it collects to processors in the province.
Enter the Sturgeon Refinery, currently under construction in the Industrial Heartland and on track to start up in late 2017. It's a joint-venture between North West Upgrading and oilsands giant Canadian Natural Resources Ltd. (TSX:CNQ).
Despite North West Upgrading's name — which boss Ian MacGregor wryly says he regrets choosing a decade ago — the project is a refinery, not an upgrader. An upgrader processes oilsands bitumen into easier-to-refine synthetic crude oil. But the Sturgeon refinery will process royalty and CNRL bitumen straight into diesel and other end products.
The Sturgeon Refinery is often held up as a cautionary tale when it comes to government and business mixing. Its price tag has ballooned to $8.5 billion from $5.7 billion.
In an April paper, the project was called a "multibillion-dollar boondoggle with high risks for Alberta taxpayers" by Ted Morton, a former provincial finance and energy minister and now a professor at the University of Calgary's School of Public Policy.
North West Upgrading's MacGregor takes issue with that assessment.
"I don't know who's saying that this isn't economic. But they need to check their numbers."
Refinery margins are double that of upgraders, MacGregor said. Even with oil at the dismal US$47 a barrel price it fetched earlier this year, he figures the government would have made $150 million on an annualized basis.
As an added benefit, MacGregor sees greater public acceptance of eventual diesel shipments through B.C. for export versus diluted bitumen — as the backlash to projects like the proposed Northern Gateway bitumen pipeline illustrate.
Though oilsands processing often comes to mind when one thinks of value-added, Shelly sees "lower hanging fruit" in the form of turning natural gas into petrochemicals.
Each product needs a different approach from government to spur more development, said Shelly. While a royalty rebate might work in some cases, investing in infrastructure upfront is best for others.
Janice Plumstead, senior economist at the Canada West Foundation, cautions that when project economics and politics mingle, things can get tricky.
"When you get into a situation where you're overcommitted, it's difficult to back down from a decision that might not pay off in the end."
