The concept of a regional upgrader to process bitumen, heavy oil or refinery residue has been discussed frequently over the past decade and a half. In each case, the idea is to gather heavy oil feedstocks from a number of small sources and process them into a Synthetic Crude Oil (SCO) for sale to downstream refineries.
The economics of a regional upgrader depend not only on energy prices, but on the price differential between bitumen or heavy oil feedstock and SCO product. As this upgrading differential is subject to many factors, most of them independent of oil prices, the uncertainties associated with upgrader economics have for the most part prevented them from being constructed. The two that have proceeded, Co-op and Husky, are both based on extensive government financing and some backstopping of private investors' rates of return.
It can be said that several refineries in the United States midwest, notably Koch in Minneapolis, are actually heavy oil/bitumen upgraders. They have the added advantage that they carry the upgrading process to its limit; i.e. to finished motor fuel products. This extra degree of vertical integration allows these refineries to spread their economic risk over the upgrading differential plus the refining margin (differential between crude oil cost and product value).
Beyond the question of the effects of world market forces, Canada, from the early 70's to the mid-80's was subject to oil price regulation which created an artificially small light/heavy oil price differential. It is interesting to note that during the period 19731988, Koch's Minneapolis refinery was expanded four times, doubling its total upgrading capacity from 80,000 b/d to 160,000 b/d of diluted Canadian heavy oil and bitumen. The only Canadian upgrading projects to proceed in the same timeframe were Syncrude and Co-op, both requiring substantial government support. Many other projects were started, but failed in the same timeframe.
In 1986–1987, alarmed by what it saw as a turning away from oil sands development, a major source of the province's well-being, the Alberta Chamber of Resources convened the Oil Sands Task Force. This group was charged with the responsibility of developing a new concept that would promote more rapid, orderly growth in oil sands activity.
The result is the regional upgrader concept outlined here, developed by the Task Force over the past three years in a series of working sessions, studies and reports.
The objectives of the present work are as follows:
Outline an environment within which a Regional upgrader would be funded and constructed.
Identify key areas in our present environment that must change in order for a joint effort of government and industry to construct a regional upgrader in Alberta.
Put another way, we have tried to answer the question, "How can the risks and rewards associated with a regional upgrader be allocated in such a way as to make the project attractive to the participants?" More fundamentally, "Are there enough potential rewards associated with a regional upgrader that interested parties could be found to participate?"
