Natural resources minister counted some chickens before they were hatched Monday with a
statement anticipating construction of a second oil refinery in Newfoundland and Labrador.
As she put it:
The initial stages of the feasibility study on a second refinery for Placentia Bay determined that a new refinery can compete effectively throughout the Atlantic Basin marketplace and the proposed project is now in the final stages of that feasibility process
But a few paragraphs later comes this proviso:
A significant amount of work and analysis still needs to be done before a project of this type can be given the green light to proceed, but I am well aware of the tremendous economic spin offs of additional refinery capacity and I'm delighted with the progress to date.
Government "news" releases are always good at keeping us abreast of crucial developments, like progress reports on a minister's mental well-being. It is vital to know that the minister is "delighted".
Let's take a closer look at the project and forget Dunderdale's mental state.
The first quote is lifted almost word-for-word from Newfoundland and Labrador Refining's
release from late September, to wit:
The initial economic analysis completed in Stage One of the feasibility study determined that a new refinery in Placentia Bay can compete effectively throughout the Atlantic Basin marketplace...
But, as
Bond Papers has already
noted, the sanction for this project will come only if the third stage of the feasibility study - not due until the end of the year. As well, a recent announcement by Irving that it will build a second refinery at Saint John, next to its existing 250,000 barrel per day facility puts a crimp in the economics of the second refinery in Newfoundland and Labrador.
When asked about the impact of the Saint John expansion, Brian Dalton, spokesperson for NL Refining said that the site in Placentia Bay was excellent. Unfortunately for Dalton,
site won't be the determining factor in whether or not he and his partners go ahead with the multi-billion dollar project.
Site, in this instance, is like Dunderdale's enthusiasm for the spinoff benefits.
That won't matter either when it comes to the business decision of investing in a greenfield project in Newfoundland and Labrador.
Curiously, the project is registered with the provincial environment department, een before project sanction has been achieved. There is still no sign of the project on the federal government's environmental assessment
registry.
There are a couple of interesting points to note in the provincial environmental department's description of the project:
2) Southern Head (Placentia Bay) Oil Refinery Project
Proponent: Newfoundland and Labrador Refining Corporation (Reg. 1301)
The proponent proposes to construct an oil refinery at Southern Head, between North Harbour and Come by Chance, at the head of Placentia Bay. The oil refinery is proposed to have an initial production capacity of 300,000 barrels per day with the option to expand to 600,000 barrels per day. Primary products of the oil refinery would be gasoline, kerosene/jet fuel, ultra-low sulphur diesel and refining by-products. Infrastructure required would include process facilities, marine terminal, crude and product storage tanks, access road and utilities. Construction will take approximately three years to complete and production is planned to begin in late 2010 or early 2011. The undertaking was registered on October 25, 2006; public comments are due by December 4, 2006; and the minister's decision is due by December 9, 2006.
1. The proposed refinery will handle heavy sour crude. Historically that type of refinery is the one with the lowest margins and hence is one of the most difficult to make a solid profit on in the long haul.
Come by Chance works because the thing was built and paid off decades ago. Because of the low margins, refineries have typically been built close to market to lower transportation costs.
Come by Chance processes imported crude, mainly from Iraq, largely because Vitol has been able to acquire feedstock at good prices.
Currently all Newfoundland and Labrador crude production is light, sweet. Hebron is a heavy sour field but it will likely not be in production before 2015 at the earliest. Thus, the proposed refinery is likely built on the assumption that it will use imported crude.
2. The planned start of operation is obviously an estimate, contingent on completion of the feasibility process. No one should be getting their knickers in a bunch that Arnold's Cove is about to become the second Calgary.
3. This would be a honkin' big refinery. The Saint John project is estimated to be 300,000 barrels per day. The proposal calls for a refinery project that would ultimately equal the output of both Saint John's existing and planned refineries.
4. Without detailed information on the proposed refinery, it will be extremely difficult to assess for environmental impact of this very large refinery within the very short timeframe provided by the provincial government.
