December 5, 2013 / 7:13 PM / 4 years ago

Costs leap 50 percent for Alberta bitumen refinery project

CALGARY, Alberta, Dec 5 (Reuters) - Building a 50,000 barrel a day refinery to upgrade bitumen from the Alberta oil sands into diesel fuel, a project backed by the Alberta government, will cost 50 percent more than estimated and take a year longer to complete, operator North West Redwater Partnership said.

The estimated cost of building Phase 1 of the Sturgeon Refinery project, 45 kilometers (28 miles) northeast of Edmonton, has leapt to C$8.5 billion ($8 billion) from C$5.7 billion.

In addition, the forecast start-up date has been pushed back to September 2017 from mid-2016.

“While the scope of the facility has not changed, due to a combination of cost inflation and the inability to fully capture certain cost-savings initiatives, the cost estimate has been revised to C$8.5 billion,” North West Redwater said in a statement.

North West Redwater is a partnership of North West Upgrading Inc and Canadian Natural Upgrading Ltd, a wholly owned subsidiary of Canadian Natural Resources Ltd.

The Sturgeon project was first announced in 2011 as part of the Alberta government’s push to develop energy-processing facilities in the province and create jobs.

Alberta will supply 75 percent of the feedstock for the plant using oil sands bitumen paid to it in lieu of royalties, and will pay tolls to have the bitumen processed. Over a 30-year term the province will take three-quarters of the returns on the refined products the plant sells.

Canadian Natural will supply the remaining 25 percent of feedstock.

In the face of spiraling costs, the Alberta government’s Petroleum and Marketing Commission and Canadian Natural have agreed to restructure the terms of the processing agreement, with one change likely to be removal of the project’s spending cap of C$6.5 billion.

Both toll payers have also agreed to each provide a C$300 million loan to the project.

Alberta Energy Minister Ken Hughes said the Sturgeon project remains a good deal for taxpayers and that the provincial government will continue to stand behind it.

“The Sturgeon Refinery will provide a secure local market for 50,000 barrels per day of bitumen production, avoiding the need to transport this outside the province for processing,” Hughes said in an emailed statement.

Booming oil sands production and congested export pipelines have led to deep discounts on Canadian crude in U.S. markets, reducing revenues for both crude producers and the Alberta government.

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