Economic analysis

Banning crude exports would be stupid, but don’t take my word for it

Sometimes consultants say the damndest things.

Sometimes consultants say the damndest things.  When the Alberta Federation of Labour brought in consultant Ed Osterwald to justify their push for limits on exports on raw bitumen or more government participation in the refining sector, calling on Alberta to act like an owner and add value to the bitumen in the province through more refining, I wonder if they knew what he’d say.  It turns out he said a lot.

How would you make refining work in Alberta? Osterwald spelled it out for you in plain detail—either the government pays for it, or you create what he called a disadvantaged feedstock.

The first option, contained in a couple of spots in his report, is that the government could, “through the appropriate use of incentives and/or joint venture partners, take a prominent role in encouraging investment in the oil sands.”  We’ve seen how this might work with the current refinery boondoggle under construction in Redwater, Alta., which the government estimates will cost the government of Alberta over $60 per barrel to transform government royalty bitumen into refined products.  Never mind that, at the depths of the bitumen bubble, the spread between those bitumen and refined products averaged about $50 per barrel and peaked at $60 … the refinery will create jobs, the minister of energy tells us.

The second option would be to ban or restrict exports of raw bitumen, the effective result of a proposed new private member’s bill brought forward by NDP MP Nathan Cullen that would make it more difficult to export raw bitumen. Export restrictions would make bitumen available to refiners here at a discount to what those who would seek to export it would otherwise receive.  Here, what Osterwald had to say, was pure gold—you can watch it for yourself, starting at the 7:00 mark.

Osterwald shows that recently, U.S. mid-continent refiners have been earning “the highest margins he had ever seen.” How did he explain this? “The reason is, because in the U.S., they did two things: they did something really stupid which was to ban crude oil exports, and then they found shale, so what you’ve got is a disadvantaged feedstock and a really nice refining system and boy are the refiners happy.”

So, there you have it—if you want more refining in Alberta, you can pay for it or you can do something really stupid and ban exports to create a disadvantaged feedstock to make refiners really happy, which you’ll also pay for through reduced royalties and taxes from extraction. But don’t take my word for it—this is coming to you courtesy of the Alberta Federation of Labour.



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