Encyclopedia of the oil crash: U is for upgrader debate

UPGRADER DEBATE

Should Alberta build a new oil sands refinery to upgrade bitumen to synthetic crude? The debate has raged in recent years. Andrew Leach, an environmental economist at the University of Alberta, explains the ins and outs:

“The concept of value-added [upgrading] has enthralled the political class. Ask voters whether we should sell $40 bitumen or upgraded $55 synthetic crude, and they’ll pick $55 synthetic crude most every time. But the details of what must be done in order to secure an upgrading project—such as the government guarantee of $63-per-barrel payments involved with one new refinery—are lost in the talk of job creation. Refining is a tough business. Build a refinery in a high-cost market, and you’ll be hard-pressed to make it work in a global market for refined products. Low oil prices over the long term could change that. With slack in the economy, building a new refinery will not use workers who would otherwise be employed in the oil-extraction business, keeping wage inflation down. Furthermore, the promise of more stable cash flows might be more welcome in an Alberta reeling from a $10-billion hit to government revenues. On the down side, if government money is needed to get a refinery off the ground, it’s hard to see how Ottawa or Edmonton will be able to justify a big cheque to a refinery while cutting other programs.”

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• V is for viscosity
• W is for wealth, Western Canadian Select, Western Texas Intermediate
• X is for X-ray pipeline inspection