Alberta NDP will ban pipelines, end the petrostate, grow our oil industry, shut down the tarsands, and help us refine it at home...simultaneously!

One of the things that whining progressives didn't like about the Progressive Conservative government recently elected out of office in Alberta was their cozy relationship with the oil and gas industry. They didn't like how Alberta and Canada "became a petrostate" for example. They certainly didn't like the Stelmach plan to invest in carbon capture technology to allow oil production to continue without pressure from environmentalists (they were similarly very very quiet when Premier Jim Prentice shut down the project saying the sunk costs weren't producing results), and they absolutely positively undeniably hated the North West Upgrader project that would potentially see taxpayers pay $26B to build a refinery in Sturgeon County.

For those unfamiliar, progressives dislike for the Progressive Conservatives seemed to amplify the more and more 'progressive' and less and less conservative it became

The North West Upgrader is, as it's name suggests, technically an upgrader and not a refinery. If you're involved in the industry you understand and are intimately aware of the numerous differences between a refinery and an upgrader, however from a public policy standpoint the two are essentially identical and may be tossed around interchangeably in this post.

The whining progressives got their wish, however. The PC government was kicked out of office, far left activist Rachel Arab is now premier, and she's going strong on her agenda to extract a "fair share" from royalties, end the Alberta Petrostate, and...build oil refineries with taxpayer dollars. Hell, even the CBC is against it!

Since refineries on the U.S. Gulf Coast are already working with spare capacity, why would anyone commit to building a new plant? The refinery game isn't easy. Plants are expensive to build, tough to operate and prone to cost overruns.

"Unless you see some sort of policy that's coming from the government that's saying, 'We'll jump on board and we'll help you get this value-added sector of the provincial economy started,' I can't see a stand-alone commercial development happening," says Dinara Millington, vice-president of research at the Canadian Energy Research Institute.

Alberta may contain vast oil reserves, but as a hub for converting that crude into gasoline, diesel, or jet fuel, it's hamstrung by geography.

An ideal location for a refinery would include access to tidewater, so the end product could be easily shipped to where it's needed; existing infrastructure; and proximity to big markets to limit transportation costs.

Compared to the Gulf Coast's refinery row, landlocked Alberta comes up short.
We all know that progressives tend to tell lies and half truths even when talking to each other, but even by the hypocritical and nonsensical standards of the Alberta NDP this is pretty rich.

Now the NDP did run on a "refine more of our oil here" platform, but it was either skimmed over or missed by the same voters who skimmed over or missed the implications of everything else in the NDP platform. This will be a straight up oil producer subsidy. It may even achieve its goal of "creating more jobs here" (though I have a weird feeling these will be legislatively mandated union jobs) but with unemployment fairly low it doesn't seem a high priority.

Remember that we're already well compensating the people who mine the bitumen out of the ground, in fact that's the entire crux of the Norwailing argument: we're foolishly letting the workers in Fort Mac obtain this oil wealth that we could be skimming away to give to lazy social workers in Edmonton. Giving the oil wealth to people actually working is a sound policy, and while a subsidized refinery isn't the best idea I suppose it's better than increasing the taxes and royalties and dedicating that money to lazy public sector workers like teachers and nurses.

Don't get me wrong, a taxpayer-funded refinery was a bad idea when Stelmach signed onto it (Ted Morton, God bless his soul, fought in cabinet against the idea and was resoundingly voted down) and it's an even worse idea with Rachel Arab signing onto it.


However...the money that Rachel Arab's government would spend on building this refinery would be money she couldn't use to bribe lazy public sector workers like her husband. These refineries would also lower the earning potential of the oilsands as a whole§ and cost corporate profits and therefore further reduce the amount of money going into general revenue. Besides the opportunity to teach the Dippers both in government and their insane supporters a valuable lesson (if you increase the tax rate and make businesses uncompetitive, your bottom line loses out), it again deprives the treasury of money, forcing Rachel Arab and her government to start breaking their unrealistic campaign promises even faster than they otherwise would have. It's a little bit of short term pain for some seriously long-term gain.

§ This is a subtle argument, but an important one. Currently bitumen is extracted and is sold to market with some amount of upgrading (between 0% and 100%). The money earned by the oilsands is therefore the value of the sold product minus the extraction and upgrading costs to get it to that point (E1 = V1 - X - U1). Under Rachel Arab's refinery scheme, additional upgrading is performed before sale, and the profit is now the difference between the new sold product minus the extraction and upgrading costs to get it to the original state minus the cost to bring it up to the new Notley-approved state (E2 = V2 - X - U1 - U2). If E2 - E1 < V2 - V1 + U1 then the oilsands earnings are reduced. The fact that the market isn't already investing is a pretty clear indicator that this inequality isn't met, therefore the oil production as a whole is losing money.

It's a small consolation, knowing that the Alberta NDP have painted themselves into a corner that they won't be able to get out of. They can build the refinery and offend all of their anti-pipeline and anti-oilsands supporters (it's worth noting, of course, that refined oil still needs to ship out of the province), or they can not build the refinery and offend the supporters who voted for the NDP on their union jobs and "let's develop our resources at home" crowd. If they don't build the refinery, then any royalty revenue they snatch from oil producers will be a direct siphoning off, killing even more investment and reducing revenue further, and then also not living up to their campaign promises (not just the refinery, but of working with the industry).

No matter which way Rachel Arab swings this it will be bad for Albertans. The good news is it will be even worse for her party.