February 24, 2012 / 9:28 PM / 6 years ago

Alberta declines support for aboriginal oil upgrader

CALGARY, Alberta (Reuters) - Alberta’s government declined support for a C$6.6 billion ($6.6 billion) oil sands upgrader proposed by a company backed by provincial aboriginal groups, likely putting the project’s future in doubt unless backers can secure foreign funds.

Privately held Teedrum Inc and a number of Alberta aboriginal groups had been looking to develop the Alberta First Nations Energy Centre, an upgrader that would process 125,000 barrels per day of bitumen from the tar sands into synthetic crude oil, diesel, jet fuel and other products.

Northern Alberta’s oil sands are the world’s third largest crude reserve. Output from the region is set to nearly double to 3 million barrels a day by 2020 Suncor Energy Inc, France’s Total SA, PetroChina and others expand their operations.

While most oil sands operators have policies in place to hire natives and utilize First Nations-owned businesses, the upgrader would be the first directly owned by aboriginals. It could bring million of dollars in profits to small communities that often lack economic opportunities.

The developers sought to process 93,000 barrels a day of bitumen the Alberta government will receive in lieu of royalties from oil sands projects.

The plan was similar to a deal the province signed last year with North West Upgrading and its partner, Canadian Natural Resources Ltd, in an planned upgrader project.

Ken Horn, Teedrum’s president, said the company had a conditional deal with Alberta to secure the bitumen. But when it looked to win government approval for the supply, provincial energy minister Ted Morton refused to finalize the agreement.

Bart Johnson, a spokesman for Morton, said the minister declined support because insufficient engineering and development work had been done to demonstrate that the project was feasible.

“The proposal was considered and it was considered in great detail,” Johnson said. “The minister was not satisfied that it was anything he could take forward ... The level of uncertainty surrounding it was extremely high. It would have required taxpayers to take on an unacceptable level of risk.”

The project was supported by former premier Ed Stelmach, who retired last year and was replaced as head of the ruling Progressive Conservative party by Alison Redford, who then appointed Morton to the energy portfolio.

Lacking provincial support, the project’s backers are now looking to either get the government to reconsider its decision or operate as an independent upgrader without an assured supply of feedstock, perhaps with foreign backers.

“We’ve formed some really good relationships in China and India and currently our liaison is over there trying to see if there is any interest,” Horn said. “But it would just be great to see Alberta participate somehow.”

($1=$1.00 Canadian)

Editing by Rob Wilson and Janet Guttsman

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